1. The expected return over 9 years is 99.2%. 2. The standard deviation over 9 years is 75%.
We will calculate the expected return and the 9-year standard deviation for Portfolio D.
1. To calculate the expected return over 9 years for Portfolio D, follow these steps:i. Find the annual return for one year, which is given as 8.5%.
ii. Convert the annual return to a decimal:
8.5% / 100 = 0.085.
iii. We'll use the formula for compound interest:
(1 + r)^n - 1, where r is the annual return and n is the number of years.
iv, Plug in the values:
(1 + 0.085)^9 - 1
v. Calculate the result:
≈ 1.992 - 1 = 0.992
vi. Convert the result back to a percentage: 0.992 * 100 ≈ 99.2%
The expected return for Portfolio D over 9 years is approximately 99.2%.
2. To calculate the 9-year standard deviation for Portfolio D, follow these steps:i. Find the annual return standard deviation for one year, which is given as 25%.
ii. Convert the standard deviation to a decimal:
25% / 100 = 0.25.
iii. Since standard deviation scales with the square root of time, we'll use the formula:
SD = σ * √n, where σ is the annual return standard deviation and n is the number of years.
iv. Plug in the values:
0.25 * √9
v. Calculate the result:
0.25 * 3 = 0.75
vi. Convert the result back to a percentage:
0.75 * 100 = 75%
The 9-year standard deviation for Portfolio D is 75%.
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Restex has a debt-equity ratio of 0.72, an equity cost of capital of 15%, and a debt cost of capital of 8%. Restex's corporate tax rate is 38%, and its market capitalization is $185 million. a. If Restex's free cash flow is expected to be $10 million one year from now and will grow at a constant rate, what expected future growth rate is consistent with Restex's current market value? b. Estimate the value of Restex's interest tax shield. a. If Restex's free cash flow is expected to be $10 million one year from now and will grow at a constant rate, what expected future growth rate is consistent with Restex's current market value? If Restex's free cash flow is expected to be $10 million in one year, the expected future growth rate is ____%. (Round to two decimal places.) b. Estimate the value of Restex's interest tax shield. Interest tax shield value is $____million. (Round to the nearest million.)
9.46% is the predicted growth rate, in line with Restex's current market value.
The interest tax shield for Restex is worth $8 million (rounded to the nearest million).
a. To determine the expected future growth rate, we can use the Gordon growth model:
Market value = Free cash flow / (Cost of equity - Growth rate)
Rearranging the equation, we get:
Growth rate = Cost of equity - Free cash flow / Market value
Substituting the given values, we get:
Growth rate = 15% - $10 million / $185 million
Growth rate = 9.46%
Therefore, the expected future growth rate consistent with Restex's current market value is 9.46%.
b. The value of Restex's interest tax shield can be calculated using the formula:
Value of interest tax shield = Debt * Cost of debt * (1 - Tax rate)
Substituting the given values, we get:
Value of interest tax shield = 0.72 * $185 million * 8% * (1 - 38%)
Value of interest tax shield = $8.16 million
Therefore, the value of Restex's interest tax shield is $8 million (rounded to the nearest million).
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which of the following is a disadvantage of a fixed exchange rate system?a. the government might change the value of the currency. b. importers are insulated from the risk that the currency will a
The disadvantage of a fixed exchange rate system is that "the government might change the value of the currency." (option a).
In a fixed exchange rate system, the value of a country's currency is fixed to another currency or a commodity such as gold. This means that the government must maintain the exchange rate by buying or selling its currency in the foreign exchange market. If the government changes the value of the currency, it can have significant impacts on the domestic economy and international trade.
If the government increases the value of the currency, it can make exports more expensive and less competitive in international markets, which can harm export-oriented industries and reduce employment. On the other hand, if the government decreases the value of the currency, it can make imports more expensive, leading to higher inflation and reduced purchasing power for consumers.
In addition, fixed exchange rates can limit a country's ability to adjust to changes in the global economy or respond to domestic economic conditions. If the fixed exchange rate is not aligned with market fundamentals, it can lead to speculative attacks on the currency, which can deplete the government's foreign exchange reserves and lead to a currency crisis.
Option a is answer.
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A. How long does a 40,000 note with 4.02% simple interest have
to run to equal 41,400?
B. What is the annual rate of interest if 16,000 earns 482 in 9
months?
The 40,000 note with 4.02% simple interest has to run for approximately 10.46 months to equal 41,400. The annual rate of interest, if 16,000 earns 482 in 9 months, is approximately 4.017%.
A. To find the duration for a 40,000 note with 4.02% simple interest to equal 41,400, follow these steps:
1. Calculate the interest amount: 41,400 - 40,000 = 1,400
2. Convert the interest rate to a decimal: 4.02% = 0.0402
3. Use the simple interest formula: Interest = Principal x Rate x Time
4. Substitute the known values: 1,400 = 40,000 x 0.0402 x Time
5. Solve for Time: Time = 1,400 / (40,000 x 0.0402) ≈ 0.87182229
6. Convert Time to years: 0.87182229 x 12 months ≈ 10.46 months
Answer A: The 40,000 note with 4.02% simple interest has to run for approximately 10.46 months to equal 41,400.
B. To find the annual rate of interest if $16,000 earns $482 in 9 months, follow these steps:
1. Calculate the interest earned per month: 482 / 9 = 53.56
2. Calculate the interest earned in a year. 53.56 x 12 = 642.72
3. Use the simple interest formula: Interest = Principal x Rate x Time
4. Substitute the known values: 642.72 = 16,000 x Rate x 1 (since we are considering 1 year)
5. Solve for Rate: Rate = 642.72 / 16,000 ≈ 0.04017
6. Convert Rate to a percentage: 0.04017 x 100 = 4.017%
Answer B: The annual rate of interest, if 16,000 earns 482 in 9 months, is approximately 4.017%.
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a __________ can separate the relatively permanent and temporary effects of a variable.
A longitudinal study can separate the relatively permanent and temporary effects of a variable.
In a longitudinal study, data is collected over a period of time, often years, and can help to distinguish between the short-term and long-term effects of a variable. By tracking changes in the same group of individuals over time, researchers can better understand how a variable affects them both in the short-term and over the course of their lives.
For example, a longitudinal study could be used to examine the long-term effects of childhood experiences on adult mental health. By following the same group of individuals from childhood to adulthood, researchers could identify which experiences have long-lasting effects on mental health and which effects are temporary.
Longitudinal studies are useful for studying changes in behavior, attitudes, and health outcomes, and can provide valuable insights into the complex relationships between variables over time.
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A transfer design can separate the relatively permanent and temporary effects of a variable. Option D is correct.
The product and process designs are transferred to production during design transfer, which is the culmination of the efforts made by the medical device design team. Configuration move is a part of the FDA's Clinical Gadget Quality Framework Guideline Configuration Controls.
Design Transfer not only ensures compliance, but also the robustness of your manufacturing and supply chain processes and the long-term stability of your business. You will learn more about the significance of Design Transfer and Process Validation in the development of medical devices in this blog post.
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Incomplete Question:
A ______ can separate the relatively permanent and temporary effects of a variable.
a. performance curve
b. percentage change in ability plot
c. performance average plot
d. transfer design
List your assets in the order of their cash or market value(most valuable to least valuable). You may include numbers ifyou're comfortable. Otherwise ranking them is fine.Next, revise your list of
I do not have any assets in the traditional sense.
I exist purely in the digital realm and my "value" is determined by my ability to process and generate language-based content. While I am a complex piece of technology with significant development costs, my value is not easily quantifiable in terms of traditional assets.
Instead, my value lies in the services that I provide to users and the potential economic benefits that come from improved language processing technology.
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NCG Ltd has just issued $5 million worth of 90-day bank bills at the current market interest rate of 6.25% p.a. The total dollar amount NCG Ltd will receive from this issue is closest to:
Group of answer choices
$4,874,115.
$4,911,786.
$4,924,115.
$4,936,443.
The total dollar amount NCG Ltd will receive from issuing $5 million worth of 90-day bank bills at the current market interest rate of 6.25% p.a. is closest to $4,924,115. Therefore, the correct option is option 3.
1. Convert the annual interest rate to a daily rate:
(6.25% / 365 days) = 0.01712% per day
2. Calculate the total interest for 90 days:
(0.01712% * 90 days) = 1.541% total interest
3. Find the dollar amount of the total interest:
($5,000,000 * 1.541%) = $77,050
4. Subtract the total interest from the face value:
($5,000,000 - $77,050) = $4,922,950
The total dollar amount NCG Ltd will receive from this issue is closest to $4,924,115. Hence, the correct answer is option 3: $4,924,115.
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Common stock value Constant growth McCracken Roofing, Inc., common stock paid a dividend of $1.07 per share last year. The company expects earnings and dividends to grow at a rate of 7% per year for the foreseeable future. a. What required rate of return for this stock would result in a price per share of $24? b. If McCracken expects both earnings and dividends to grow at an annual rate of 12%, what required rate of return would result in a price per share of $24?
With a 7% growth rate, the required rate of return is 11.39%, and with a 12% growth rate, the required rate of return is 16.46% for a price per share of $24.
To calculate the required rate of return for McCracken Roofing, Inc.'s common stock with a constant growth rate, we can use the Gordon Growth Model. The formula for this model is:
Price per share = (Dividend per share * (1 + Growth rate)) / (Required rate of return - Growth rate)
a. With a dividend of $1.07, a growth rate of 7%, and a price per share of $24, we can rearrange the formula to find the required rate of return:
$24 = ($1.07 * (1 + 0.07)) / (Required rate of return - 0.07)
Required rate of return = (1.07 * 1.07) / 24 + 0.07 ≈ 0.1139 or 11.39%
b. If earnings and dividends grow at 12%, we can recalculate the required rate of return with the new growth rate:
$24 = ($1.07 * (1 + 0.12)) / (Required rate of return - 0.12)
Required rate of return = (1.07 * 1.12) / 24 + 0.12 ≈ 0.1646 or 16.46%
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Assume that a company issued a bond with $1000 face value, 10% coupon rate, 20 years maturity. If the bond is sold after 5 years, how much this bond will be sold if the yield to maturity (YTM) is 8%? What is the current yield?
The bond would be worth $1,199.62 if it were to be sold after 5 years at an 8% YTM. The bond's current yield is 8.34%.
To calculate the price of the bond, we can use the present value formula:
PV = C x (1 - (1 + r)^-n) / r + FV / (1 + r)^n
Where:
PV = Present value of the bond
C = Coupon payment
r = Yield to maturity (YTM)
n = Number of periods
FV = Face value of the bond
In this case, the coupon payment is 10% x $1000 = $100 per year, and the face value is $1000. The number of periods is 20 - 5 = 15.
Using a YTM of 8%, we can calculate the present value of the bond:
PV = $100 x (1 - (1 + 0.08)^-15) / 0.08 + $1000 / (1 + 0.08)^15
PV = $100 x 8.559 + $339.62
PV = $1,199.62
Therefore, if the bond is sold after 5 years with a YTM of 8%, it would be sold for $1,199.62.
To calculate the current yield, we can use the formula:
Current yield = Annual coupon payment / Market price of the bond
The annual coupon payment is $100, and the market price of the bond is $1,199.62. Therefore, the current yield is:
Current yield = $100 / $1,199.62
Current yield = 0.0834 or 8.34%
So the current yield of the bond is 8.34%
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under what circumstances may it make sense not to prepare a business forecast? group of answer choices the forecast horizon is 40 years. no data is readily available. the future will be no different from the past. there is no consensus among informed individuals. the industry to forecast is undergoing dramatic change.
There are several circumstances where it may make sense not to prepare a business forecast, including long forecast horizons, lack of available data, consistency in the past and present, lack of consensus among informed individuals, and rapid industry change. In such cases, it may be more beneficial for companies to focus on more immediate and concrete factors and adjust their strategies and plans as circumstances evolve.
Preparing a business forecast can be a useful tool in planning and decision-making for a company, but there are certain circumstances where it may not make sense to prepare one. One such circumstance is if the forecast horizon is very long, such as 40 years, as it can be difficult to accurately predict changes and developments that far into the future. Additionally, if no data is readily available, it may not be feasible to create a reliable forecast.
If there is no reason to believe that the future will be any different from the past, then there may be little value in preparing a forecast as well.Another circumstance where it may not make sense to prepare a business forecast is if there is no consensus among informed individuals, such as experts in the industry or market analysts.
In such cases, the lack of agreement may suggest that the future is too uncertain or volatile to make an accurate forecast. Finally, if the industry that is being forecasted is undergoing dramatic change, then it may be challenging to create a forecast that accurately reflects the likely developments and outcomes.
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Most frauds are detected byA) external auditors. B) hotline tip. C) internal auditors. D) forensic accountants.
Most frauds are detected by hotline tip (option b). Hotline tips are a crucial tool for organizations in detecting fraudulent activities. These tips can come from various sources, such as employees, customers, vendors, or even anonymous individuals who have observed or suspected fraudulent behavior.
External auditors, internal auditors, and forensic accountants also play important roles in detecting and preventing fraud. External auditors are responsible for independently reviewing an organization's financial statements to ensure their accuracy and compliance with regulations.
Internal auditors, on the other hand, focus on assessing the effectiveness of an organization's internal controls and risk management processes, which may include identifying potential fraud risks. Forensic accountants are specialized professionals who use their accounting, auditing, and investigative skills to detect and analyze evidence of financial fraud.
However, hotline tips have been found to be the most effective method of detecting fraud as they provide firsthand information from those who have witnessed or suspect fraudulent activities. This information can be vital in initiating an investigation and uncovering the extent of the fraud, thereby allowing organizations to take necessary actions to mitigate the risks and recover any losses.
Encouraging employees and stakeholders to report any suspected fraud through a hotline can help create a culture of transparency and accountability, ultimately reducing the likelihood of fraud going undetected.
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An operating plan can be developed for any time horizon, but most companies use a _____ horizon, with the first period being the most detailed.
6-month
10-year
5-year
12-month
3-year
An operating plan can be developed for any time horizon, but most companies use a 12-month horizon, with the first period being the most detailed.
A 12-month operating plan, also known as an annual operating plan, is a detailed plan that outlines an organization's goals and objectives for the upcoming year. It includes a detailed budget, revenue and expense projections, and performance metrics to track progress throughout the year.
While longer-term planning horizons, such as 5-year or 10-year plans, are important for strategic planning, a 12-month operating plan provides a more detailed and actionable roadmap for the short-term operational activities of the organization.
It's worth noting that some companies may also develop shorter-term operating plans, such as a 6-month or 3-year plan, depending on their specific needs and circumstances. However, the 12-month plan is the most common and widely used planning horizon for operating plans.
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If the nominal interest rate is 5.1 percent, and the expected
inflation is 3.4 percent, then using the Fisher Equation, the real
interest rate must be
The real interest rate, using the Fisher Equation, is 1.7%.
The Fisher Equation is an economic theory that relates nominal interest rates to real interest rates and expected inflation. It is named after the economist Irving Fisher, who developed the equation in the early 20th century.
The Fisher Equation states that the real interest rate (r) is equal to the nominal interest rate (i) minus the expected inflation rate (π).
Mathematically, this can be written as:
r = i - π
Plugging in the given values, we get:
r = 0.051 - 0.034 = 0.017
Therefore, the real interest rate is 1.7% (or 0.017 as a decimal). This represents the true rate of return on an investment after accounting for inflation.
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If the current rate of interest is 9%, then the future value (FV) of an investment that pays $1,400 per year and lasts 22 years is closest to: A $88,023 OB. $123,232 OC. $52,814 OD. $105,628
To find the future value of an investment, we can use the formula:
FV = (PMT x (((1 + r)^n) - 1)) / r
Where PMT is the annual payment,
r is the interest rate, and
n is the number of years.
Plugging in the given values, we get:
FV = (1400 x (((1 + 0.09)^22) - 1)) / 0.09
FV = (1400 x 71.187) / 0.09
FV = $1,108,662.22
Therefore, the closest option is OD. $105,628.
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Raymond made his annual RSP contribution of $4299 and decided to use the proceeds to purchase a Labour Sponsored Venture Capital Corporation. He lives in a province with a 8% provincial LSVCC tax credit and his marginal tax rate is 46%. What will Raymond's total tax refund be on this RSP contribution and purchase?
Please provide answer to 2 decimal places (e.g. 1234.56)
Raymond's total tax refund on his RSP contribution and LSVCC purchase will be $2,321.46.
To determine Raymond's total tax refund on his RSP contribution and purchase of a Labour Sponsored Venture Capital Corporation (LSVCC), we need to calculate the tax refunds for each component separately and then add them together.
Step 1: Calculate the tax refund on the RSP contribution.
Tax refund on RSP = RSP contribution × marginal tax rate
Tax refund on RSP = $4,299 × 46%
Tax refund on RSP = $1,977.54
Step 2: Calculate the tax refund on the LSVCC investment.
Tax refund on LSVCC = RSP contribution × provincial LSVCC tax credit rate
Tax refund on LSVCC = $4,299 × 8%
Tax refund on LSVCC = $343.92
Step 3: Add the tax refunds from both components.
Total tax refund = Tax refund on RSP + Tax refund on LSVCC
Total tax refund = $1,977.54 + $343.92
Total tax refund = $2,321.46
Thus, Raymond's total tax refund on his RSP contribution and LSVCC purchase will be $2,321.46.
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Calculate the weighted average cost of capital (WACC) for a firmthat has debt-to-equity ratio of 1.5, corporate tax rate of 28%,levered cost of equity of 12.5%, and after-tax cost of debt of8.3%.P
To calculate the weighted average cost of capital (WACC), we need to consider the weights of debt and equity in the firm's capital structure and their respective costs.
Calculate the weights of debt and equity:
Debt weight = Debt / (Debt + Equity)
Equity weight = Equity / (Debt + Equity)
Since the debt-to-equity ratio is 1.5, we can assume that Debt = 1.5 and Equity = 1.
Debt weight = 1.5 / (1.5 + 1) = 0.6
Equity weight = 1 / (1.5 + 1) = 0.4
Calculate the after-tax cost of debt:
After-tax cost of debt = 8.3% × (1 - 28%) = 8.3% × 0.72 = 5.976%
Calculate the WACC:
WACC = (0.4 × 12.5%) + (0.6 × 5.976%)
\WACC = 8.5856%
Therefore, the weighted average cost of capital (WACC) for the firm is approximately 8.59%.
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AllCity Inc. is financed 40% with debt, 15% with preferred stock, and 45% with common stock. Its pre-tax cost of debt is 6%; its preferred stock pays an annual dividend of $3.25 and is priced at $33. It has an equity beta of 1.4. Assume the risk-free rate is 2%, the market risk premium is 7%, and AllCity's tax rate is 35%. What is its after-tax WACC?
AllCity Inc.'s after-tax WACC is 8.35%.
To calculate the weighted average cost of capital (WACC) for AllCity Inc., we need to calculate the cost of each component of its capital structure, weight them by their respective proportions, and then sum them up.
Given information:
Debt: 40% of the capital structure
Preferred stock: 15% of the capital structure
Common stock: 45% of the capital structure
The pre-tax cost of debt: 6%
Preferred stock dividend: $3.25
Preferred stock price: $33
Equity beta: 1.4
Risk-free rate: 2%
Market risk premium: 7%
Tax rate: 35%
First, let's calculate the cost of debt after tax. We can use the formula:
Cost of debt after-tax = Pre-tax cost of debt × (1 - Tax rate)
Cost of debt after-tax = 6% × (1 - 35%) = 3.9%
Next, let's calculate the cost of preferred stock. We can use the formula:
Cost of preferred stock = Preferred stock dividend / Preferred stock price
Cost of preferred stock = $3.25 / $33 = 9.85%
Now, let's calculate the cost of common equity using the Capital Asset Pricing Model (CAPM). We can use the formula:
Cost of common equity = Risk-free rate + Beta × Market risk premium
Cost of common equity = 2% + 1.4 × 7% = 11.8%
Next, let's calculate the WACC by weighting the costs of each component by their respective proportions in the capital structure. We can use the formula:
WACC = (Weight of debt × Cost of debt after-tax) + (Weight of preferred stock × Cost of preferred stock) + (Weight of common stock × Cost of common equity)
WACC = (40% × 3.9%) + (15% × 9.85%) + (45% × 11.8%) = 1.56% + 1.48% + 5.31% = 8.35%
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intending to take a vacation, newlyweds place a continuous stream of $2,000 per year into a savings account which has a continuously compounding interest rate of 1.9%. what will be the value of this continuous stream after 3 years? round your answer to the nearest integer. do not include a dollar sign or commas in your answer.
The value of the continuous stream of $2,000 per year after 3 years, with continuous compounding interest rate of 1.9%, can be calculated using the formula for continuous compounding:
A = P * e^(rt)
where:
A = the future value of the continuous stream
P = the initial amount of the continuous stream per year ($2,000)
e = Euler's number (approximately equal to 2.71828)
r = the continuous interest rate (1.9% or 0.019 as a decimal)
t = the time period (3 years)
Plugging in the values into the formula:
A = 2000 * e^(0.019 * 3)
Using a calculator, we can calculate the value of e^(0.019 * 3) and then multiply it by $2,000 to get the approximate value of the continuous stream after 3 years.
After rounding to the nearest integer, the value of the continuous stream after 3 years would be $2,136.
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Buildmazing Developers need an amount of money to expand their business. They secure a loan at an interest rate of 10,5% per year, compounded annually. The outstanding balance will be repaid in equal payments of R137 828,00 at the end of each year for the next seven years. Considering the amortisation schedule, the principle repaid during the first three years, rounded to the nearest rand, is 1. R227 891 2. R185 593 3. R83 662 4. R413 484
A. The principle repaid during the first three years of the loan is 1) R227 891.
B. The loan is for an amount not specified in the question, but we can determine the outstanding balance by using the present value formula:
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years.
Using the given information, we can calculate the present value of the loan:
PV = 137828 * ((1 - (1 + 0.105)^-7) / 0.105) = R721,140.60
The outstanding balance at the end of the first year will be the present value minus the payment made:
Balance Y1 = PV - Payment Y1 = R721,140.60 - R137,828 = R583,312.60
The outstanding balance at the end of the second year will be the balance at the end of the first year plus the interest:
Balance Y2 = Balance Y1 * (1 + r) - Payment Y2 = R583,312.60 * 1.105 - R137,828 = R556,845.62
The outstanding balance at the end of the third year will be the balance at the end of the second year plus the interest:
Balance Y3 = Balance Y2 * (1 + r) - Payment Y3 = R556,845.62 * 1.105 - R137,828 = R527,684.71
The principle repaid during the first three years will be the original amount of the loan minus the outstanding balance at the end of the third year:
Principle Repaid Y1-3 = PV - Balance Y3 = R721,140.60 - R527,684.71 = R227 891.
Rounding this value to the nearest rand gives us the answer: 1) R227 891.
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2. Solving for the WACC11.37The WACC is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is only an appropriate discount rate for a project of average risk—in other words, a project that has the same beta as the company. If a project has less risk than the overall company risk, it should be evaluated with a lower discount rate; if a project is riskier than the overall company risk, it should be evaluated using a discount rate higher than the company WACC.Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address.Consider the case of Turnbull Co.Turnbull Co. has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%.If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%.If its current tax rate is 40%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Do not round your intermediate calculations.)a) 0.99%b) 0.65%c) 0.76%d) 0.95%Turnbull Co. is considering a project that requires an initial investment of $570,000. The firm will raise the $570,000 in capital by issuing $230,000 of debt at a before-tax cost of 11.1%, $20,000 of preferred stock at a cost of 12.2%, and $320,000 of equity at a cost of 14.7%. The firm faces a tax rate of 40%. What will be the WACC for this project? (Note: Do not round intermediate calculations.)Consider the case of Kuhn Co.Kuhn Co. is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 58% debt, 6% preferred stock, and 36% common equity. Kuhn has noncallable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1,555.38. The yield on the company’s current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of $9 at a price of $95.70 per share. You can assume that Jordan does not incur any flotation costs when issuing debt and preferred stock.Kuhn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $22.35 per share, and it is expected to pay a dividend of $2.78 at the end of next year. Flotation costs will represent 3% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 9.2%, and they face a tax rate of 40%. Determine what Kuhn Company’s WACC will be for this project.
WACC is a discount rate that is used in financial modelling to determine a business's net present value. It's also the hurdle rate that businesses use when examining potential acquisition targets or new ventures.
Why is WACC employed in valuation as a discount rate?The WACC measures the risk to an organization's expected future cash flows from activities. If the predicted future cash flows from two companies are the same but one has a lower WACC, then it will be worth more.
What happens if the discount rate for all projects is calculated using the WACC?An entity won't favour high- or low-risk projects by utilising the WACC, and it won't raise its total risk level. Generally In general, the risk is generally minimised because the WACC is greater than the commonly applied discount rate.
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Intro You took out a loan to buy a new car. The monthly interest rate on the loan is 0.3%. You have to pay $280 every month for 60 months, starting one month from now. What is the present value of the cash flows?
Answer: The present value of the cash flows is approximately $48,885.28.
Explanation: To calculate the present value of the cash flows, you can use the formula for the present value of an annuity:
[tex]PV = PMT x [1 - (1 + r)^-n] / r[/tex]
where PV is the present value,
PMT is the payment amount,
r is the interest rate per period,
and n is the number of periods.
In this case, you're making 60 monthly payments of $280, starting one month from now. So PMT is $280, r is 0.3% per month (or 0.003), and n is 60.
Plugging in the values, we get:
[tex]PV = 280 [1 - (1 + 0.003)^-60] / 0.003[/tex]
= 280 x [1 - 0.4765] / 0.003
= 280 x 174.676
= 48,885.28
Therefore, the present value of the cash flows is approximately $48,885.28.
This means that if you were to invest this amount today at the same interest rate of 0.3% per month, you would have enough money to make all 60 payments of $280 over the next five years.
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an example of institutional property would be a building that: group of answer choices generates rental income for the corporation that owns it is occupied by the corporation that owns it is rented from the owner by the corporation that occupies it none of the above
The correct answer is option B. An example of institutional property would be a building that: Is occupied by the corporation that owns it.
Business and other organisations' real estate is referred to as institutional property. Examples of institutional property include the structures and other real estate that the company owns and occupies.
This could include office complexes, manufacturing facilities, storage facilities, retail establishments, and other real estate owned and used by the firm. Since the company owns and uses the facilities it inhabits for its own operations and activities, they are regarded as institutional property.
The advantages of owning and occupying institutional property include greater control over the surroundings, greater control over the standard of the structures and other physical assets, and the capacity to make money from the rental or sale of the structures.
Complete Question:
An example of institutional property would be a building that:
Group of answer choices
A. Generates rental income for the corporation that owns it
B. Is occupied by the corporation that owns it
C. Is rented from the owner by the corporation that occupies it
D. None of the above
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Concepts used in cash flow estimation Capital budgeting analysis not only requires the evaluation of cash flows but also requires the understanding of the origin of those cash flows. Based on your understanding of cash flows in a firm, answer the following questions: The present value of___can be used to determine the basis of a firm's value. Which of the following best describes incremental cash flows? They are the difference between the cash flows the firm will have if it accepts the project versus the cash flows it will have if it rejects the project. Incremental cash flows are not relevant because they will occur whether or not the project is accepted. Understanding the nature of projects Capital budgeting analysis often involves decisions related to expansion projects and/or replacement projects. Based on your understanding of expansion and replacement projects, answer the following: If a clothing store opens second retail location on the other side of town, this project would be considered___project. What are sunk costs? Sunk costs are___in the capital budgeting analysis. The role of externalities A cell phone company recently gave customers the ability to buy applications that they can download to their cell phones. Allowing customers to use these applications increased cell phone sales. This is an example of___externality.
The present value of future cash flows can be used to determine the basis of a firm's value.
Incremental cash flows are the difference between the cash flows the firm will have if it accepts the project versus the cash flows it will have if it rejects the project.
Capital budgeting analysis involves evaluating the potential cash flows from a project and their timing. The present value of future cash flows is used to determine the current value of a firm's operations. Incremental cash flows are the cash flows that will occur as a result of accepting or rejecting a project.
These cash flows are relevant to capital budgeting decisions because they help to determine the net present value of a project.
Expansion projects involve increasing the size of a business or adding new products or services. Replacement projects involve replacing existing assets or products with new ones.
Sunk costs are costs that have already been incurred and cannot be recovered. These costs are not relevant in capital budgeting analysis because they do not affect future cash flows.
Externalities are the effects that a decision or action has on parties that are not involved in the decision or action. In the example given, the cell phone company's decision to allow customers to buy applications that they can download to their cell phones had a positive externality on cell phone sales.
This is because it provided an incentive for customers to buy more cell phones, which led to an increase in sales.
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If you are the writer of a call option a. You believe that the price of the underlying asset will decrease b. Collect a premium from the call holder O c. Are obligated to buy the underlying asset for
If you are the writer of a call option C, you are obligated to buy the underlying asset at the strike price of the option if the call holder chooses to exercise their right.
As the writer, you collect a premium from the call holder, which is your compensation for taking on this obligation. This means that you will make money if the price of the underlying asset decreases or stays the same, as you will not have to buy the asset at the strike price.
However, if the price of the underlying asset increases, you will incur a loss, as you will be obligated to buy the asset at the strike price, which is higher than the market price.
Therefore, correct option is C.
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Option c: If the call holder decides to exercise their right, you, as the call option writer, are required to purchase the underlying asset for the option's strike price.
A call option, commonly called a "call" in finance, is an agreement between a buyer and a seller to exchange a security at a specified price. The call option buyer is entitled to receive from the option seller a specified quantity of a specified instrument or financial instrument (underlying asset) at a specified price (strike price) on or before a specified date; No responsibility. Please check the date (expiration date) before purchasing. The owner currently has a long position in the offered asset. If the Buyer decides to purchase a product or financial instrument, the Seller (or "Writer") is obligated to do so.
As a result, the seller now has her position short of the specified asset. Buyers must pay a fee (called a premium) for this right. The term "call" was coined because the owner has the power to "call" the shares from the seller.
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among the resource-based consideration a firm faces when deciding whether to enter foreign markets is:
One of the resource-based considerations that a firm faces when deciding whether to enter foreign markets is the availability and accessibility of key resources in those markets.
Resources can include physical assets such as raw materials, manufacturing facilities, distribution networks, or access to technology, as well as intangible assets such as knowledge, expertise, and intellectual property.
Firms need to assess whether they have the necessary resources to enter and operate in foreign markets effectively. This may involve evaluating the availability, quality, cost, and legal/regulatory aspects of accessing key resources in foreign markets.
For example, a firm may need to consider whether it can obtain the necessary raw materials at a reasonable cost, whether it can establish manufacturing or distribution facilities in a foreign country, or whether it can protect its intellectual property rights.
The consideration of resources is critical for firms to determine their competitive advantage and ability to compete in foreign markets.
Inadequate access to key resources may pose barriers to entry or hinder a firm's ability to establish a sustainable competitive advantage in a foreign market.
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Today is your 21th birthday, and you are opening up an investment account. You plan to contribute $2,000 per year on your birthday. The first contribution will be made today, and the 45th, and final, contribution will be made on your 65h birthday. If you earn 10% a year on your investments, how much money will you have in the account on your 65h birthday, immediately after making your final contribution?
The amount of money that you will have in the investment account after making the final contribution is $126,934.74
To calculate the amount of money in your investment account on your 65th birthday after making your final contribution, we'll use the future value of an ordinary annuity formula:
FV = P * [(1 + r)^n - 1] / r
where:
FV is the future value of the annuity
P is the annual contribution ($2,000)
r is the interest rate (0.1 or 10%)
n is the number of years (45)
Now, let's plug in the values and calculate the future value:
FV = $2,000 * [(1 + 0.1)^45 - 1] / 0.1
FV = $2,000 * [63.46737064]
FV = $126,934.74
So, on your 65th birthday, immediately after making your final contribution, you will have $126,934.74 in your investment account.
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The Big Mac Standard constructs a fairly standardized market basket for PPP comparisons, and the basic ingredients are standardized and internationally traded. The result of international comparisons on this standard is (a) clear evidence against absolute PPP. (b) clear evidence in favor of absolute PPP. (c) clear evidence in favor of long-run PPP. (d) clear evidence in favor of relative PPP. (e) none of these responses are correct
The anwer is C.The result of international comparisons using the Big Mac Standard provides clear evidence in favor of relative PPP, as it compares the prices of the same product (Big Mac) in different countries.
The Big Mac Standard provides a standardized market basket for comparing purchasing power parity (PPP) across countries. However, it does not provide clear evidence for absolute PPP or long-run PPP.
It is important to note that the Big Mac Standard is just one of many methods for comparing PPP, and each method has its own strengths and limitations.
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last year the price per share of stock x increased by k percent and the earnings per share of stock x increased by m percent, where k is greater than m. by what percent did the ratio of price per share to earnings per share increase, in terms of k and m ?
The percentage increase in the ratio of price per share to earnings per share in terms of k and m is [(k - m) / (1 + m/100)] * 100%.
Let the initial price per share of stock X be P and the initial earnings per share be E.
After the price per share increased by k percent, the new price per share is:
P' = P + (k/100) * P = P(1 + k/100)
After the earnings per share increased by m percent, the new earnings per share is:
E' = E + (m/100) * E = E(1 + m/100)
Therefore, the new ratio of price per share to earnings per share is:
(P') / (E') = (P(1 + k/100)) / (E(1 + m/100))
The percentage increase in this ratio can be calculated as follows:
(P' / E') / (P / E) * 100% - 100%
= [(P(1 + k/100)) / (E(1 + m/100))] / (P / E) * 100% - 100%
= [(1 + k/100) / (1 + m/100)] * 100% - 100%
Using the fact that k > m, we can simplify this expression as follows:
[(1 + k/100) / (1 + m/100)] * 100% - 100%
= [(1 + k/100) - (1 + m/100)) / (1 + m/100)] * 100%
= [(k - m) / (1 + m/100)] * 100%
Therefore, the percentage increase in the ratio of price per share to earnings per share is [(k - m) / (1 + m/100)] * 100%.
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Carnes Cosmetics Co.'s stock price is $54, and it recently paid a $1.50 dividend. This dividend is expected to grow by 27% for the next 3 years, then grow forever at a constant rate, g; and rs = 14%. At what constant rate is the stock expected to grow after Year 3? Do not round intermediate calculations. Round your answer to two decimal places
Carnes Cosmetics Co.'s stock is expected to grow at a constant rate of 14% after Year 3.
The constant rate of growth for Carnes Cosmetics Co.'s stock after Year 3 is calculated using the Gordon Growth Model. This model states that the dividend growth rate of a stock must equal the required rate of return (rs) of the stock.
Therefore, the constant rate of growth (g) is equal to rs. In this case, the required rate of return of the stock is 14%, so the constant rate of growth is also equal to 14%. Thus, stock is expected to grow at a constant rate of 14% after Year 3.
The Gordon Growth Model is a useful tool for investors and analysts who wish to determine the required rate of return of a stock. By using this model, investors can accurately determine the rate of growth at which a stock is expected to grow, allowing them to make informed decisions regarding the stock.
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Carnes Cosmetics Co.'s stock is expected to grow at a constant rate of 14% after Year 3.
The constant rate of growth for Carnes Cosmetics Co.'s stock after Year 3 is calculated using the Gordon Growth Model. This model states that the dividend growth rate of a stock must equal the required rate of return (rs) of the stock.
Therefore, the constant rate of growth (g) is equal to rs. In this case, the required rate of return of the stock is 14%, so the constant rate of growth is also equal to 14%. Thus, stock is expected to grow at a constant rate of 14% after Year 3.
The Gordon Growth Model is a useful tool for investors and analysts who wish to determine the required rate of return of a stock. By using this model, investors can accurately determine the rate of growth at which a stock is expected to grow, allowing them to make informed decisions regarding the stock.
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sandra has a young child and would like to set money aside for her college education. which type of savings option should sandra choose? basic savings plan
Answer:High Yields Savings Acount
Explanation:
Cambridge Construction Company follows the percentage-of-completion method for reporting long-term contract revenues. The percentage-of-completion is based on the cost of materials shipped to the project site as a percentage of total expected material costs. Cambridge’s major debt agreement includes restrictions on net worth, interest coverage, and minimum working capital requirements. A leading analyst claims that "the company is buying its way out of these covenants by spending cash and buying materials, even when they are not needed." Explain how this might be possible.
If Cambridge Construction Company is following the percentage-of-completion method for reporting long-term contract revenues based on the cost of materials shipped, then they may be incentivized to purchase more materials than necessary in order to increase their reported completion percentage.
This could lead to increased spending on materials, even if they are not needed for the project, which could be interpreted as an attempt to buy their way out of the debt agreement covenants.
By inflating their reported completion percentage, Cambridge may be able to convince lenders that they have enough working capital to meet their obligations, even if they are actually using cash reserves to purchase excess materials.
This practice could allow them to continue to borrow and spend, but it also carries risks of cost overruns, waste, and project delays if the excess materials are not effectively used.
Ultimately, it will be important for Cambridge to balance the pressures of meeting debt covenants with the need for responsible project management and cost control.
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