The Black-Scholes option pricing model is highly sensitive to the volatility of the underlying stock, the current market price of the stock, and the strike price of the option. These factors can influence the price of an option and, therefore, must be considered when using the Black-Scholes model to value options.
Volatility of the underlying stock:
The volatility of the underlying stock is one of the most critical factors that influence the price of an option. In the Black-Scholes option pricing model, the volatility of the stock is used to calculate the standard deviation of the stock's return. Higher volatility implies that there is a greater probability of the stock experiencing a large change in price, which increases the value of the option. Therefore, the Black-Scholes model is highly sensitive to changes in the volatility of the stock.
Current market price of the stock:
The current market price of the stock is another important factor that influences the price of an option. In the Black-Scholes model, the current market price of the stock is used to calculate the expected return on the stock. As the market price of the stock increases, the expected return on the stock also increases, which increases the value of the call option and decreases the value of the put option. Therefore, the Black-Scholes model is highly sensitive to changes in the current market price of the stock.
Strike price of the option:
The strike price of the option is the price at which the underlying asset can be bought or sold. In the Black-Scholes model, the strike price of the option is used to calculate the intrinsic value of the option. As the strike price of the option decreases (in the case of a call option) or increases (in the case of a put option), the intrinsic value of the option increases, which increases the value of the call option and decreases the value of the put option. Therefore, the Black-Scholes model is highly sensitive to changes in the strike price of the option.
Unexpected changes in GDP:
Unexpected changes in GDP are not considered as a factor in the Black-Scholes option pricing model. This is because GDP is a macroeconomic variable that measures the overall health of an economy, whereas the Black-Scholes model is used to value individual options. However, unexpected changes in GDP can indirectly affect the value of an option by influencing the volatility of the underlying stock or the current market price of the stock.
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1. Project L costs $55,000, its expected cash inflows are $14,000 per year for 8 years, and its WACC is 11%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.
2. Project L costs $55,000, its expected cash inflows are $14,000 per year for 9 years, and its WACC is 12%. What is the project's payback? Round your answer to two decimal places.
3. Project L costs $35,000, its expected cash inflows are $10,000 per year for 8 years, and its WACC is 9%. What is the project's discounted payback? Do not round intermediate calculations.
The Modified Internal Rate of Return (MIRR) for the project is 13.50%.
To calculate MIRR, we need to find the terminal value of the cash inflows and then solve for the discount rate that sets the present value of the outflows equal to the present value of the terminal value. The formula is:
PV of Outflows = PV of Terminal Value
PV of Outflows = - Initial Cost = - $55,000
PV of Terminal Value = Future Value / (1 + MIRR)^n
Where,
Future Value = Sum of all cash inflows after the last outflow
n = Number of years after the last outflow
In this case,
Future Value = $14,000 * ((1+0.11)^8 - 1) / 0.11 = $181,001.95
n = 1
PV of Terminal Value = $181,001.95 / (1+MIRR)^1
Now, solving for MIRR, we get:
PV of Outflows = PV of Terminal Value
-$55,000 = $181,001.95 / (1+MIRR)
MIRR = 13.50%
The payback period for the project is 4.93 years.
Payback period is the time required for the cumulative cash inflows to equal the initial cost of the project. The formula for payback period is:
Payback Period = Years before full recovery + (Unrecovered cost at the start of the year / Cash flow during the year)
In this case,
Years before full recovery = 4 years
Unrecovered cost at the start of the year 5 = $1,820 (i.e., $55,000 - $14,000*4)
Cash flow during the year 5 = $14,000
Now, solving for payback period, we get:
Payback Period = 4 + ($1,820 / $14,000) = 4.93 years
The discounted payback period for the project is 5.11 years.
Discounted payback period takes into account the time value of money, by discounting the cash inflows using the WACC. The formula for discounted payback period is:
Discounted Payback Period = Years before full recovery + (Unrecovered discounted cost at the start of the year / Discounted cash flow during the year)
In this case,
Unrecovered discounted cost at the start of the year 5 = -$1,197.73 (i.e., present value of $1,820 using WACC of 9%)
Discounted cash flow during the year 5 = $14,000 / (1+0.09)^4 = $9,377.51
Now, solving for discounted payback period, we get:
Discounted Payback Period = 4 + (-$1,197.73 / $9,377.51) = 5.11 years
Overall, these calculations help to evaluate the profitability and feasibility of the project, taking into account the time value of money and the cost of capital.
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if quantity demanded responds substantially to a relatively small change in price, demand is: if quantity demanded responds substantially to a relatively small change in price, demand is: price-inelastic. price-elastic. insensitive to changes in price. positively sloped.
If the quantity demanded responds substantially to a relatively small change in price, then the demand is considered to be price-elastic. This means that a change in price will have a significant impact on the quantity of the product that consumers are willing to purchase. The correct answer is price-elastic.
On the other hand, if the quantity demanded is relatively unaffected by a change in price, then the demand is considered to be price-inelastic. This means that consumers are not very sensitive to changes in price and will continue to purchase the same quantity of the product even if the price changes.Understanding the elasticity of demand is important for businesses when setting prices for their products.
If the demand for a product is price-elastic, then a decrease in price may lead to an increase in revenue as more consumers are willing to purchase the product. However, if the demand for a product is price-inelastic, then decreasing the price may not have a significant impact on the quantity demanded and may result in a decrease in revenue.Overall, the responsiveness of the quantity demanded to changes in price is an important factor to consider when analyzing the demand for a product. A price-elastic demand curve will be relatively flat, while a price-inelastic demand curve will be relatively steep.The correct answer is price-elastic.
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Since 1900, real GDP per capita has __________ and this measure __________ the actual growth in standards of living in the United States over this time.
A) increased; understates
Since 1900, real GDP per capita has increased and this measure understates the actual growth in standards of living in the United States over this time.
Real GDP per capita is a commonly used measure to gauge the economic well-being of a country, but it only takes into account the total output of goods and services per person, adjusted for inflation.
It does not capture other factors that contribute to overall quality of life, such as leisure time, access to healthcare, education, and environmental quality.
Although real GDP per capita has increased significantly over the past century, this growth does not necessarily translate into a higher standard of living for everyone in the population.
Income inequality has been on the rise, with a small percentage of the population holding a disproportionate amount of wealth.
Additionally, factors such as job security, social mobility, and overall happiness are not reflected in the real GDP per capita measure.
Furthermore, real GDP per capita does not account for the negative externalities of economic growth, such as pollution and depletion of natural resources.
Therefore, while real GDP per capita may be a useful measure to track economic growth over time, it should not be relied upon as the sole indicator of a country's standard of living.
Other measures, such as the Human Development Index, which takes into account factors such as education and healthcare, provide a more comprehensive picture of a country's overall well-being.
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ebook question content area problem 13-40 (lo. 4) since garnet corporation was formed five years ago, its stock has been held as follows: 525 shares by frank and 175 shares by grace. their basis in the stock is $350,000 for frank and $150,000 for grace. as part of a stock redemption, garnet redeems 125 of frank's shares for $175,000 and 125 of grace's shares for $175,000. question content area round any division to six decimal places. round your final answer to the nearest dollar. a. what are the tax consequences of the stock redemption to frank and grace?
Frank will have a capital loss of $25,000 and Grace will have a capital gain of $25,000, as a result of the stock redemption.
The tax consequences of the stock redemption to Frank and Grace are as follows. Frank will incur a capital loss of $25,000 (125 shares redeemed for $175,000, with a basis of $350,000). This capital loss can be used to offset capital gains realized in the same year or in future years.
As for Grace, she will realize a capital gain of $25,000 (125 shares redeemed for $175,000, with a basis of $150,000). This capital gain will be taxed as a long-term capital gain, as the shares were held for more than one year.
The capital loss incurred by Frank can be used to offset any capital gains realized in the same year or in future years. The capital gain realized by Grace will be taxed as a long-term capital gain.
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a corporation that owns more than $10 million of total assets uses which schedule to reconcile book income to taxable income?
A corporation that owns more than $10 million of total assets uses Schedule M-3 to reconcile book income to taxable income. This schedule is used to report certain financial statement items in a specific format that is different from the format used in the financial statements, and is required by the IRS for corporations that meet certain asset, related party transaction, or reportable transaction thresholds.
Corporations that own more than $10 million of total assets are required to file a tax return using Form 1120, which is the U.S. Corporation Income Tax Return. In addition to Form 1120, these corporations are also required to file Schedule M-3, which is used to reconcile book income to taxable income. Schedule M-3 is a supplemental form that provides additional information about the corporation's financial statements and tax return.
Schedule M-3 requires corporations to report certain financial statement items in a specific format that is different from the format used in the financial statements. For example, some items that are reported on the income statement may be reported on the balance sheet or cash flow statement in the tax return. This can result in differences between the book income and taxable income reported by the corporation.
Corporations are required to complete Schedule M-3 if their total assets are greater than $10 million, if they have a related party transaction of $5 million or more, or if they have a reportable transaction. A related party transaction is a transaction between the corporation and a person or entity that is related to the corporation, such as a shareholder or a subsidiary. A reportable transaction is a transaction that the IRS has identified as potentially abusive or tax-avoidant.
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suppose the risk-free rate of return is 2.5 percent and the market risk premium is 6 percent. stock u, which has a beta coefficient equal to 1.6, is currently selling for $31 per share. the company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $2.00 per share. is stock u correctly priced? explain. do not round intermediate calculations. round your answers to one decimal place.
To determine if Stock U is correctly priced, we need to calculate its expected return using the Capital Asset Pricing Model (CAPM) and compare it to the expected dividend growth rate.
Step 1: Calculate the expected return using CAPM.
Expected Return = Risk-Free Rate + (Beta × Market Risk Premium)
Expected Return = 2.5% + (1.6 × 6%)
Expected Return = 2.5% + 9.6%
Expected Return = 12.1%
Step 2: Calculate the dividend yield.
Dividend Yield = (Most Recent Dividend / Current Stock Price) × 100
Dividend Yield = ($2.00 / $31) × 100
Dividend Yield = 6.5%
Step 3: Calculate the expected total return.
Expected Total Return = Dividend Yield + Expected Growth Rate
Expected Total Return = 6.5% + 4%
Expected Total Return = 10.5%
Since the expected return (12.1%) is higher than the expected total return (10.5%), Stock U is not correctly priced. It is overpriced as the investors are expecting a higher return than what the stock can provide based on its dividend yield and growth rate.
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atmir reviewed the proposal submitted by his employee. although all the numbers added up, atmir's instinct told him there was something wrong. the ability of a manager to use intuition, experience, and instinct in management decisions is referred to as
The ability of a manager to use intuition, experience, and instinct in management decisions is often referred to as "managerial judgment."
Managerial judgment is an important aspect of decision-making in management, especially in situations where there is incomplete or ambiguous information, or when the decision is complex and involves multiple variables. While data and analysis are important in decision-making, managerial judgment can provide valuable insights and help managers make decisions based on their knowledge, experience, and intuition.
In this case, Atmir's instinct told him that there was something wrong with the proposal, even though all the numbers added up. This is a good example of the use of managerial judgment in management decisions. By trusting his instincts and experience, Atmir was able to identify a potential issue with the proposal that may not have been immediately apparent through data analysis alone.
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Bond valuation—Semiannual interest Find the value of a bond maturing in 11 years, with a $1,000 par value and a coupon interest rate of 9% (4.5% paid semiannually) if the required return on similar-risk bonds is 16% annual interest (8% paid semiannually). The present value of the bond is $ (Round to the nearest cent.)
The present value of the bond is approximately $602.07 (rounded to the nearest cent).
To find the value of the bond, we need to calculate the present value of both the semiannual coupon payments and the par value of the bond. We can use the Present Value of Annuity (PVA) and Present Value (PV) formulas.
We know that:
- Par Value = $1,000
- Coupon Interest Rate = 9% (4.5% semiannually)
- Required Return = 16% (8% semiannually)
- Years to Maturity = 11 years
- Number of periods = 11 years x 2 (semiannual) = 22 periods
Calculate the Present Value of Annuity (PVA) for the semiannual coupon payments:
PVA = [tex]$$C \cdot \frac{1 - (1 + r)^{-n}}{r}$$[/tex]
C = coupon payment = $1,000 * 4.5% = $45
r = required return per period = 8% = 0.08
n = number of periods = 22
PVA = [tex]$45 \times \left[\frac{1 - \left(1 + 0.08\right)^{-22}}{0.08}\right]$[/tex]
PVA ≈ $387.52
Calculate the Present Value (PV) of the par value:
PV = [tex]\frac{FV}{(1+r)^n}[/tex]
FV = par value = $1,000
PV = [tex]\frac{1{,}000}{(1 + 0.08)^{22}}[/tex]
PV ≈ $214.55
Add PVA and PV to find the bond value:
Bond Value = PVA + PV
Bond Value = $387.52 + $214.55
Bond Value ≈ $602.07
So, the present value of the bond is approximately $602.07 (rounded to the nearest cent).
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what does the term money neutrality mean? changes in the money supply impact everyone in an economy in a similar way. changes in the money supply have no real effects on the economy in the long run. changes in the money supply and the price level are inversely related and proportional, meaning that a 10% increase in the money supply decreases prices by exactly 10%. because the bank of canada is relatively free from oversight, it can take actions that are unpopular if they are in the best interest of the country.
The term "money neutrality" refers to the concept that changes in the money supply have no real effects on the economy in the long run.
Definition of money neutralityMoney neutrality refers to the idea that changes in the money supply have no real effects on the economy in the long run. This means that the economy is not significantly impacted by changes in the amount of money circulating within it.
This means that although changes in the money supply might temporarily impact prices or output levels, in the end, they will not significantly alter the overall performance of the economy. In other words, a 10% increase in the money supply does not necessarily translate to a 10% decrease in prices.
The Bank of Canada, like other central banks, may take actions that are unpopular if they believe these actions are in the best interest of the country, but the principle of money neutrality suggests that these actions will ultimately have limited long-term impact on the economy.
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a new home buyer requests help finding a loan and wants the lowest rate. they’ve heard that interest rates are increasing. who sets the base or prime rate?
A new home buyer requests help finding a loan and wants the lowest rate, as they've heard that interest rates are increasing.
The base or prime rate is primarily determined by a country's central bank, which in the United States is the Federal Reserve.
The central bank sets the base rate, also known as the target federal funds rate, by analyzing various economic factors such as inflation, unemployment, and economic growth.
This rate is the interest that banks charge each other for overnight loans, and it influences other interest rates in the market, including the prime rate.
Commercial banks then use this base rate to set their prime lending rates, which are the interest rates they charge their most creditworthy customers, such as new home buyers with excellent credit scores.
When interest rates are increasing, it's crucial for home buyers to research and compare different loan offers from multiple lenders to secure the lowest possible rate.
They can also consider working with a mortgage broker, who has access to a variety of loan products and can help them find the best loan based on their individual needs and financial situation.
In summary, the base or prime rate is set by a country's central bank, such as the Federal Reserve in the United States.
New home buyers should research, compare loan offers, and potentially work with a mortgage broker to find the lowest available interest rate when searching for a home loan.
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true false price segmentation is the practice of a seller charging different market segments different prices for different products.
The statement "Price segmentation is the practice of a seller charging different market segments different prices for different products" is true.
Price segmentation, also known as price differentiation, is a marketing strategy that involves offering different prices to different groups of customers for the same product or service. This can be based on various factors, such as geographic location, demographic characteristics, purchasing behavior, and product features. Price segmentation can help companies increase revenue and profits by targeting different market segments with different price points and value propositions, and by optimizing pricing based on customer willingness to pay. However, it also requires careful consideration of ethical and legal issues, such as discrimination and price collusion, and the need to balance customer satisfaction and loyalty with financial objectives.
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Question 4 (1 point) Determine the yield to maturity of a zero coupon bond with 8 years to maturity that is currently selling for $425. 12.3 11.3% 12.0% 11.7% Question 5 (1.5 points) A bond matures
A bond matures when the debt obligation that it represents is due to be repaid. This is typically done by the issuer of the bond, such as a government or a corporation, repaying the face value of the bond to the bondholder.
At this point, the bondholder will no longer receive any coupon payments and the bond issuer will no longer have any further obligations to the bondholder. The bondholder may also have the option of selling the bond before it matures, and this can be done in the bond market, where prices will depend on the bond’s current market value and the remaining time until maturity.
When a bond matures, it is important for bondholders to decide what they want to do with the proceeds. They may choose to reinvest the proceeds in other bonds, or they may decide to withdraw the money and use it for other purposes.
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6. How much would $5,000 paid to you in 25 years be worth today if the discount rate were 5.50% annually (APR), and compounding is weekly? tiqab
$5,000 paid to you in 25 years would be worth $1,322.62 today, assuming a discount rate of 5.50% annually with weekly compounding.
To calculate the present value of $5,000 paid in 25 years, we need to use the formula for the present value of a future sum:
PV = FV / (1 + r/n)^(n*t)
where PV is the present value, FV is the future value, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years.
In this case, FV is $5,000, r is 5.50% APR, which is equivalent to a weekly interest rate of 5.50%/52 = 0.105769%, n is 52 (since compounding is weekly), and t is 25.
So, the present value can be calculated as:
PV = $5,000 / (1 + 0.00510769)^(52*25) = $1,322.62
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_______ shows how many units of a product or service consumers will demand during a specific period of time at different prices
The term you are looking for is "demand curve." A demand curve is a graphical representation of how much of a product or service consumers are willing to buy at different prices during a specific time period. The curve shows the relationship between price and quantity demanded.
When a product or service is priced high, demand for it tends to be low, and when it is priced low, demand tends to be high. As such, the demand curve slopes downwards from left to right, indicating that as price decreases, quantity demanded increases.
Several factors can affect the shape of the demand curve, such as changes in consumer tastes and preferences, the availability of substitute goods, and changes in consumer income. These factors can shift the demand curve either to the left or the right.
Understanding the demand curve is crucial for businesses to set prices that will maximize profits while still meeting consumer demand. By analyzing consumer behavior and the factors that affect demand, businesses can set optimal prices that balance supply and demand and help them remain competitive in the market.
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The term you are looking for is "demand". Demand shows how many units of a product or service consumers will demand during a specific period of time at different prices.
The term that describes how many units of a product or service consumers will demand during a specific period of time at different prices is "demand curve." A demand curve is a graphical representation of the relationship between the price of a good or service and the quantity of that good or service that consumers are willing and able to purchase at that price. It shows the quantity demanded at various prices, assuming all other factors remain constant, such as income, tastes, and preferences. Typically, demand curves slope downward, indicating that as the price of a good or service increases, the quantity demanded decreases, and as the price decreases, the quantity demanded increases.
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1. The pay-for-delay tactics are more fully described in Federal Trade Commission, Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers Billions. Staff Study, January 2010.
2. A recent Supreme Court outcome is discussed in Edward Wyatt, Supreme Court Lets Regulators Sue Over Generic Drug Deals, New York Times, June 17, 2013.
1. Explain how a patent creates a kind of monopoly and what benefits a patent conveys to the owner. 2. Explain what happens in a market when patent protection for a technology runs out. 3. Explain the effects of pay-for-delay actions on producers and consumers. 4. Discuss whether pay-for-delay tactics should no longer be allowed, or should continue. Be sure to support your conclusion using economic arguments.
1. A patent creates a kind of monopoly by granting the patent holder exclusive rights to produce, sell, or use a particular invention or technology for a specified period, typically 20 years. This exclusivity allows the patent owner to control the market for their invention, preventing competitors from producing or selling similar products.
The benefits a patent conveys to the owner include the ability to charge higher prices, recover research and development costs, and protect their intellectual property from being copied or used without permission.
2. When patent protection for technology runs out, the market becomes open to competition. Competitors can legally produce and sell products using the previously patented technology, leading to an increase in supply and potentially driving down prices.
Consumers benefit from a wider variety of choices and lower prices, while producers must innovate or find ways to reduce production costs to remain competitive.
3. Pay-for-delay actions, as described in the Federal Trade Commission Staff Study, occur when a brand-name drug manufacturer pays a generic drug manufacturer to delay the entry of a generic drug into the market.
The effects of pay-for-delay actions on producers and consumers include higher prices for consumers and reduced competition in the market. Brand-name drug manufacturers benefit from continued monopoly power, while generic drug manufacturers receive financial compensation for delaying their entry into the market.
4. Regarding whether pay-for-delay tactics should no longer be allowed or should continue, economic arguments can be made for both sides. Proponents of allowing pay-for-delay tactics argue that they provide incentives for innovation and protect the patent holder's rights.
On the other hand, opponents of pay-for-delay tactics argue that they harm consumers by keeping prices artificially high and stifling competition. The recent Supreme Court outcome discussed in the New York Times article suggests that regulators should have the ability to sue over generic drug deals, implying that there is concern over the negative impact of pay-for-delay tactics on consumers.
Ultimately, a balance must be struck between incentivizing innovation and protecting consumer interests, potentially through increased regulation and oversight of pay-for-delay agreements.
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Read the following regarding the historical average annual returns on the S&P 500, 1930-2017.
1930s: Rate of return from dividends was 5.7% 1940s: 5.8% 1950s: 4.7% 1960s: 3.2% 1970s: 4.2% 1980: 4.1% 1990s: 2.4% 2000s: 1.8% 2010-2017: 2% 1930-2017: 3.8%
How would you compare the average annual returns for the various decades? What were some major reasons for some of the under-performing decades?
The average annual returns on the S&P 500 varied significantly across different decades, ranging from a high of 5.8% in the 1940s to a low of 1.8% in the 2000s.
The 1930s and 1940s had relatively high average returns due to strong economic growth and recovery from the Great Depression, as well as government policies aimed at stimulating economic activity.
The 1950s and 1960s saw somewhat lower returns, likely due to a combination of factors such as rising inflation, higher interest rates, and geopolitical tensions such as the Cold War.
The 1970s were a challenging period for the US economy, with high inflation, energy crises, and other factors contributing to relatively low average returns.
The 1980s saw a rebound in economic growth and returns, due in part to policies such as deregulation and tax cuts.
The 1990s were marked by a period of strong economic growth and the rise of the internet, but the average return was still relatively low due to high valuations in the stock market.
The 2000s were characterized by a series of economic and financial crises, including the dot-com bubble, the 9/11 attacks, and the global financial crisis, which contributed to the low average return.
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Project L costs $65,000, its expected cash inflows are $12,000 per year for 11 years, and its WACC is 9%. What is the project's payback? Round your answer to two decimal places.
years ??
Project L costs $35,000, its expected cash inflows are $11,000 per year for 7 years, and its WACC is 11%. What is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Project L costs $55,000, its expected cash inflows are $8,000 per year for 8 years, and its WACC is 10%. What is the project's MIRR? Round your answer to two decimal places. Do not round your intermediate calculations.
a) Payback period for Project L is 5.42 years.
b) NPV of Project L is $8,623.31.
c) MIRR of Project L is 11.98%.
a) To calculate payback period, we need to find the time it takes for the cumulative cash inflows to equal the initial investment. For this project, the payback period can be calculated as follows:
65,000 ÷ 12,000 = 5.42 years
b) To calculate NPV, we need to discount the expected cash inflows using the WACC and subtract the initial investment. The calculation for this project is as follows:
NPV = -65,000 + (11,000 ÷ (1 + 0.11)^1) + (11,000 ÷ (1 + 0.11)^2) + ... + (11,000 ÷ (1 + 0.11)^7)
NPV = $8,623.31
c) To calculate MIRR, we first need to find the terminal value of the project's cash inflows at the end of the 8-year period using the WACC as the discount rate.
We can then solve for the rate that equates the present value of the negative cash flows (the initial investment) to the present value of the positive cash flows (the terminal value). The calculation for this project is as follows:
TV = (8,000 × (1 + 0.10)^8) ÷ 0.10 = $16,329.79
MIRR = ((16,329.79 ÷ 65,000)^(1 ÷ 8)) - 1 = 11.98%
So,Payback period for Project L is 5.42 years,NPV of Project L is $8,623.31 and MIRR of Project L is 11.98%.
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a comprehensive financial plan for the year, made up of various individual departmental and activity budgets, is referred to as a(n)
A comprehensive financial plan for the year, made up of various individual departmental and activity budgets, is referred to as a master budget.
The master budget is the overall financial plan that outlines the organization's projected revenues, expenses, and profits for the upcoming fiscal year. It is composed of several smaller budgets, including sales budget, production budget, operating budget, capital budget, cash budget, and budgeted income statement.
The master budget is essential for the organization's success as it provides a roadmap for the entire company's financial activities. It helps in coordinating the activities of different departments, streamlining operations, and ensuring that resources are allocated efficiently. The master budget also allows managers to identify potential problems and make necessary adjustments to achieve their financial goals.
Creating a master budget requires a deep understanding of the organization's current financial status and a thorough analysis of future trends and market conditions. It is a collaborative effort that involves input from various stakeholders, including top management, department heads, and financial analysts. By developing a comprehensive master budget, organizations can improve their financial performance, increase profitability, and achieve long-term sustainability.
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The appointment of another person to perform a duty under a contract is called a(n): a. assignment. b. delegation.c. bilateral contract.d. affidavit.
The appointment of another person to perform a duty under a contract is called a delegation.
It is a common practice in business and legal agreements where one party transfers the performance of their obligations to another party.
Delegation is a contractual agreement between two parties, the delegator and the delegatee, where the delegatee assumes the responsibilities and duties of the delegator.
A delegation can only take place if the contract specifically allows for it, and it must not contradict any terms of the agreement.
The delegator is still responsible for fulfilling their contractual obligations, but they can delegate certain tasks to a third party. The delegatee, on the other hand, is responsible for performing the delegated tasks according to the terms of the contract.
It is important to note that delegation is different from an assignment. In an assignment, the assignor transfers their rights and benefits under the contract to another party, whereas in delegation, the delegator transfers their duties and responsibilities.
In conclusion, delegation is a useful tool for businesses and individuals to manage their contractual obligations efficiently.
It enables the delegator to focus on other aspects of their business while still fulfilling their contractual obligations, and it allows the delegatee to gain valuable experience and income from performing delegated tasks.
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Following are the probability distribution of reruns of Stock X and Stock y under the three states of economy. State Probability Return on Stock X Return on Stock Y Boom 0.3 15 40 Normal 0.4 25 25 Recession 0.3 10 5 Suppose an investor forms a portfolio of the two assets consisting of 40 percent funds in Stock X and 60 percent in Stock Y. a. What is the expected return on the portfolio? b. What is the standard deviation of the portfolio?
The expected return of a portfolio is the weighted average of returns of individual assets in the portfolio, weighted according to their proportions. In this case, 40 percent of the portfolio is invested in Stock X and 60 percent in Stock Y.
The expected return on the portfolio will be the weighted average of returns on Stock X and Stock Y, that is, 15 percent from Stock X and 25 percent from Stock Y. This gives a portfolio expected return of 19 percent (0.4*15 + 0.6*25).
The standard deviation of a portfolio is the weighted average of standard deviations of individual assets, weighted according to their proportions. The standard deviations of Stock X and Stock Y are 10 percent and 15 percent respectively. The portfolio standard deviation will be 11.25 percent (0.4*10 + 0.6*15).
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a stock sells for $21.38 a share and has a required return of 8 percent. dividends are paid annually and increase at a constant 3.5 percent per year. what is the amount of the last dividend paid? a. $0.59 b. $0.46 c. $0.63 d. $0.50 e. $0.93
A stock sells for $21.38 a share and has a required return of 8 percent. A dividends, its growth rate, and the required return, the dividend growth model can be used to calculate a stock's intrinsic value. The correct answer is $0.50.
The fundamental idea is to calculate the present value of all potential dividends.dividends are paid annually and increase at a constant 3.5 percent per year.
Shares Sold at $12.36
Required Return (K) equals 9%, or 0.09.
Growth in Dividends (G) = 3% = 0.03
The dividend growth model's stock price calculation formula is as follows:
Do (1 + G)/(K-G) = Stock Price
Other values make it possible for us to determine the most recent dividend paid (Do). The equation can alternatively be expressed as -
Last Dividend (Do) is equal to the current price times (K-G) / (1 + G).
The last dividend (Do) is equal to 12.36 * (0.09 - 0.03)/(1 + 0.03).
Last Dividend (Do) equals 12.36 times 0.0583.
Last Dividend = $0.050 (Do).
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The following two payment options each has a present value of X. (i) 140 at the end of each year, forever, with the first payment due at t = 1. (ii) A payment of 2578.51 at t = 14, followed by 140 at the end of each year, forever, with the first payment of 140 due at t = 15. Find X O 3.551.22 O 3.414.63 O 3.619.51 O 3.482.93 O 3.346.34
Based on the information given, the X of these two payment options is 3.551.22.
To find X we need to use formula as following:
For option (i), we can use the perpetuity formula to calculate X:
X = 140 / r
where r is the discount rate. Since the payments are forever, we can use the formula for a perpetuity.
For option (ii), we need to discount the first payment of 2578.51 back to present value at t = 0, and then add the present value of the perpetuity starting at t = 15.
PV = 2578.51 / (1 + r)^14 + 140 / r
To find X, we need to solve for r using the equation above. One way to do this is to use a financial calculator or spreadsheet program.
Using Excel's Goal Seek function, we can set PV equal to X and solve for r.
The solution is:
X = $3.551.22
Therefore, the answer is option O 3.551.22.
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4. The semi-annually compounded APR is 18%. a. What monthly compounded APR has the same EAR? b. What is the present value today of $50,000 to be received in 4 years?
Compounded APR (Annual Percentage Rate) refers to the yearly interest rate on a loan or investment, taking into account the effect of compounding. Compounding occurs when interest is added to the principal, and future interest calculations are based on this increased balance.
EAR (Effective Annual Rate) is a more comprehensive measure of the actual yearly interest rate, as it also accounts for the compounding frequency (e.g., monthly or quarterly) within a year.
a. To find the monthly compounded APR that has the same effective annual rate (EAR) as an APR of 18% compounded semi-annually, we can use the following formula:
EAR = (1 + APR/m)^m - 1
where APR is the annual percentage rate and m is the number of compounding periods per year.
Given APR = 18% and semi-annual compounding, we can plug in these values and solve for the monthly compounded APR (mAPR):
EAR = (1 + 18%/2)^2 - 1
EAR = 0.18
0.18 = (1 + mAPR/12)^12 - 1
Solving for mAPR, we get:
(1 + mAPR/12)^12 = 1.18
1 + mAPR/12 = (1.18)^(1/12)
mAPR/12 = (1.18)^(1/12) - 1
mAPR = 12 * ((1.18)^(1/12) - 1)
mAPR ≈ 1.4161 or 1.42% (rounded to two decimal places)
So, the monthly compounded APR that has the same EAR as an APR of 18% compounded semi-annually is approximately 1.42%.
b. To find the present value today of $50,000 to be received in 4 years, we need to discount the future value (FV) to the present value (PV) using an appropriate discount rate. Assuming an annual interest rate of r, the formula for present value is:
PV = FV / (1 + r)^n
where FV is the future value, r is the interest rate, and n is the number of years.
Given FV = $50,000 and n = 4 years, we need an appropriate interest rate (r) to complete the calculation. If we assume an annual interest rate of 5%, we can plug in these values and solve for PV:
PV = $50,000 / (1 + 0.05)^4
PV = $50,000 / (1.05)^4
PV ≈ $37,419.43 (rounded to two decimal places)
So, the present value today of $50,000 to be received in 4 years, assuming an annual interest rate of 5%, is approximately $37,419.43. However, please note that the appropriate interest rate may vary depending on the specific circumstances, and it is important to consult a financial professional or use an appropriate interest rate based on your specific situation.
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you own a portfolio that is 38 percent invested in stock x, 22 percent in stock y, and 40 percent in stock z. the expected returns on these three stocks are 10 percent, 15 percent, and 12 percent, respectively. what is the expected return on the portfolio?
The expected return on the portfolio is 11.9%.
To calculate the expected return on the portfolio, we need to take a weighted average of the expected returns of the individual stocks, where the weights are the proportions of the portfolio invested in each stock.
Let's denote the expected return on stock X as E(Rx), on stock Y as E(Ry), and on stock Z as E(Rz).
Then, the expected return on the portfolio (E(Rp)) can be calculated as:
E(Rp) = 0.38 x E(Rx) + 0.22 x E(Ry) + 0.40 x E(Rz)
Substituting the given values:
E(Rp) = 0.38 x 10% + 0.22 x 15% + 0.40 x 12%
E(Rp) = 3.8% + 3.3% + 4.8%
E(Rp) = 11.9%
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how to assume Tax Rate in financial Modeling? what Formula isused ? Thanks !
To assume the tax rate in financial modeling, you can use the historical effective tax rate of the company or industry average as a starting point.
What's Tax Rate in financial Modeling?Assuming a tax rate in financial modeling is typically done by using the effective tax rate of the company.
The effective tax rate is calculated by dividing the total tax expense by the company's pre-tax income.
The formula to assume the tax rate in financial modeling is:
Tax Expense = Pre-tax Income * Effective Tax Rate
Therefore, to determine the tax expense for a given year, you would multiply the pre-tax income for that year by the assumed effective tax rate.
The effective tax rate used in financial modeling may be based on historical tax rates or estimated future tax rates based on changes in tax laws or the company's financial performance.
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a. assuming that valley view incorporated's mexican subsidiary does not have any subpart f income or global intangible low-tax income (gilti), how much taxable income would valley view, incorporated, report in u.s. dollars from its mexican subsidiary's first year of operations?
If Valley View Incorporated's Mexican subsidiary does not have any Subpart F income or Global Intangible Low-Tax Income (GILTI).
The taxable income that Valley View Incorporated would report in US dollars from its Mexican subsidiary's first year of operations would be equal to the subsidiary's net income, minus any foreign tax credits that Valley View may claim.
For example, if the subsidiary's net income for the first year of operations is $1,000,000 and Valley View is able to claim $200,000 in foreign tax credits, then Valley View would report taxable income of $800,000 in US dollars.
It is important to note that the specific tax laws and regulations applicable to Valley View's situation may vary depending on various factors, such as the nature of the subsidiary's operations and the tax treaties between Mexico and the US.
It is recommended that Valley View consult with a tax professional to determine their exact taxable income.
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Greg Corp has a bond outstanding with 15 years to maturity, an 12%annual coupon rate, semiannual payments, and a \$1.000 par value. The bond has a 9%. yield to marurity, but it can be called in 7 years at a price of 51,200 . What is the bond's yield to call?
a. 5.55%
b. 9.27%
c. 2.28%
d. 4.64%
e. 2.77%
f. 6.11 %
The bond has a yield to call of option A, which is 5.55%.
Greg Corp's bond has a 12% annual coupon rate, semiannual payments, and a $1,000 par value. The bond has a 9% yield to maturity but can be called in 7 years at a price of $1,120.
To calculate the bond's yield to call (YTC), we must find the discount rate that equates the present value of the bond's cash flows up to the call date with the call price.
Using a financial calculator or spreadsheet, input the following data: N = 14 periods (7 years x 2), PMT = $60 (12% of $1,000 / 2), FV = $1,120, and PV = -$1,000.
Solve for the rate, which is 2.77% per semiannual period. Multiply by 2 to annualize the rate, resulting in a YTC of 5.55% (option a).
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Suppose the risk-free rate is 3.51% and an analyst assumes a market risk premium of 5.76%. Firm A just paid a dividend of $1.39 per share. The analyst estimates the β of Firm A to be 1.31 and estimates the dividend growth rate to be 4.84% forever. Firm A has 258.00 million shares outstanding. Firm B just paid a dividend of $1.94 per share. The analyst estimates the β of Firm B to be 0.79 and believes that dividends will grow at 2.50% forever. Firm B has 190.00 million shares outstanding. What is the value of Firm B?
The value of Firm B is $52.73 million.
To calculate the value of the Firm B, we can use the constant growth rate formula:
V₀ = (D₁ / (r-g)) / N,
where V₀ is the current value of the firm, D₁ is the expected dividend next year, r is the required rate of return, g is the constant growth rate, and N is the number of shares outstanding.
For Firm B, we have:
D₁ = $1.94 * 1.025 = $1.9905
r = 3.51% + 0.79 * 5.76% = 7.93%
g = 2.50%
N = 190.00 million
Using these values, we can calculate the value of Firm B as:
V₀ = ($1.9905 / (0.0793 - 0.025)) / 190.00 million = $52.73 million
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sarah has $1000 and would like to invest it for 5 years. she is deciding between a high-yield bond with an interest rate of 3% annually or a mutual fund with an expected interest rate of 7% annually. which investment is considered riskier? group of answer choices the bond the mutual fund both are equally risky only stocks are risky, these are considered safe investments.
The mutual fund with an expected interest rate of 7% annually is considered riskier than the high-yield bond with an interest rate of 3% annually.
This is because mutual funds are subject to market fluctuations and can be affected by economic conditions, whereas bonds have a fixed interest rate and are generally considered less risky. However, it's important to note that all investments carry some level of risk and it's important for individuals to assess their risk tolerance before making any investment decisions.In general, mutual funds are considered riskier than bonds because they are subject to fluctuations in the stock market, which can be more volatile than the bond market. However, it's important to note that both investments carry some level of risk, and the level of risk can vary depending on factors such as the specific bond or mutual fund being considered, market conditions, and other economic factors.
In this case, the mutual fund with an expected interest rate of 7% annually carries a higher potential return, but also a higher risk of fluctuation in the stock market. The high-yield bond with an interest rate of 3% annually may be considered less risky, but it's important to carefully consider the creditworthiness of the issuer and other factors that could affect the bond's performance.
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Atreides International has operations in Arrakis. The balance sheet for this division in Arrakeen solaris shows assets of 45,000 solaris, debt in the amount of 18,000 solaris, and equity of 27,000 solaris.
a. If the current exchange ratio is 1.25 solaris per dollar, what does the balance sheet look like in dollars?b. Assume that one year from now the balance sheet in solaris is exactly the same as at the beginning of the year. If the exchange rate is 1.50 solaris per dollar, what does the balance sheet look like in dollars now?c. Assume that one year from now the balance sheet in solaris is exactly the same as at the beginning of the year. If the exchange rate is 1.05 solaris per dollar, what does the balance sheet look like in dollars now?
a. The balance sheet in dollars would be: Assets = $56,250 ($45,000 x 1.25); Debt = $22,500 ($18,000 x 1.25); Equity = $33,750 ($27,000 x 1.25).
b. The balance sheet in dollars would be: Assets = $67,500 ($45,000 x 1.50); Debt = $27,000 ($18,000 x 1.50); Equity = $40,500 ($27,000 x 1.50).
c. The balance sheet in dollars would be: Assets = $42,750 ($45,000 x 1.05); Debt = $17,100 ($18,000 x 1.05); Equity = $25,650 ($27,000 x 1.05).
In order to convert the balance sheet from solaris to dollars, we need to multiply each account by the current exchange ratio. In part (a), the exchange ratio is 1.25, so we multiply each account by 1.25 to get the balance sheet in dollars.
In part (b), the exchange ratio has increased to 1.50, so we multiply each account by 1.50 to get the new balance sheet in dollars. In part (c), the exchange ratio has decreased to 1.05, so we multiply each account by 1.05 to get the new balance sheet in dollars.
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