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Where can I get the solutions to the mincase for chapter 8?

WILLIAMSON MORTGAGE, INC.

Jennifer Williamson recently received her MBA and has decided to enter the mortgage brokerage business. Rather than work for someone else, she has decided to open her own shop. Her cousin Jerry has approached her about a mortgage for a house he is building. The house will be completed in three months, and he will need the mortgage at that time. Jerry wants a 25-year, fixed-rate mortgage in the amount of $500,000 with monthly payments.

Jennifer has agreed to lend Jerry the money in three months at the current market rate of 5.5 percent. Because Jennifer is just starting out, she does not have $500,000 available for the loan, so she approaches Max Cabell, the president of MC Insurance Corporation, about purchasing the mortgage from her in three months. Max has agreed to purchase the mortgage in three months, but he is unwilling to set a price on the mortgage. Instead, he has agreed in writing to purchase the mortgage at the market rate in three months. There are Treasury bond futures contracts available for delivery in three months. A Treasury bond contract is for $100,000 in face value of Treasury bonds.

Suppose that in the next three months the market rate of interest falls to 4.6 percent.

How much will Max be willing to pay for the mortgage?

What will happen to the value of Treasury bond futures contracts? Will the long or short position increase in value?

Are there any possible risks Jennifer faces in using Treasury bond futures contracts to hedge her interest rate risk?

What is the future value of an annuity of $2,070.52 per year for 18 years if the annually compounded interest rate is 11.62%?

You have just bought an at-the-money call option (N(d1) = 0.5), on ABC stock, with 6 months to expiration. What transaction would you do to delta-hedge this option?

You are age 40, you wil invest $15,000 at end of year. You will do the same for 30 years. you will invest in securites with a return rate of 15% UP UNTIL age 70. You will live until 90 (20 years of retirement) During retirement you will move investment to a 5% return security. What equal amount can you pull from your retirement at the end of each year, such that your retirement fund will have a zero balance at death. ignore taxes.

Many business ventures when looked at through the scope of personal finance can bring to light options that we do not normally look at regarding the benefits of a company. What are your thoughts on leasing in regards to personal finance?

PROBLEM 12-10. Economic Value Added and the Balanced Scorecard [LO 6,7,8] Spectrum Book Company has two divisions:The Brick and Mortar division sells books through more than 100 bookstores throughout the United States; the Internet division was formed 18 months ago and sells books via the Internet.Data for the past year are:

Brick and Mortar Internet Division Division

Total assets $162,000,000 $15,480,000

Noninterest-bearing current liabilities 7,020,000 2,520,000

Interest expense 1,260,000 418,500

Net income (loss) 27,810,000 (1,125,000)

Tax rate 40% –0–

Cost of capital 10% 12%

Required

a. Evaluate the two divisions in terms of economic value added (EVA).

b. Explain why it might be better to evaluate the Internet division in terms of a balanced scorecard rather than just using EVA.

c. Consider the customer and internal processes dimensions of the balanced scorecard. Suggest two measures for each dimension that would be appropriate for the Brick and Mortar division and two measures for each dimension that would be appropriate for the Internet division.

d. A strategy map diagrams the relationship across the dimensions of the balanced scorecard. Identify the potential links between the customer and internal processes dimensions you identified in part c.

What can you do to build and maintain your credit rating?

Grohl Products has projected the following sales for the coming year:

Sales Q1:$780 Q2:$900 Q3:$1,020 Q4:$990

Sales in the year following this one are projected to be 25 percent greater in each quarter.

Requirement 1: Calculate payments to suppliers assuming that the company places orders during each quarter equal to 35 percent of projected sales for the next quarter. Assume that the company pays immediately.

(a) What is the payables period in this case?

Richmond Truck, Inc. is a manufacturer of trucks. Its current line of trucks are selling excellently. However, in order to cope with the foreseeable competition with other similar trucks, RT spent $1,550,000 to develop a new line of deluxe trucks that are more spacious. In addition, the deluxe truck will have built-in GPS and backup camera. The deluxe model is more fuel efficient and has higher MPG than the current model. The company had also spent a further $450,000 to study the marketability of this new model. HT is able to produce the new model at a variable cost of $9,750 each. The total fixed costs for the operation are expected to be $3,850,000 per year. HT expects to sell 25,000 trucks, 30,000 trucks, 20,000 trucks, 18,000 trucks and 13,000 trucks of the new deluxe model per year over the next five years respectively. They will be selling at a price of $22,000 each. To launch this new line of production, HT needs to invest $550,000,000 in equipment which will be depreciated on a seven- year MACRS schedule. The value of the used equipment is expected to be worth $8,950,000 as at the end of the 5 year project life. HT is planning to stop producing the existing model entirely in two years. Should HT not introduce the new deluxe model, sales per year of the existing model will be 18,000 trucks and 15,000 trucks for the next two years respectively. The existing model can be produced at variable costs of $8,260 each and total fixed costs of $2,450,000 per year. They are selling for $19,500 each. If HT produces the new deluxe model, sales of the existing model will be eroded by 4,000 trucks for next year and 8,000 trucks for the year after next. In addition, to promote sales of the existing model alongside with the new deluxe model, HT has to reduce the price of the existing model to $15,000 each. Net working capital for the new deluxe model will be 20 percent of sales and will vary with the occurrence of the cash flows. As such, there will be no initial NWC required. The first change in NWC is expected to occur in year 1 according to the sales of the year. HT is currently in the tax bracket of 35 percent and it requires a 15 percent returns on all of its projects. You have just been hired by HT as a financial consultant to advise them on this new deluxe truck project. You are expected to provide answers to the following questions to their management by their next meeting which is scheduled sometime next month.

What is/are the sunk cost(s) for this new deluxe truck project? Briefly explain. You have to tell what sunk cost is and the amount of the total sunk cost(s). In addition, you have to advise HT on how to handle such cost(s). (5 points)

An option trader buys 2 contracts of a call option on a stock. Each contract is on 100 shares of the stock. The delta of the call option is 0.3. If the trader delta-hedges his position, what should he do?

1) Buy 300 shares of stock

2) Buy 600 shares of stock

3) Short sell 300 shares of stock

4) Short sell 600 shares of stock

5) Do nothing

Let's review the three types of legal business organization-sole proprietorships, partnerships, and corporations. What are advantages and disadvantages of each and provide examples.

here is a quote from an investment website about ... Question Here is a quote from an investment website about an investment strategy using options: One strategy investors are applying to the XYZ options is using “synthetic stock.” A synthetic stock is created when an investor simultaneously purchases a call option and sells a put option on the same stock. The end result is that the synthetic stock has the same value, in terms of capital gain potential, as the underlying stock itself. Provided the premiums on the options are the same, they cancel each other out so the transaction fees are a wash. (as cited in McDonald, 2013, question 3.19) Suppose, to be concrete that the premium on the call you buy is the same as the premium on the put you sell, and both have the same strikes and times to expiration. a. What can you say about the strike price? b. What term best describes the position you have created? What is the shape of the profit diagram? c. Suppose the options have a bid-ask spread. If you are creating a synthetic purchased stock and the net premium is zero inclusive of the bid-ask spread, where will the strike price be relative to the forward price? d.If you create a synthetic short stock with zero premium inclusive of the bid-ask spread, where will the strike price be relative to the forward price? e. Do you consider the “transaction fees” to really be “a wash”? Why or why not? I NEED THE ANSWERS TO C AND D ONLY. THANK YOU.

Senator Deal proposes to offer a choice to future retirees: if you retire before age 70, the benefits are calculated on the last 35 years of income; if you retire at age 73, however, you receive benefits calculated on only the last 15 years of income. Which option are high-income workers likely to choose? Low-income workers? Why?

•An all-equity firm is considering the projects shown below. The T-bill rate is 4 percent and the market risk premium is 7 percent. If the firm uses its current WACC of 12 percent to evaluate these projects, which project(s), if any, will be incorrectly rejected?

•Find WACC of each project.