Canada Telecom’s WACC is not the right discount rate for its new project because the new project is expected to have a different capital structure than the existing business.
The new division has a target debt-equity ratio of 0.6, while the overall company is currently 30% debt financed. Therefore, the new project’s WACC will be different from the company's WACC.
We cannot use XYZ’s equity beta (1.05) as a proxy for the equity beta of Canada Telecom’s new project because the two companies have different business risks, financial risks, and operating environments.
While XYZ is a pure-play multimedia company, Canada Telecom has a diversified business portfolio. Moreover, the debt-to-equity ratios of the two companies are different. Therefore, we need to estimate the new project’s equity beta.
To estimate the new project’s equity beta, we can use the Hamada equation:
Equity Beta = Unlevered Beta * [1 + (1 - Tax Rate) * (Debt/Equity)]
Here,
Unlevered Beta = XYZ's Equity Beta / [1 + (1 - Tax Rate) * (Debt/Equity)]
= 1.05 / [1 + (1 - 0.35) * (0.35/0.65)] = 0.86
Debt-to-Equity Ratio of the new project = 0.6
Tax Rate = 35%
Plugging the values in the Hamada equation, we get:
Equity Beta = 0.86 * [1 + (1 - 0.35) * (0.6/0.4)]
= 0.86 * 1.63
= 1.40
Therefore, the estimated equity beta of Canada Telecom’s new project is 1.40.
The new project’s cost of capital can be calculated as follows:
Cost of Equity = Risk-Free Rate + Equity Risk Premium * Beta
= 3% + 5% * 1.40
= 10%
Cost of Debt = 6.5%
Tax Rate = 35%
Weight of Debt = 0.6
Weight of Equity = 0.4
WACC = (Weight of Debt * Cost of Debt * (1 - Tax Rate)) + (Weight of Equity * Cost of Equity)
= (0.6 * 6.5% * (1 - 0.35)) + (0.4 * 10%)
= 2.34% + 4%
= 6.34%
Therefore, the new project’s cost of capital is 6.34%.
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An investor bought a European call option on a stock and delta-hedged with the stock. Later on, but before expiry of the option, she closed the position. You are given:
• -The stock was worth 40 when the call option was bought and 50 when it was sold.
• -The call was worth 4.25 when it was bought and 9.30 when it was sold.
a. -A European put option with the same strike price and expiry was worth 8.50 when the call option was bought and 5.80 when it was sold.
b. -Δcall was 0.3 when the call option was bought.
c. -The stock pays no dividends.
Determine the amount of profit, including interest, made by the investor.
Hint: With the odd assortment of information provided, you need to somehow figure out what r and T – t are equal to
To determine the profit made by the investor who bought a European call option and delta-hedged with the stock, we need to consider the following information: the initial delta (-Δcall) of the call option was 0.3 when bought. The investor closed the position before the option's expiry.
The investor delta-hedged by buying 0.3 shares of the stock for every call option.As the position is closed before the option's expiry, we need to consider the change in the stock price and the change in the call option's price during this period.
Calculate the profit made from the change in the stock price (0.3 * change in stock price) and the change in the call option's price. Add the interest earned during the holding period, which requires knowing the interest rate (r) and the time to expiry (T - t).
Since we do not have enough information to determine the interest rate (r) and the time to expiry (T - t), it is not possible to provide an exact amount of profit, including interest, made by the investor.
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Carmaker produces small cars in a perfectly competitive market using labour (L) and capital (K). Carmaker's production function is given by f(L,K) = min (0.05L, K112}, { where Q is the number of cars produced. (a) [2 marks] Starting from L>0, K>0, suppose you double the amount of L and K. Is it possible for output (q) to more than double (i.e., increase from q to Aq where A > 2)? " (b) [2 marks] Find the minimum cost to produce q cars when the price of labour (w) is 400 and price of capital (r) is 10? (Hint: the answer would involve q.]
(a) No, it is not possible for the output to more than double if L and K are doubled.
(b) The minimum cost to produce q cars is 20q if q <= 200, and [tex]1120q^(2/3) if q > 200.[/tex]
(a) No, it is not possible for output to more than double when both labor and capital are doubled. This is because the production function is limited by the minimum of 0.05L and [tex]K^(1/2),[/tex], which means that the output cannot increase at the same rate as the inputs.
(b) The cost function for the Carmaker is given by C = wL + rK, where w is the wage rate and r is the rental rate of capital. Using the production function, we can express K in terms of L as K = [tex](q/0.05L)^2[/tex]. Substituting this into the cost function, we get:
[tex]C = 400L + 10(q/0.05L)^2[/tex]
To find the minimum cost to produce q cars, we need to minimize this cost function with respect to L. Taking the derivative with respect to L and setting it equal to zero, we get:
400 - [tex]400q^2/L^3 = 0[/tex]
Solving for L, we get:
L = [tex](q^2/100)^(1/3)[/tex]
Substituting this back into the cost function, we get:
C = [tex]4q(q/100)^(1/3) + 10q(100/q)^(2/3)[/tex]
Simplifying, we get:
C =[tex]14q(25/q)^(1/3)[/tex]
Therefore, the minimum cost to produce q cars is given by C = [tex]14q(25/q)^(1/3)[/tex]
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Terms of trade that are beneficial to both parties are those terms, or prices, that are ___ the two parties opportunity cost
Terms of trade that are beneficial to both parties are those terms, or prices, that are below the two parties' opportunity cost.
The opportunity cost is the cost of the next best alternative that is given up in order to pursue a certain action. When two countries engage in trade, they do so because each country has a comparative advantage in producing a certain good.
Comparative advantage means that a country can produce a good at a lower opportunity cost than another country. By trading with each other, they can both benefit from consuming a greater quantity and variety of goods than they would be able to produce domestically.
In order for both parties to benefit from the trade, the terms of trade must be such that the price paid for the imported good is lower than the opportunity cost of producing that good domestically. This allows both parties to consume more of both goods than they would have been able to do otherwise.
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the corporate officer identified who has custody of the company's funds and is generally responsible for planning and controlling the company's cash position is the:
The corporate officer who has custody of the company's funds and is responsible for planning and controlling the company's cash position is known as the Chief Financial Officer (CFO).
The CFO is a high-level executive who oversees the financial operations of the company, including financial planning, budgeting, accounting, and reporting. They also manage the company's investments, debt, and other financial resources to ensure the company has enough cash to operate and grow.
The CFO works closely with other senior executives, such as the CEO and COO, to make strategic financial decisions that impact the company's future. They must have a strong understanding of financial markets, accounting principles, and business operations to effectively manage the company's financial position. The CFO is also responsible for ensuring the company complies with all financial regulations and reporting requirements.
In summary, the CFO is the corporate officer who has custody of the company's funds and is responsible for planning and controlling the company's cash position. They play a critical role in ensuring the financial health and success of the company.
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carol expects to receive $1,000 at the end of each year for 5 years. the annuity has an interest rate of 10%. the present value of this annuity at time zero, the inception of the annuity (rounded to the nearest dollar) is multiple choice question. $6,105. $4,500. $5,000. $3,791.
An annuity is a contract that you have with an insurance provider that obligates the insurer to pay you payments either now or in the future. Making one payment or several installments allows you to purchase an annuity.
We know,
Amount to be received = $1,000; Years (n) = 5; Interest rate is 10%.
Present Value Interest Factor of Annuity (PVIFA) = [1 - 1 / (1 + r)n] / r
PVIFA = [1 - 1 / (1 + 10%)^5] / 10%
= [1 - 1 / (1 + 0.10)^5] / 0.10
= [1 - 1 / (1.10)^5] / 0.10
= [1 - 1 / 1.61051] / 0.10
= [1 - 0.62092132305] / 0.10
= 0.37907867694 / 0.10
= 3.79078676940
= 3.7908
Hence, Expected Amount Received * PVIFA at Time Zero = Present Value of Annuity at (n = 5, r = 10%)
= $1,000 * 3.7908
= $3,790.8
rounded to the closest dollar: $3,791
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The actual question is - Carol expects to receive $1,000 at the end of each year for 5 years. The annuity has an interest rate of 10%. The present value of this annuity at Time Zero, the inception of the annuity (rounded to the nearest dollar) is?
experience differentiation: isolates the consumer from the delivery of a service. is an extension of product differentiation in the service sector. uses only the consumer's senses of vision and sound. keeps consumers from becoming active participants in the service. attempts to make the service experience different for every single customer.
Experience differentiation is a strategy used by service providers to create unique experiences for their customers.
This strategy is an extension of product differentiation in the service sector and seeks to differentiate the service experience from the competition. It involves the use of only the consumer's senses of sight and sound to keep the customer from becoming an active participant in the service.
By doing this, the customer is isolated from the delivery of the service, allowing the company to create a unique and exclusive experience for each customer. Experience differentiation attempts to make the service experience different for every single customer and allow them to feel as if they are the only one receiving the service.
By creating a unique and exclusive experience for each customer, companies are able to increase customer satisfaction and loyalty, which can result in increased sales and profits.
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C-2. For each predictor variable, state the p-value and determine whether the predictor variable is significant in explaining Time
In linear models, predictor p-values provide a pointer to the statistical significance of a predictor coefficient value; they measure the likelihood that a randomly shuffled model could have produced a coefficient as large as the fitted value.
A low p-value (0.05) suggests that the null hypothesis can be rejected. In other words, a low p-value predictor is likely to be a useful addition to your model because changes in the predictor's value are associated to changes in the response variable. If the P-value is less than 0.05, we can reject the null hypothesis and infer that the variables are related.
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5. The interest rate of an adjustable rate mortgage may rise or fall based on thea. interest rate cap.b. adjustment period.c. index.d. margin.
The interest rate of an adjustable rate mortgage may rise or fall based on the c. index.
The interest rate of an adjustable rate mortgage (ARM) is typically based on an index, which is a benchmark interest rate that reflects the general level of interest rates in the economy. Commonly used indexes include the prime rate, the London Interbank Offered Rate (LIBOR), and the Constant Maturity Treasury (CMT) rate.
The interest rate on an ARM is adjusted periodically based on changes in the index. For example, if the index increases by 0.5%, the interest rate on the ARM may also increase by 0.5%. The adjustment period, which is the frequency at which the interest rate can change, is also an important factor in determining the interest rate on an ARM.
The interest rate cap is another important feature of an ARM, which limits the amount that the interest rate can increase or decrease during a given period. The margin, which is a fixed percentage added to the index, is also an important factor in determining the interest rate on an ARM.
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Fariey Inc. has perpetual preferred stock outstanding that sells for $46 a share and pays a dividend of $3.25 at the end of each year. What is the required rate of return? Round your answer to two decimal places. %
The perpetual preferred stock of Fariey, Inc. has a required rate of return of 7.07%. Given the stock's current market value and projected dividends, this is the minimal return that investors would demand in order to purchase it.
The required rate of return for Fariey, Inc.'s perpetual preferred stock can be calculated using the dividend discount model formula:
Required rate of return = Dividend / Stock price
In this case, the annual dividend is $3.25 and the stock price is $46 per share.
Required rate of return = $3.25 / $46 = 0.07065 or 7.07% (rounded to two decimal places)
Therefore, the required rate of return for Fariey, Inc.'s perpetual preferred stock is 7.07%. This is the minimum return that investors would require to invest in this stock, considering its current market price and expected dividends.
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which of the statements below about the fed is not true? the fed is controlled by the u.s. government. the fed can loan money to private banks as lender of last resort. regional federal reserve banks act as central banks for their areas. federal reserve banks control the money supply.
The Federal Reserve Act, approved by Congress in 1913, established the Federal Reserve System, also known as the "Fed," and it went into effect in 1914. The correct answer is a. the fed is controlled by the u.s. government.
It resembles all central banks exactly. The Federal Reserve is a branch of the American government. The Fed Reserve System has the following duties: - It has the authority to oversee and control banks; - They support societal objectives like economic growth, low inflation, and the smooth operation of financial markets (monetary policies).
The "lender of last resort" is the Federal Reserve. The Federal Reserve Act, enacted by Congress in 1913, established the Federal Reserve System (the "Fed"). In 1914, the Fed started operating. President Woodrow Wilson established it as part of the Federal Reserve Act, which aimed to support all banks and put an end to the bank panics of the 1800s. Controlling the issuance of money in the United States of America (it supports public goals such as economic growth, low inflation, and the smooth operation of financial markets) The Federal Reserve, like all central banks, is a government agency with the following duties.
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Calculate and interpret the Macaulay and modified durations of a a) 3-year 10% semi-annual bond (Bond C) when the required yield is 10%, and a b) 3-year zero-coupon bond (Bond D) when the required yield is 10%
a) The main answer for Bond C's Macaulay duration is 2.5 years, and its modified duration is 2.45 years.
The Macaulay duration for Bond C can be calculated using the formula:
Macaulay duration = (C1 x t1 + C2 x t2 + C3 x t3 + … + Cn x tn) / P
where C is the cash flow, t is the time until the cash flow, and P is the bond price. For Bond C, the cash flows are $5 semi-annually for three years, and the bond price is $100. The calculation gives us a Macaulay duration of 2.5 years.
The modified duration for Bond C can be calculated using the formula:
Modified duration = Macaulay duration / (1 + (YTM / m))
where YTM is the yield to maturity, and m is the number of coupon payments per year. For Bond C, YTM is 10%, and m is 2 (since it pays semi-annually). Plugging in the values, we get a modified duration of 2.45 years.
Interpretation: Bond C has a Macaulay duration of 2.5 years, meaning that it will take 2.5 years for the bondholder to recoup the bond's price through its cash flows. The modified duration of 2.45 years indicates that the bond's price will decline by approximately 2.45% for every 1% increase in yield.
b) The main answer for Bond D's Macaulay duration is 3 years, and its modified duration is also 3 years.
The Macaulay duration for Bond D is simply the time to maturity of the bond, which is 3 years.
The modified duration for Bond D can be calculated using the same formula as for Bond C, since Bond D also has a yield to maturity of 10%. Plugging in the values, we get a modified duration of 3 years.
Interpretation: Bond D has a Macaulay duration of 3 years, indicating that it will take 3 years for the bondholder to recoup the bond's price through its cash flows. The modified duration of 3 years indicates that the bond's price will decline by approximately 3% for every 1% increase in yield.
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theta cleaning corp. wants to use the house of quality matrix in designing and developing a new vacuum cleaner. what is the first step that theta cleaning should take? group of answer choices identification of the engineering attributes that determine the performance of the vacuum cleaner identification of customer requirements determination of the relative value or weight of customer requirements evaluation of the competing products to determine how well they meet customer needs
The first step that Theta Cleaning Corp. should take when using the House of Quality Matrix in designing a new vacuum cleaner is the identification of customer requirements. (D)
To do this, Theta Cleaning Corp. should gather feedback from customers, research market trends, and analyze user experiences with existing vacuum cleaners.
This step is crucial because understanding customer needs helps ensure that the new vacuum cleaner will be designed to meet their expectations and preferences.
Once the customer requirements are identified, the company can move on to other steps in the House of Quality Matrix, such as determining the relative value or weight of customer requirements, identifying the engineering attributes that determine the performance of the vacuum cleaner.
This systematic approach will assist Theta Cleaning Corp. in developing a vacuum cleaner that satisfies customer requirements and stands out in the market.(D)
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Complete question:
Theta Cleaning Corp. wants to use the house of quality matrix in designing and developing a new vacuum cleaner. What is the first step that Theta Cleaning should take?
Group of answer choices
A) Evaluation of the competing products to determine how well they meet customer needs
B) Determination of the relative value or weight of customer requirements
C) Identification of the engineering attributes that determine the performance of the vacuum cleaner
D) Identification of customer requirements
Consider a bond that has duration equal to 6 years, coupon rate 4.5%, yield to maturity 3.7% and convexity of 49. Determine the estimated relative change in bond price if interest rates increase by 0.8 percentage points.
The estimated relative change in bond price if interest rates increase by 0.8 percentage points is approximately -4.35%.
To calculate the estimated relative change in bond price, we use the modified duration formula:
Estimated relative change in bond price = -Modified duration x Change in yield + 0.5 x Convexity x (Change in yield)²
Plugging in the given values:
-Modified duration = -6
Change in yield = 0.008
Convexity = 49
Estimated relative change in bond price = (-6) x (0.008) + 0.5 x (49) x (0.008)²
= -0.0528 + 0.00196
= -0.0508 or -4.35%
Therefore, if interest rates increase by 0.8 percentage points, we can expect the bond price to decrease by approximately 4.35%.
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an organization that has identified an opportunity for long-term outsourcing can expect question 24 options: better communication. lowered administrative costs. improved utilization of resources. all of the above.
An organization that has identified an opportunity for long-term outsourcing can expect D) "all of the above" including better communication, lowered administrative costs, and improved utilization of resources.
Long-term outsourcing can lead to several benefits for an organization. Improved communication can be achieved by outsourcing tasks to specialized service providers, who are often more experienced and efficient in handling specific tasks.
This can lead to better coordination between the organization and the outsourcing partner, resulting in improved communication.Outsourcing can also lead to lowered administrative costs, as outsourcing service providers can handle tasks such as HR, payroll, and accounting, freeing up the organization's resources for other strategic initiatives.
Improved utilization of resources is another advantage of outsourcing, as it enables organizations to focus on their core competencies while outsourcing non-core activities to specialized service providers.
Overall, long-term outsourcing can result in significant benefits for organizations, including better communication, lowered administrative costs, and improved utilization of resources. So, correct option is d.
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CAPITAL ASSET PRICING MODEL
Using the CAPM, estimate the appropriate required rate of return for the three stocks listed here, given that the risk-free rate is 7% (seven percent) and the expected return for the market is 15% (fifteen percent). DATA Stock Beta A 0.55 B 0.63 C 1.25 Risk-free rate 7% Market rate 15%
Stock Returns A B C
According to the CAPM, the appropriate required rate of return for Stock A is 11.4%, for Stock B is 12.04%, and for Stock C is 17%.
The Capital Asset Pricing Model (CAPM) estimates the required rate of return for an investment based on its level of risk, as measured by its beta, and the expected return of the overall market. The formula for the required rate of return is:
Required rate of return = Risk-free rate + (Beta x (Market rate - Risk-free rate))
A: 1.Required return=7+0.55*(15-7)=11.4%
B: 2.Required return=7+0.63*(15-7)=12.04%
C: 3.Required return=7+1.25*(15-7)=17%
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The appropriate required rate of return for Stock A is 11.6%, for Stock B is 12.6%, and for Stock C is 18%.
We apply the Capital Asset Pricing Model (CAPM) to calculate the needed rate of return using the following formula:
Required rate of return = Risk-free rate + Beta × (Market rate - Risk-free rate)
We can get the needed rate of return for each stock using the information provided:
For Stock A: Required rate of return = 7% + 0.55 × (15% - 7%) = 11.6%
For Stock B: Required rate of return = 7% + 0.63 × (15% - 7%) = 12.6%
For Stock C: Required rate of return = 7% + 1.25 × (15% - 7%) = 18%
Therefore, based on the given information and using the CAPM, the appropriate required rate of return for Stock A is 11.6%, for Stock B is 12.6%, and for Stock C is 18%.
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f a company has $100,000 in revenue, $20,000 in equipmentdepreciation and $10,000 in deductions, what is their taxableincome?
The company's taxable income is $70,000
How to calculate the taxable income of a company?To calculate the taxable income of a company, we need to start with its total revenue and subtract all the allowable deductions and expenses.
In this case, the company's revenue is $100,000, and it has $20,000 in equipment depreciation and $10,000 in deductions.
Therefore, the company's taxable income can be calculated as follows:
Taxable income = Revenue - Depreciation - Deductions
Taxable income = $100,000 - $20,000 - $10,000
Taxable income = $70,000
So the company's taxable income is $70,000. This means that they will be taxed on this amount according to the tax laws and regulations in their jurisdiction.
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the cost structure for oil pipelines: group of answer choices high fixed, low variable high variable, low fixed equal proportions of variable and fixed costs all fixed costs all variable costs
The cost structure for oil pipelines is typically characterized by high fixed costs and low variable costs. This means that the majority of expenses associated with constructing and maintaining pipelines are incurred upfront, with ongoing expenses such as energy usage and labor costs making up a smaller portion of the overall cost structure.
Pipelines require significant investment in infrastructure and equipment, such as pumps and storage tanks, which contribute to the high fixed costs.
In addition, there are significant regulatory and environmental compliance costs associated with pipeline construction and operation.
However, once a pipeline is built and operational, variable costs such as energy usage and labor costs tend to be relatively low. Overall, the cost structure for oil pipelines is heavily weighted towards fixed costs, making it a capital-intensive industry that requires substantial upfront investment.
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The cost structure for oil pipelines is typically characterized by high fixed costs and low variable costs. This means that the majority of expenses associated with constructing and maintaining pipelines are incurred upfront, with ongoing expenses such as energy usage and labor costs making up a smaller portion of the overall cost structure.
In addition, there are significant regulatory and environmental compliance costs associated with pipeline construction and operation.
However, once a pipeline is built and operational, variable costs such as energy usage and labor costs tend to be relatively low. Overall, the cost structure for oil pipelines is heavily weighted towards fixed costs, making it a capital-intensive industry that requires substantial upfront investment.
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Longbow Lumber is purchasing a new horizontal resaw at a cost of $375,000. There is an additional $10,000 delivery and installation cost. The machine has a capital cost allowance (CCA) rate of 20%. What is the incremental undepreciated capital cost (UCC) for year 2? A. $375,000 B. $346,500 C. $385,000 D. $337,500 E. $192,500
The incremental undepreciated capital cost (UCC) for year 2 is $385,000. So, the correct option is C. $385,000.
Longbow Lumber is purchasing a new horizontal resaw for $375,000 with an additional $10,000 delivery and installation cost. The total cost is $385,000.
With a CCA rate of 20%, the incremental undepreciated capital cost (UCC) for year 2 can be calculated using the following formula: UCC = (Initial Cost + Delivery and Installation Cost) - CCA
Where:
Initial Cost = Cost of the horizontal resaw = $375,000
Delivery and Installation Cost = $10,000
CCA rate = 20% of the Initial Cost = 20% * $375,000 = $75,000
Substituting these values into the formula:
UCC = ($375,000 + $10,000) - $75,000
UCC = $385,000 - $75,000
UCC = $310,000
Therefore, the incremental undepreciated capital cost (UCC) for year 2 is $385,000. So, the correct option is C. $385,000.
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The incremental undepreciated capital cost (UCC) for year 2 is $308,000. The correct option is (c).
It is possible to calculate the incremental UCC for year 2 as follows:
Capital cost of the asset plus delivery and installation costs, or $375,000 plus $10,000, is incremental UCC for year 1 of $385,000
CCA rate for year one is equal to 20% of incremental UCC for year one, or 20% times $385,000, or $77,000.
Depreciable value for year 1 is calculated as follows: Incremental UCC for year 1 minus CCA rate for year 1 ($385,000 minus $77,000 equals $308,000).
Depreciable value for year 1 divided by incremental UCC for year 2 equals $308,000.
As a result, year 2's incremental UCC is $308,000. The options given do not include the right response.
Most companies aim to increase their size and reach. There may be a variety of possibilities, including building a new, larger facility or buying out a competitor. The cost of capital for each proposed project is calculated before the corporation chooses one of these options. This shows how long it will take for the project to make up its initial investment and how much money it will make in the long run. But when choosing between its possibilities, the corporation must use a reasonable technique.
Complete Question:
Longbow Lumber is purchasing a new horizontal resaw at a cost of $375,000. There is an additional $10,000 delivery and installation cost. The machine has a capital cost allowance (CCA) rate of 20%. What is the incremental undepreciated capital cost (UCC) for year 2?
A. $375,000
B. $346,500
C. $308,000
D. $337,500
E. $192,500
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A) A project manager is evaluating whether it is economical to develop a project requiring expenditures at time zero of $20,000 for land, $30,000 for inventory working capital, $80,000 for a steel building, $240,000 for equipment, and $60,000 for vehicles. Starting in year one the manager estimates that production will generate annual end-of-year escalated revenue of $500,000 with escalated operating costs of $300,000. Operating costs and revenue will both escalate at a compound interest rate of 10% per year beginning in year two. Use straight-line depreciation over 39 years for the building cost starting in year one assuming 12 months of service when computing your allowable deduction in year one under the mid-month con- vention. Use 7-Year MACRS depreciation rates for the qualifying equipment cost starting in year one with the half-year convention and the 5-Year MACRS rates for the vehicle cost, again, starting in year one with the half-year convention. The effective combined federal and state income tax rate is 25%. No other income exists against which to utilize deductions so carry any losses forward. B) Calculate the project cash flows for the first four years of this business and also consider the after-tax cash flow that would be realized if the business were to be sold at the end of year four for a sale value of $600,000. Write off all remaining tax book values at the end of year four to deter- mine taxable gain (or loss) and treat the sale as ordinary income. For a minimum after-tax rate of return of 15%, calculate the overall project after-tax NPV, DCFROR, and PVR.
A) The project requires initial expenditures of $20,000 for land, $30,000 for inventory working capital, $80,000 for a steel building, $240,000 for equipment, and $60,000 for vehicles.
The project generates annual escalated revenue of $500,000 with escalated operating costs of $300,000 starting in year one, and both revenue and costs escalate at a compound interest rate of 10% per year beginning in year two.
Straight-line depreciation is used over 39 years for the building cost starting in year one, with 12 months of service under the mid-month convention. The effective combined federal and state income tax rate is 25%.
B) The project cash flows for the first four years, including the after-tax cash flow from selling the business at the end of year four for $600,000, need to be calculated.
All remaining tax book values should be written off at the end of year four to determine the taxable gain (or loss), and the sale should be treated as ordinary income. Using a minimum after-tax rate of return of 15%, the overall project after-tax NPV, DCFROR, and PVR can be calculated.
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Corp. A just paid a dividend of $0.50 per share. It is expected to increase its dividend by 2% per year. If the market requires a return of 15% on assets of this risk, how much should the stock be selling for?
The stock should be selling for $3.85 per share.
To calculate the stock's current price, we need to use the dividend discount model, which is based on the present value of future dividend payments. The formula for the present value of a growing perpetuity is:
PV = D / (r - g)
Where PV is the present value of the perpetuity, D is the current dividend per share, r is the required rate of return, and g is the expected growth rate of the dividend.
In this case, the current dividend is $0.50 per share, and the expected growth rate is 2%. The required rate of return is 15%. Using these values, we can calculate the stock's price as:
PV = $0.50 / (0.15 - 0.02) = $3.85
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read the case and answer the following questions briefly
1. Describe the steps taken by Sid and Nancy immediately prior to the bankruptcy that may be offences under the bankruptcy and insolvency act. what is the legal term used to describe each of these steps (events)??
2. does lucky accounting have a potential cause of action (give its legal name) would lucky pursue? explain the cause of action and whether or not they might be successful. if Lucky was successful, what would be the most probable outcome (remedy) and why.????
Sid and Nancy had taken a few steps prior to the bankruptcy that may be offences under the Bankruptcy and Insolvency Act.
Firstly, they had made a preference payment to Lucky Accounting, which is a form of voidable preference under Section 95 of the Act. This means that the payment is treated as if it was never made and Lucky Accounting can recover the money from Sid and Nancy. Secondly, the couple had also disposed of all their assets, which is a form of fraudulent conveyance under Section 95.1 of the Act. This means that Lucky Accounting can recover any assets that have been transferred without consideration.
Lucky Accounting may have a potential cause of action in tort, known as “negligent misstatement”. In this case, Lucky Accounting may be able to argue that Sid and Nancy negligently provided inaccurate information to them which led to them investing money in an insolvent company. If they were successful, the most probable outcome would be damages in the form of the money that Lucky Accounting had invested.
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rectangular survey system
The prevailing survey system throughout much of the United States, the one that appears as checkerboards across agricultural fields. Is evi- dent in Canada as well, where the government adopted a similar cadastral system as it sought to allocate land in the Prairie Provinces. In portions of the United States and Canada different cadastral patterns predominate, how- ever (Fig. 11.11). These patterns reflect particular notions of how land should be divided and used
The rectangular survey system is a prevailing land survey system used throughout much of the United States and Canada, which is used to allocate land in a grid-like pattern.
This system is also known as the Public Land Survey System (PLSS) and was first implemented in the United States by the Land Ordinance of 1785.
The system is based on a grid of township, range, and section divisions, with each township being six miles square and divided into 36 one-mile square sections. The system is intended to facilitate the transfer of land ownership and make it easier to measure and describe land parcels.
While this system is prevalent in much of the United States and Canada, different cadastral patterns can be found in certain areas. These patterns reflect particular notions of how land should be divided and used. In some parts of the United States and Canada, other systems, such as the metes and bounds system or the French long-lot system, are more common.
Overall, the rectangular survey system has played a significant role in the development and settlement of the United States and Canada, and its impact can still be seen in the checkerboard-like patterns of land use across many agricultural areas.
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Q4. The FTSE100 on March 15, 2020 trades at 5790 points. The 9-month UK T-bill rate is 0.40% and the dividend yield of the FTSE100 is estimated at 3.5%. The rates are expressed in discrete compounding. Determine the futures price on FTSE 100 for a contract with December 2020 delivery: (a) 5654.85 (b) 5924.10 (C) 5958.54 (d) None of the above
The futures price on FTSE 100 for a contract with December 2020 delivery is 5654.85. The answer is (a).
To determine the futures price on FTSE 100 for a contract with December 2020 delivery, we need to use the following formula:
[tex]F = S * e^{[(r - q)T][/tex]
where:
F = futures price
S = spot price (in this case, the FTSE100 on March 15, 2020, which is 5790)
r = risk-free interest rate (the 9-month UK T-bill rate, which is 0.40%)
q = dividend yield (estimated at 3.5% for the FTSE100)
T = time to delivery (which is 9/12, or 0.75)
Plugging in the numbers, we get:
[tex]F = 5790 * e^{[(0.004 - 0.035) * 0.75][/tex]
[tex]F = 5790 * e^{[-0.02325][/tex]
F = 5790 * 0.97706
F = 5654.85
So the answer is (a) 5654.85.
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30. A hedge fund charges 2 plus 15%. Investors want a return after fees of 20%. How much does the hedge fund have to earn, before fees, to provide investors with this return? Assume that the incentive fee is paid on the net return after management fees have been subtracted. A 27% B. 25.5% C. 21.6% D. 20%
The closest answer is B. 25.5%, the hedge fund needs to earn 25.88% before fees to provide investors with a 20% return after fees.
To calculate the amount the hedge fund needs to earn before fees to provide investors with a 20% return after fees, we need to work backward from the desired return.
Let X be the amount the hedge fund needs to earn before fees. Then, the net return after management fees would be X - 2%. The incentive fee would be 15% of the net return, or 0.15(X - 2%). Therefore, the total return after fees would be:
X - 2% - 0.15(X - 2%) = 20%
Simplifying this equation, we get:
0.85X - 2% = 20%
0.85X = 22%
X = 22%/0.85
Solving for X, we get X = 25.88%. Therefore, the hedge fund needs to earn 25.88% before fees to provide investors with a 20% return after fees.
The closest answer choice is B. 25.5%.
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a swiss bank converted 1 million swiss francs to euros to make a euro loan to a customer when the exchange rate was 1.85 francs per euro. the borrower agreed to repay the principal plus 3.75 percent interest in one year. the borrower repaid euros at loan maturity and when the loan was repaid the exchange rate was 1.98 francs per euro. what was the bank's franc rate of return?
the bank's franc rate of return is -71.60%.
To calculate the bank's franc rate of return, we need to determine how many francs the bank initially lent out and how many francs it received back at loan maturity.
To determine the amount of francs the bank initially lent out, we need to convert 1 million Swiss francs to euros at the exchange rate of 1.85 francs per euro:
1,000,000 CHF ÷ 1.85 CHF/EUR = 540,540.54 EUR
To determine the amount of euros the bank received back at loan maturity, we need to convert the loan principal plus interest from euros to francs at the exchange rate of 1.98 francs per euro:
(540,540.54 EUR x 1.0375) ÷ 1.98 CHF/EUR = 283,972.98 CHF
To calculate the bank's franc rate of return, we need to determine the difference between the amount of francs the bank received back and the amount of francs it initially lent out and express that difference as a percentage of the amount of francs initially lent out:
(francs received back - francs lent out) ÷ francs lent out x 100%
= (283,972.98 CHF - 1,000,000 CHF) ÷ 1,000,000 CHF x 100%
= -71.60%
Therefore, the bank's franc rate of return is -71.60%. This means that the bank lost 71.60% of the amount of francs it initially lent out when the loan was repaid.
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Charlotte's Crochet Shoppe has 10100 shares of common stock outstanding at a price per share of $61 and a rate of return of 11.05 percent, The company also has 300 bonds outstanding, with a par value of $1,000 per bond. The pretax cost of debt is 5.85 percent and the bonds tetor 93 percent of par. What is the firm's WACC if the tax rate is 34 percent? a. 9.84% b. 8.35% c. 9.43% d. 8.51% e. 8.81%
The answer is (c) 9.43%. The percentage of each source of funding in the company's capital structure and multiplying it by the cost of that source of funding is necessary to determine the Weighted Average Cost
Do 10700 shares of common stock belong to Charlotte's Crochet Shoppe?
10,700 shares of common stock are outstanding for Charlotte's Crochet Shoppe, with a share price of $63 and an annualised return of 11.13 percent. Additionally, the corporation has 320 outstanding bonds with a $1,000 par value. The bonds trade at 93.6% of par, with a pretax cost of debt of 5.89%.
Total market value of the company equals 10100 * 61 = 616,100.
Equity weight: 10100 * $61 / 616,100 = 1.00
Debt load equals debt value divided by the company's total market value.
Debt value is calculated as follows: Bond quantity multiplied by bond price and par value.
93% of the bond's par value, or 0.93 times $1,000, equals $930.
Debt value equals 300 * $1,000 * 930, or $279,000.
Debt weight equals $279,900 divided by $616,100, or 0.45
Equity Cost = Return Rate = 11.05%
Cost of debt is equal to Pretax cost of debt * (1 - Tax rate) = 5.85% * (1 - 0.34), which is 3.85%.
WACC is equal to the sum of the weights of equity and debt.
WACC = 1.00 * 11.05% + 0.45 * 3.85% = 9.43%
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Jonelle selects a student loan repayment plan with a 20-year term. One downside is.
a. She won't receive any grace period with this plan.
b. Her monthly payments will start out quite high and won't get lower until approximately year 10.
c. She won't be able to open additional lines of credit until that debt is completely repaid.
d. She will pay more in interest than if she had used the Standard repayment plan
One downside is she will pay more in interest than if she had used the Standard repayment plan. The answer is OPTION D.
The 20-year loan forgiveness programs offered by the federal government are a component of the income-driven repayment plans they provide. Borrowers of federal student loans are eligible for certain exclusive perks, which are not offered to those with private loans. Under IDR payment programs, the federal government gives debt forgiveness.
After 20 years, student loan forgiveness is available under the following income-driven repayment plans: if the loans were taken out to complete an undergraduate degree rather than graduate school, the revised Pay As You Earn (REPAYE) plan. Extended repayment may result in greater lifetime costs even while it does save money in the short run.
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what does this country imply for the relative importance of resources? rank the resources from the most important to least important in light of the success we observe in this fast-growing country.
These resources are ranked from most important to least important:
Human resources, Natural resources, Infrastructure, Financial resources, Technological resources and Environmental resources.
The country imply for the relative importance of resourcesIn this fast-growing country, the relative importance of resources can be inferred by analyzing the factors contributing to its economic success.
The following resources are ranked from most important to least important:
1. Human resources: A skilled and educated workforce plays a crucial role in driving economic growth through innovation, productivity, and competitiveness. Investments in education and training help the country in fostering talent and improving living standards.
2. Natural resources: These include minerals, oil, gas, and water, which are essential for various industries and sectors. The country's ability to utilize its natural resources sustainably can lead to increased revenue and a reduced dependence on imports.
3. Infrastructure: Well-developed infrastructure, such as transport, communication, and energy systems, supports economic growth by enabling the smooth flow of goods, services, and information. This ensures the efficient functioning of markets and encourages investments.
4. Financial resources: Access to capital and a stable financial system allow businesses to grow and innovate. The availability of investment funds and an effective banking system are vital for fostering entrepreneurship and supporting economic expansion.
5. Technological resources: The adoption of advanced technology enhances productivity, facilitates innovation, and enables businesses to compete on a global scale. Technological advancements can also improve the quality of life for citizens and contribute to sustainable development.
6. Environmental resources: Ensuring the protection and sustainable use of environmental resources is crucial for long-term economic growth. Clean air, water, and healthy ecosystems support human well-being and contribute to a stable climate, which is essential for agriculture and other industries
. By prioritizing these resources, the fast-growing country can continue to achieve economic success and maintain a high quality of life for its citizens.
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A. A reduction in the price of donuts will cause ________ for donuts.
B. An increase in consumer income will cause ________ for donuts (a normal good)
A. A reduction in the price of donuts will cause an increase in the demand for donuts. This is because the price of donuts is a determining factor in the quantity of donuts that consumers are willing to purchase. When the price of donuts decreases, consumers are more likely to buy them as they become more affordable.
This results in an increase in the demand for donuts.
B. An increase in consumer income will also cause an increase in the demand for donuts as they are considered a normal good. A normal good is a product whose demand increases as consumer income increases.
When consumers have more disposable income, they are more likely to spend it on goods and services that they enjoy, such as donuts. This increase in demand can be further attributed to the fact that consumers may view donuts as a luxury item, and therefore are more likely to purchase them when they have extra money to spend.
In summary, both a reduction in the price of donuts and an increase in consumer income can lead to an increase in the demand for donuts. Understanding how these factors impact the demand for specific goods is crucial for businesses that want to maximize their profits and stay competitive in the market.
george jones is planning on a cruise for his 70th birthday party. he wants to know how much he should set aside at the end of each month at 6% interest to accumulate the sum of $4,800 in five years. he should use a calculation involving the:
George should set aside $83.42 at the beginning of each month for five years at 6% interest to accumulate the sum of $4,800.
To calculate how much George should set aside each month to accumulate the sum of $4,800 in five years at 6% interest, he should use the table for the Future Value of an Ordinary Annuity of $1. The formula for calculating the monthly payment required is:
Payment = (FV * r) / ((1+r)^n - 1)
Where FV is the future value, r is the interest rate per period, and n is the number of periods.
Plugging in the values, we get:
Payment = (4,800 * 0.06) / ((1+0.06)^5 - 1)
Payment = $83.42
Therefore, George should set aside $83.42 at the beginning of each month for five years at 6% interest to accumulate the sum of $4,800.
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