Homework Help for Finance

Stocks X and Y have the following probability distributions of expected future returns: Probability X Y0.1 (4%) (20%)0.2 4 10.4 12 200.2 20 250.1 36 40A.Calculate the expected rate of return for stocks A and B. Calculate thes %standard deviations of expected returns and coefficient of variations for stocks A and B. Is it possible that most investors might regard stock Y as being less risky than stock A? Explain

Jessica has just won a game organized by her community. As a reward, she needs to choose among three options: (A) She can choose to receive a lump-sum today of $55, (B) to receive 10 end-of-year payments of $9, or (C) to receive 30 end-of-year payments of $5. If we assume that she can earn 6% annually which option should she choose?

Where is the headquarter of Credit Salson India?

I plan to purchase car costing  40000 i will pay 20%  cash and the remaining will be paid by the end of 5 years if the interest rate 11%

1_ What is furuer value of the loan?

2_ What is the future value of the loan if the interest rate is 13 %

A firm has a net profit margin of 6% on sales of birr 4,000,000 in 2008. If the firms times interest earned ratio is 6 and its in a 40% tax bracket, what was the amount of interest expense for the year?

Consider an American Put option with time to expiry of 5 months and a strike price of 82. The current price of the underlying stock is 80. Divide the time to expiry into five 1-month intervals. In each interval, the stock price can either rise by 6, or fall by 6, with unknown probability. The risk-free rate is 4.2% per annum, continuously compounded. Use Binomial Model.

(a) What is the evolution of the prices of the underlying asset in time? Show it on a binomial tree.

If the price of a gallon of regular gasoline is ​$2.49 and the anticipated rate of inflation in energy prices is such that the cost of gasoline is expected to rise by 5 percent per​ year, what is the expected price per gallon in 10 years?

Discuss the use of the derivatives in the management of exchange rate risk.

A company's target debt-to-equity ratio is .6, its cost of equity is 11.8 percent, and its beta is1.2. The after-tax cost of debt is 6.4 percent, the tax rate is 34 percent, and the risk-free rate is3.2 percent. What discount rate should be assigned to a new project the firm is considering if the project's beta is estimated at 0.87?
5. A project has an internal rate of return of 11.76 percent and a beta of 1.22. The market rate of return is 9.8 percent, the tax rate is 35 percent, and the risk-free rate is 3.4 percent. Should this project be accepted according to the CAPM if the firm is all-equity financed? Why or why not?
6. A company currently has a debt-to-equity ratio of .45, its cost of equity is 13.6 percent, and its beta is 1.49. The pretax cost of debt is 7.8 percent, the tax rate is 35 percent, and the risk-free rate is 3.1 percent. The firm's target debt-to-equity ratio is 0.5. What discount rate should be assigned to a new project the firm is considering if the project is equally as risky as the overall firm and will be financed solely with debt?

4. A company has a target capital structure of 60 percent debt and 40 percent equity. The pretax cost of debt is 12.5 percent, the tax rate is 20 percent, and the cost of equity is 9.7 percent. The firm is considering a project that is equally as risky as the overall firm. The project has an initial cash outflow of $1.5 million and annual cash inflows of $350,000 at the end of each year for five years. What is the NPV of the project?

5. A company is 40% financed by risk-free debt and 60 percent equity. The treasury bill rate is 4%, the expected market rate of return is 12%, and the beta of the company’s common stock is 1.5. Tax rate is 20%. The firm is considering a project that is equally as risky as the overall firm. The project has an initial cash outflow of $2.8 million and annual cash inflows of $650,000 at the end of each year for four years. What is the NPV of the project?
6. A company has a capital structure of 35 percent debt and 65 percent equity. The pretax cost of debt is 12.0 percent, the tax rate is 34 percent, and the cost of equity is 17.5 percent. The firm is considering a project that is equally as risky as the overall firm. The project has an initial cash outflow of $2.5 million and annual cash inflows of $1.150,000 at the end of each year for three years. What is the NPV of the project?

You are an employee f University Consultants, Ltd., and have been given the following assignment. You are to present an investment of a new small residential income-producing property for sale to a potential Investor. The asking price for the property is $1,250,000; rents are estimated at $200,000 during the first year and are expected to grow at 3 percent per year thereafter. Vacancies and collection losses are expected to be 10 percent of rents. Operating expenses will be 35 percent of effective gross income. A fully amortizing 70 percent loan can be obtained at 11 percent interest for 30 years (total annual payments will be monthly payments 12). The property is expected to appreciate in value at 3 percent per year and is expected to be owned for five years and then sold

Task 1: Concepts and techniques important in the analysis of real estate income property

(a) What is the first year debt coverage ratio?

(b) What is the terminal capitalization rate?

(c) What is the investor's expected before tax internal rate of return on equity invested (BTIRR)?

RRR -14-1

id) What is the NPV using a 14 percent discount rate? What does this mean? (e) What is the profitability index using a 14 percent discount rate? What does this mean?

Task 2: How taxes affect the value of real estate versus other investments

You are still an employee of University Consultants, Ltd. The investor tells you she would like to know how tax considerations affect your investment analysis. You determine that the building represents 90 percent of value and would be depreciated over 27.5 years-fuse 1/27.5 per year). The potential investor indicates that she is in the 36 percent tax bracket and has enough passive income from other activities so that any passive losses from this activity would not be subject to passive activity loss limitations Capital gains from price appreciation will be taxed at 20 percent and depreciation recapture will be taxed at 25 percent. fullered te all

(a) What is the investor's expected after-tax internal rate of return on equity invested (ATIRR)?142

(b) How does (a) above compare with the before-tax IRR (STIRR) calculated in Task 17

(c) How would you evaluate the tax benefits of this investment?

The Cosmo K Manufacturing Group currently has sales of $1,400,000 per year. It is considering the addition of a new office machine, which will not result in any new sales but will save the company $105,500 before taxes per year over its 5-year useful life. The machine will cost $300,000 plus another $12,000 for installation. The new asset will be depreciated using a modified accelerated cost recovery system (MACRS) 5-year class life. It will be sold for $25,000 at the end of 5 years. Additional inventory of $11,000 will be required for parts and maintenance of the new machine. The company evaluates all projects at this risk level using an 11.99% required rate of return. The tax rate is expected to be 35% for the next decade.

Tasks:

Answer the following questions:

• What is the total investment in the new machine at time = 0 (T = 0)?
• What are the net cash flows in each of the 5 years of operation?
• What are the terminal cash flows from the sale of the asset at the end of 5 years?
• What is the NPV of the investment?
• What is the IRR of the investment?
• What is the payback period for the investment?
• What is the profitability index for the investment?
• According to the decision rules for the NPV and those for the IRR, is the project acceptable?
• Is there a conflict between the two decision methods? If so, what would you use to make a recommendation?
• What are the pros and cons of the NPV and the IRR? Explain your answers.

Imagine that you are a staff economist for the Federal Reserve Open Market Committee (FOMC). Your job is to present a brief to the open market committee regarding the policy decision to be made at the next board meeting. Remember, we are in a pandemic, and interest rates are close to zero. Inflation is high, and the job market is sizzling. 

Welling Inc. has a target debt–equity ratio of 0.75. Its WACC is 9.3%, and the tax rate is 35%.

a. If the company’s cost of equity is 14%, what is its pre-tax cost of debt? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Cost of debt             %

b. If instead you know that the after-tax cost of debt is 6.8%, what is the cost of equity? (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Cost of equity             %