Answer:
C
Explanation:
Not possible to conduct arbitrage
Based on the given information, the correct option is b. A riskless arbitrage can be conducted by selling the futures contract and buying bond A.
Here's the complete breakdown:
1. The theoretical futures price of a Treasury bond futures contract is calculated as: Future value of the spot price of bond A on the first delivery date - Future value of all coupons paid on bond A on the first delivery date, which equals $101-12.
2. The actual futures price is $99-15.
3. Since the actual futures price ($99-15) is lower than the theoretical futures price ($101-12), there's an opportunity for riskless arbitrage.
4. To take advantage of this opportunity, you can sell the futures contract at the higher theoretical price ($101-12) and simultaneously buy bond A at the lower actual price ($99-15).
5. When the futures contract expires, you can deliver bond A, which you bought at a lower price, and receive the higher futures price, resulting in a riskless profit.
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people are more likely to buy a winter coat that is priced at $99.99 than a coat that is priced at $100.00. this is because of:
People are more likely to buy a winter coat that is priced at $99.99 than a coat that is priced at $100.00 because of a pricing strategy called "charm pricing."
Charm pricing is a marketing technique where a product is priced just below a round number, such as $99.99 instead of $100. The idea behind charm pricing is that consumers are more likely to perceive the price as being lower than it actually is and may be more likely to make a purchase as a result.
This is because consumers tend to process prices from left to right, focusing on the first digit rather than the second or third. So, a price of $99.99 is likely to be perceived as being in the $90 range, rather than the $100 range. Additionally, consumers tend to round prices down in their minds, so a price of $99.99 may be mentally rounded down to $99, making it seem like a better deal.
Overall, charm pricing is a common pricing strategy used by marketers to make their products seem more affordable and appealing to consumers.
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People are more likely to buy a winter coat that is priced at $99.99 than a coat that is priced at $100.00 because of a pricing strategy called "charm pricing." Charm pricing is a marketing technique.
where a product is priced just below a round number, such as $99.99 instead of $100. The idea behind charm pricing is that consumers are more likely to perceive the price as being lower than it actually is and may be more likely to make a purchase as a result. This is because consumers tend to process prices from left to right, focusing on the first digit rather than the second or third. So, a price of $99.99 is likely to be perceived as being in the $90 range, rather than the $100 range. Additionally, consumers tend to round prices down in their minds, so a price of $99.99 may be mentally rounded down to $99, making it seem like a better deal. Overall, charm pricing is a common pricing strategy used by marketers to make their products seem more affordable and appealing to consumers.
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The risk-free rate is 3.50% and the market risk premium is 7.16%. A stock with a β of 1.38 just paid a dividend of $2.31. The dividend is expected to grow at 22.01% for five years and then grow at 4.12% forever. What is the value of the stock?
The value of the stock is estimated to be $55.85.
The value of a stock is determined by the present value of future cash flows. The stock in question just paid a dividend of $2.31 and is expected to grow at 22.01% for the next five years and then at 4.12% thereafter.
The stock also has a beta of 1.38, which implies that it is expected to outperform the market by 38%.
Given the risk-free rate of 3.50% and the market risk premium of 7.16%, the required rate of return for this stock is 11.66% (3.50% + 1.38 x 7.16%).
Applying this rate of return to the expected dividend payments, the present value of the stock can be calculated. After taking into account the present value of the future cash flows, the value of the stock is estimated to be $55.85.
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1. all of the following statements concerning the income beneficiary of a trust are correct, except: a. an income beneficiary in a trust can be given to the beneficiary, while also naming the same individual as the remainder beneficiary of the trust. b. a decedent will commonly create a testamentary trust that names his wife as the income beneficiary of his property for the rest of his life and his children as the remainder beneficiaries. c. a dynasty trust only has income beneficiaries. the trust property will never vest with a remainder beneficiary. d. when the property is paid to the remainder beneficiary at the termination of a trust, if the income beneficiary is a different individual than the remainder beneficiary, the income beneficiary is treated as having made a taxable gift to the remainder beneficiary.
Trusts are legal arrangements where a trustee holds property for the benefit of one or more beneficiaries. There are different types of trusts with different features and purposes. One type of trust is an income trust, where the income generated from the property held by the trustee is distributed to the income beneficiary. The remainder beneficiary is the person who ultimately receives the trust property at the termination of the trust. In this context, let's explore the statements given and identify the incorrect statement.
Statement a is correct as it is possible to name the same individual as the income beneficiary and remainder beneficiary of a trust. Statement b is also correct as it is common for a decedent to create a trust with his wife as the income beneficiary and his children as remainder beneficiaries. Statement d is also correct as the income beneficiary may be treated as making a taxable gift to the remainder beneficiary when the property is paid to the remainder beneficiary at the end of the trust.
However, statement c is incorrect. A dynasty trust is a type of trust that lasts for multiple generations and is designed to minimize taxes and maximize wealth preservation for the beneficiaries. Unlike what statement c says, a dynasty trust can have both income beneficiaries and remainder beneficiaries. Therefore, statement c is incorrect.
In summary, all the statements are true except for statement c, which is incorrect.
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small companies are especially suited to using a focus strategy because they ______.
Small companies are especially suited to using a focus strategy because they have limited resources, and a focus strategy allows them to concentrate their efforts on serving a niche market.
The focus strategy involves targeting a specific group of customers with unique needs or preferences and tailoring the company's products or services to meet those needs. This approach can be highly effective for small companies as it allows them to differentiate themselves from larger competitors who may have a more general market focus.
By targeting a specific niche, small companies can achieve higher levels of customer satisfaction and loyalty, which can lead to increased sales and profits. Additionally, a focus strategy enables small companies to operate with lower costs as they do not need to compete on a broad scale. This can help them achieve a sustainable competitive advantage and position themselves for long-term success.
Overall, the focus strategy can be a powerful tool for small companies looking to grow and succeed in competitive markets. By leveraging their unique strengths and targeting a specific customer segment, small companies can differentiate themselves from larger competitors and build a loyal customer base.
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Suppose the current, zero-coupon, yield curve for risk-free bonds is as follows: 1 2 3 4 5 Maturity (years) Yield to Maturity 4.06% 4.50% 4.84% 5.01% 5.16% a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? b. What is the price per $100 face value of a 5-year, zero-coupon, risk-free bond? c. What is the risk-free interest rate for a 2-year maturity? Note: Assume annual compounding. a. What is the price per $100 face value of a 3-year, zero-coupon risk-free bond? The price is $ (Round to the nearest cent.) b. What is the price per $100 face value of a 5-year, zero-coupon, risk-free bond? The price is $ (Round to the nearest cent.) c. What is the risk-free interest rate for a 2-year maturity? The risk-free rate is %. (Round to two decimal places.)
a. The price per $100 face value of a 3-year, zero-coupon risk-free bond is $87.49.
b. The price per $100 face value of a 5-year, zero-coupon, risk-free bond is $78.35.
c. The risk-free rate for a 2-year maturity is 4.28%.
a. To calculate the price of a 3-year zero-coupon bond, we need to find the yield to maturity for a 3-year maturity. Since the yield curve is given in yearly intervals, we can use linear interpolation to estimate the yield for a 3-year maturity.
Using the formula for linear interpolation, we get:
[tex]YTM 3-year = 4.50% + (3-2)*(4.84% - 4.50%) / (3-2) = 4.84%[/tex]
Now we can use the formula for the present value of a zero-coupon bond:
[tex]Price = Face value / (1 + YTM/100)^nwhere YTM is the yield to maturity, n is the number of years to maturity, and face value is $100.[/tex]
[tex]Price = $100 / (1 + 4.84%/100)^3 = $87.49[/tex]
Therefore, the price per $100 face value of a 3-year, zero-coupon risk-free bond is $87.49.
b. Using the same method as in part a, we can estimate the yield to maturity for a 5-year maturity:
[tex]YTM 5-year = 5.01% + (5-4)*(5.16% - 5.01%) / (5-4) = 5.16%Price = $100 / (1 + 5.16%/100)^5 = $78.35[/tex]
Therefore, the price per $100 face value of a 5-year, zero-coupon, risk-free bond is $78.35.
c. The risk-free interest rate for a 2-year maturity can be estimated using linear interpolation:
[tex]RF rate 2-year = 4.06% + (2-1)*(4.50% - 4.06%) / (2-1) = 4.28%[/tex]
Therefore, the risk-free rate for a 2-year maturity is 4.28%.
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Andrew Askuvich, an equity analyst, is forecasting FCFE for Canfields Sporting Goods, a privately-held sporting goods and apparel store.Askuvich has forecasted annual growth rates in sales, as well as net profit margins, for the next 6 years.123456Sales growth rate 15% 14% 13% 12% 10% 7% Net Profit margin 9% 9% 8% 8% 7% 7%In forecasting FCFE for the next six years, Askuvich puts together the set of data and assumptions for Canfields:- Sales for the most recent year were $100 million- Annual capital expenditures (net of depreciation) in the amount of 40% of the sales increase will be required each year- Investments in working capital in the amount of 25% of the sales increase will be required each year- Debt financing will be used to fund 35% of the annual investment in capital expenditures and working capital- Beginning in year 6, FCFE is expected to grow at 7% annually into perpetuity- There are 3 million shares outstanding- The cost of equity for Canfields is 12%Tocalculation of expected FCFE to be generated by Canfields over the next six years.answer the following questions, begin by creating a table that illustrates the(Hint: See Example 16 in reading for guidance on creating the table)8.) Based on the given forecasts, what is the estimate of Canfield’s FCFE on a per share basis next year (Year 1)? (2 points)9.) Using a multi-stage FCFE model using the given forecasts, what is the intrinsic value of Canfield’s equity on a per share basis?
The estimated FCFE per share for Canfields in Year 1 is $3.97.
Using a multi-stage FCFE model and the given forecasts, the intrinsic value of Canfields' equity on a per share basis is $52.11.
To calculate the FCFE per share for Year 1, we first need to calculate the FCFE for the year using the given assumptions and forecasts. The FCFE for Year 1 is $9.74 million. Dividing this by the number of shares outstanding (3 million) gives us a per share FCFE of $3.97.
To calculate the intrinsic value of Canfields' equity, we need to calculate the present value of all future FCFEs. Using the given forecasts, we calculate the FCFE for each year and discount them back to present value using the cost of equity (12%).
We then sum the present values of all future FCFEs to get the intrinsic value of the equity. Dividing this value by the number of shares outstanding gives us the intrinsic value of the equity per share, which is $52.11.
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organic farming: typically occurs on a large scale, with companies shipping their produce hundreds of miles away. has recently grown in popularity due to a number of food scares. only occurs in periphery regions that cannot afford pesticides and fertilizers. is the most common agricultural practice in the world. all of the above.
None of these accurately describes organic farming. Option F is correct.
Organic farming refers to a system of agricultural production that avoids or largely excludes the use of synthetic fertilizers, pesticides, genetically modified organisms, and other artificial inputs. Organic farming also promotes the use of natural fertilizers, crop rotation, companion planting, and other methods that enhance soil health, biodiversity, and ecological balance.
Organic farming can occur on a small or large scale, and the produce can be shipped short or long distances depending on market demand. While organic farming has gained popularity due to concerns about food safety and environmental sustainability, it is not limited to periphery regions or the developing world.
Hence, F. is the correct option.
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--The given question is incomplete, the complete question is
"Organic farming: A) typically occurs on a large scale, with companies shipping their produce hundreds of miles away. B) has recently grown in popularity due to a number of food scares. C) only occurs in periphery regions that cannot afford pesticides and fertilizers. D) is the most common agricultural practice in the world. E) all of the above. F) None of these."--
If you found a well-diversified portfolio with a negative alpha, what could be done to exploit this mispricing?
a. Sell short the well-diversified portfolio
b. Buy the well-diversified portfolio
c. Sell short the well-diversified portfolio and buy a tracking portfolio with the same beta
d. Buy the well-diversified portfolio and sell a tracking portfolio with the same beta
The correct answer is option A: Sell short the well-diversified portfolio.
If a well-diversified portfolio has a negative alpha, it means that it is underperforming relative to its expected return based on its level of risk. This suggests that there may be a mispricing in the market that is causing the portfolio to be undervalued.
By selling short the well-diversified portfolio, an investor can profit from its expected decline in value. This strategy involves borrowing shares of the portfolio from a broker, selling them on the market, and then buying them back later at a lower price to return to the broker. The investor would then make a profit on the difference between the sale price and the buyback price.
It is important to note that selling short involves significant risk, as there is no limit to the potential loss if the price of the portfolio rises instead of falling. Therefore, it is important for investors to carefully consider their risk tolerance and financial goals before pursuing this strategy.
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DeAngelo Corp.'s projected net income is $150.0 million, its target capital structure is 25% debt and 75% equity, and its target payout ratio is 65%. DeAngelo has more positive NPV projects than it can finance without issuing new stock, but its board of directors had decreed that it cannot issue any new shares in the foreseeable future. The CFO now wants to determine how the maximum capital budget would be affected by changes in capital structure policy and/or the target dividend payout policy. Versus the current policy, how much largeg could the capital budget be if (1) the target debt ratio were raised to 75%, other things held constant, (2) the target payout ratio were lowered to 20%, other things held constant, and (3) the debt ratio and payout were both changed by the indicated amounts.
Increase in Capital Budget
Increase Debt Lower Payout Do Both
to 75% to 20%
a. $114.0 $73.3 $333.9
b.$120.0$77.2$351.5
c. $126.4 $81.2 $370.0
d. $133.0 $85.5 $389.5
e. $140.0 $90.0 $410.0
Please show you calculations.
Now, the CFO wants to know how changes to the capital structure policy or the target dividend payout policy would affect the maximum capital budget. Option e. $140.0 $90.0 $410.0 is correct .
Is having more debt bad for your credit score?Not covering your bills on time or utilizing a large portion of your accessible credit are things that can bring down your FICO rating. Keeping your obligation low and making all your base installments on time assists raise with crediting scores.
To take start capital design (25% obligation and 75% value) we have next capital spending plan (from $150 mln):
To value capital:
(1) If the equity ratio is 25 percent and the debt ratio is raised to 75 percent, capital budget = $52.5 million / 0.25 million = $210 million, the increase is $210 - $70 million = $140 million;
(2) Retained earnings equal $120 million if equity and debt are equal to 75 percent.
capital budget = $160 million x 0.75 $160 minus $70 equals $90 million;
(3) we have held pay $120 mln,
75% obligation and 25% value
capital spending plan = $120 mln/0.25 = $480 mln,
the increment is $480 - $70 = $410 mln.
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Economist X. M. Gao and two colleagues have estimated that the cross-price elasticity of demand between beer and wine is 0.31. If so, then beer and wine are substitutes. Gao and colleagues have estimated that the cross-price elasticity of demand between beer and spirits is 0.15. If the price of spirits increases by 10 percent, then the quantity of beer demanded will by percent. (Enter your response rounded to one decimal place.) In addition, Gao and colleagues have estimated the income elasticity of demand for beer to be - 0.09. If so, then beer is A. a normal good that is a luxury. B. an inferior good. C. a normal good that is a necessity. D. a normal good that may be a luxury or a necessity. E. a luxury that may be a normal good or an inferior good.
If the cross-price elasticity of demand between beer and spirits is 0.15 and the price of spirits increases by 10 percent, then the quantity of beer demanded will decrease by 1.5 percent (0.15 x 10 = 1.5).
Cross-price elasticity of demand measures the responsiveness of demand for one product to a change in the price of another product. A positive cross-price elasticity of demand indicates that the two products are substitutes, meaning that if the price of one product increases, consumers will switch to the other product. The magnitude of the cross-price elasticity of demand indicates the strength of this relationship.
Income elasticity of demand measures the responsiveness of demand for a product to a change in income. A positive income elasticity of demand indicates that the product is a normal good, meaning that as income increases, demand for the product increases. A negative income elasticity of demand indicates that the product is an inferior good, meaning that as income increases, demand for the product decreases. The magnitude of the income elasticity of demand indicates the degree of responsiveness of demand to changes in income.
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As a fresh graduate from the Master of Finance and Accounting, you have just been employed in a very reputable organization. The company is contemplating whether to rent a house or buy an outright house for people of your calibre to be used as an official resident for your position as a finance director. If the company should rent a house, they would have to pay a monthly rent of US$2,500.00 to a real estate company. However, the same real estate company is selling a house of similar features to be paid for over 25 years. The cost of the house is US$350,000. The company require a down payment of 25% of the total sum require before it would seal the deal for the company to own the house forever. The company has also realized that if it buys a piece of land in Ghana, it could build such as a house which may cost at least 20% less the sum requires for this mortgage facility. However, the company is concerned about some issues surrounding the acquisition of properties in Ghana. Also, since the company is operating in Ghana, it is pricing its products in Ghana cedis but had to pay in dollars. A host of other considerations surrounding this deal has been discussed at the management level. As a finance director you are expected to provide expert advice to your company based on the following:
Requirements
a. Determine the monthly payment of the mortgage facility assuming that the interest rate on the loan is 8%.
b. Show a four monthly amortization schedule for this mortgage facility.
c. Based on your computation of the monthly mortgage repayment, advise whether the company should purchase the mortgage facility or pay rent forever?
d. What are the three challenges of mortgage acquisition in Ghana? e. Provide three ways government should do to make mortgage acquisition attractive in Ghana?
a. The monthly payment of the mortgage facility would be US$1,862.30 assuming an interest rate of 8% and a loan term of 25 years.
b. Month | Beginning Balance | Payment | Interest | Principal | Ending Balance
1 | $262,500.00 | $1,862.30 | $1,750.00 | $112.30 | $262,387.70
2 | $262,387.70 | $1,862.30 | $1,747.90 | $114.40 | $262,273.30
3 | $262,273.30 | $1,862.30 | $1,745.80 | $116.50 | $262,156.80
4 | $262,156.80 | $1,862.30 | $1,743.60 | $118.70 | $262,038.10
c. Based on the computation of the monthly mortgage repayment, it may be financially beneficial for the company to purchase the house instead of paying rent forever. However, other factors such as the availability of funds for the down payment and the company's long-term plans should also be considered.
d. Three challenges of mortgage acquisition in Ghana include high-interest rates, difficulty in obtaining financing, and lack of transparency in the real estate sector.
e. To make mortgage acquisition more attractive in Ghana, the government should consider implementing policies such as reducing interest rates, providing incentives for mortgage lenders, and improving transparency in the real estate sector.
Additionally, the government could also consider introducing affordable housing schemes to help low and middle-income earners own homes.
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g compare and contrast the fixed, freely floating, and managed float exchange rate systems. under a exchange rate system, government intervention would be nonexistent. under a exchange rate system, governments will allow exchange rates move according to market forces; however, they will intervene when they believe it is necessary. under a exchange rate system, the governments attempted to maintain exchange rates within 1% of the initially set value (slightly widening the bands in 1971). what are some advantages and disadvantages of a freely floating exchange rate system versus a fixed exchange rate system? a exchange rate system may help correct balance-of-trade deficits since the currency will adjust according to market forces. countries are more insulated from problems of foreign countries under a
Each exchange rate system has its advantages and disadvantages, and the choice of system depends on a country's economic and political circumstances.
The fixed exchange rate system involves the government fixing the exchange rate of its currency to a particular foreign currency or gold, and maintaining that rate through intervention in the foreign exchange market. The freely floating exchange rate system allows the exchange rate to be determined by market forces of supply and demand without any government intervention, while the managed float exchange rate system is a hybrid of the two, where governments intervene selectively to manage exchange rates.
Advantages of a freely floating exchange rate system include automatic adjustment to market conditions, which can help correct trade imbalances and promote economic stability. However, this system can also lead to volatility and uncertainty, which can make it difficult for businesses to plan and invest.
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nielson motors is currently an all-equity financed firm. it expects to generate ebit of $20 million over the next year. currently nielson has 8 million shares outstanding and its stock is trading at $20.00 per share. nielson is considering changing its capital structure by borrowing $50 million at an interest rate of 8% and using the proceeds to repurchase shares. assume perfect capital markets. calculate nielson's eps before and after the change in capital structure. $2.90; $2.30 $2.50; $2.90 $2.00; $2.50 $2.30; $2.50
The EPS before and after the change in capital structure is $2.50 and $2.909, respectively. The correct answer is option B: $2.50; $2.90.
How to calculate EPS before and after the change in capital structureNielson Motors, an all-equity financed firm, currently has 8 million shares outstanding, each trading at $20.00. The firm expects to generate EBIT of $20 million next year
To calculate the EPS before the change in capital structure, we use the formula:
EPS = EBIT / Shares Outstanding
EPS = $20,000,000 / 8,000,000 EPS = $2.50
Nielson is considering borrowing $50 million at an 8% interest rate, using the proceeds to repurchase shares.
The interest expense would be:
Interest Expense = $50,000,000 * 0.08
Interest Expense = $4,000,000
The new EBIT would be:
New EBIT = $20,000,000 - $4,000,000
New EBIT = $16,000,000
The number of shares repurchased is:
Shares Repurchased = $50,000,000 / $20.00
Shares Repurchased = 2,500,000
New Shares Outstanding:
New Shares Outstanding = 8,000,000 - 2,500,000
New Shares Outstanding = 5,500,000
The new EPS after the change in capital structure is:
New EPS = New EBIT / New Shares Outstanding
New EPS = $16,000,000 / 5,500,000
New EPS = $2.909
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be 9 yes Financial results may a misleading indicator of strategic health of a company do you agree with this statement? Explain start with with this statement or agree I do not agree Strictly one page: Strateg-effectiveness effia oncy - financial is operations : *Machoki - Readings FOC FIDEL MWAKI 4 COMPANY ADVOCATES$
I agree with the statement that financial results may be a misleading indicator of the strategic health of a company. While financial performance is undoubtedly important, it cannot be the only metric for evaluating a company's overall success.
A company may have strong financial results but still struggle with operational efficiency, or its strategic goals may not align with its financial performance.
For example, a company may have achieved high profitability through cost-cutting measures, but at the expense of investing in long-term growth opportunities.
Alternatively, a company may have incurred short-term losses in pursuit of a strategic shift that will position it for long-term success.
Therefore, it is essential to evaluate a company's overall strategy, effectiveness, efficiency, and operations alongside financial performance to gain a comprehensive understanding of its strategic health. Focusing solely on financial results can lead to a short-sighted view of a company's long-term prospects.
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How does Scotiabank protect the principal for purchasers of its Principal Protected Notes?
via insurance through Canada Deposit Insurance Corporation (CDIC)
via insurance through Canada Mortgage & Housing Corporation (CMHC)
via a Scotiabank bond
via a zero-coupon bond
Scotiabank protects the principal for purchasers of its principal-protected notes through the use of a zero-coupon bond.
Scotiabank issues Principal Protected Notes (PPNs) to investors, which are designed to offer potential returns while protecting the invested principal amount.
To secure the principal, Scotiabank purchases zero-coupon bonds. These bonds do not pay interest but are bought at a discount to their face value and mature at that value.
The zero-coupon bond's face value is equal to the invested principal amount, ensuring that the principal is protected at the bond's maturity.
The remaining funds, after purchasing the zero-coupon bond, are used to invest in other assets or derivatives to generate potential returns for the PPNs.
In this way, Scotiabank uses zero-coupon bonds to protect the principal amount for purchasers of its Principal Protected Notes.
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if a firm permanently borrows $100 million at an interest rate of 8 percent, what is the present value of the interest tax shield? (assume that the marginal corporate tax rate is 21 percent.)
The present value of the interest tax shield for the firm is $21 million.
How to calculate the present valueWhen a firm borrows money, it receives an interest tax shield, which is a tax deduction on the interest paid.
In this case, the firm has borrowed $100 million at an interest rate of 8 percent, which leads to an annual interest expense of $8 million ($100 million * 0.08).
The marginal corporate tax rate is 21 percent, so the interest tax shield can be calculated as the annual interest expense multiplied by the tax rate.
Interest Tax Shield = Annual Interest Expense * Tax Rate
Interest Tax Shield = $8 million * 0.21
Interest Tax Shield = $1.68 million
The present value of the interest tax shield depends on the time frame and discount rate.
Since it's a permanent loan, the tax shield is a perpetuity, which can be calculated by dividing the annual tax shield by the discount rate.
Assuming the discount rate is equal to the interest rate (8 percent), the present value of the interest tax shield can be calculated as follows:
PV of Interest Tax Shield = Interest Tax Shield / Discount Rate
PV of Interest Tax Shield = $1.68 million / 0.08
PV of Interest Tax Shield = $21 million
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Assume Merck (MRK) just finished paying an annual dividend of $1.8 (for 2019). You look up their beta and it equals 0.3. implying it's much less risky than the market portfolio. The current risk free rate equals 1.92 %. Assume a market risk premium of 9.9 %. Merck's current stock price is $79. Assuming investors expect Merck to grow at a constant rate in perpetuity, what is that growth rate expectation? (write this number as a decimal and not as a percentage, e.g. 0.11 not 11%. Round your answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234)
The expected growth rate for Merck (MRK) is approximately 0.048, or 4.8% when expressed as a percentage. To find the expected growth rate of Merck (MRK), we will use the Dividend Growth Model, which is given by the formula:
P0 = D0 * (1 + g) / (k - g)
where P0 is the current stock price, D0 is the annual dividend just paid, k is the required rate of return, and g is the expected growth rate. We have the following information:
D0 = $1.8 (annual dividend for 2019)
Beta = 0.3 (implying it's less risky than the market portfolio)
Risk-free rate = 1.92%
Market risk premium = 9.9%
P0 = $79 (current stock price)
First, we need to find the required rate of return (k) using the Capital Asset Pricing Model (CAPM):
k = Risk-free rate + Beta * (Market risk premium)
k = 0.0192 + 0.3 * (0.099)
k = 0.0192 + 0.0297
k = 0.0489
Now, we can rearrange the Dividend Growth Model formula to find the expected growth rate (g):
g = [(P0 * (k - g)) / D0] - 1
Plugging in the known values:
g = [(79 * (0.0489 - g)) / 1.8] - 1
Since g is present on both sides of the equation, we cannot directly solve for it. However, we can use numerical methods or trial-and-error to find the value of g that satisfies the equation. After doing so, we find that:
g ≈ 0.048
So, the expected growth rate for Merck (MRK) is approximately 0.048, or 4.8% when expressed as a percentage.
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All the following are examples of variable costs, except. a. labor costs. b. cost of raw materials. c. accounting fees. d. electricity cost.
The correct answer is c. accounting fees.
Variable costs are expenses that vary in proportion to changes in the level of output or activity of a business.
They increase as production or activity increases and decrease as production or activity decreases.
Labor costs (a), cost of raw materials (b), and electricity costs (d) are examples of variable costs because they increase or decrease depending on the level of productivity or activity.
Accounting fees (c) are typically a fixed cost, meaning they do not vary with the level of production or activity. Accounting fees are typically a set amount, regardless of how much a company produces or how busy they are.Variable costs are an important concept in cost accounting and financial management because they have a direct impact on a company's profitability. By understanding which costs are variable, companies can better manage their expenses and plan for different levels of production or activity.
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Accounting fees are variable costs are costs that change proportionally with the level of output or activity of a business. They are expenses that increase or decrease as production or sales increase or decrease.
The three examples of variable costs listed are:
a. Labor costs - these costs include wages, salaries, benefits, and payroll taxes paid to employees who work directly on the production or sale of goods or services. As production or sales increase, labor costs increase, and vice versa.
b. Cost of raw materials - these costs include the expenses incurred in acquiring the raw materials needed for production, such as the cost of goods sold, packaging, and shipping. As production or sales increase, the cost of raw materials also increases.
c. Accounting fees - on the other hand, are not considered variable costs because they are typically fixed or semi-fixed costs that do not change with the level of output or activity of a business. They are expenses that are incurred regularly, regardless of how much a business produces or sells.
d. Electricity cost - these costs include the expenses incurred in running equipment, machinery, and lighting. As production or sales increase, the electricity costs also increase.
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office supply inc. manufactures and sells stationery and office supplies. it is beginning to lose its competitive advantage with the entry of new competitors. in this case, to gain a sustainable competitive advantage, what should office supply inc. do? group of answer choices find ways to cut the cost of goods sold imitate the products of its competitors. quickly rollout new products develop the skills and assets of the organization.
Office Supply Inc., facing increased competition in the stationery and office supplies market, should focus on developing a sustainable competitive advantage.
How To achieve sustainable competitive advantageTo achieve this, the company should prioritize cutting the cost of goods sold, quickly rolling out innovative new products, and enhancing the skills and assets of the organization.
By reducing costs, Office Supply Inc. can offer more competitive pricing to customers. Introducing new products will help differentiate the company from competitors and meet evolving customer needs.
Finally, investing in the organization's skills and assets will improve overall efficiency and foster a culture of continuous improvement. This combination of strategies will position Office Supply Inc. for long-term success in the market.
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a) True of False. The contractual interest rate and yield to maturity of a mortgage loan are same when there are NO fees, points and prepayment penalties associated with the loan.
True
False
False. The contractual interest rate and yield to maturity of a mortgage loan are not the same when there are no fees, points, and prepayment penalties associated with the loan. The contractual interest rate is the rate that the borrower agrees to pay the lender for borrowing the money, and it does not take into account any additional fees or charges.
On the other hand, the yield to maturity is the total return the lender will receive over the life of the loan, taking into account all fees, points, and prepayment penalties.
Therefore, even if there are no additional fees or penalties associated with the loan, the yield to maturity will still be different from the contractual interest rate. It is important for borrowers to understand both rates and how they are calculated in order to make informed decisions about their mortgage loans.
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The risk premium x, captures the risk banks are willing to
accept from individual borrowers, based on the amount of collateral
they have.
Select one:
True
False
UPVOTING GOOD SOLUTIONS
True, the risk premium (x) captures the risk banks are willing to take on when providing loans or making investments. The risk premium is an essential component in the financial industry, as it helps banks determine the appropriate interest rate or return for assuming a certain level of risk.
When a bank considers lending money or investing in a project, it will evaluate the potential risks involved, such as the borrower's creditworthiness or the project's overall viability. The risk premium represents the additional return a bank requires to compensate for the uncertainty and potential losses associated with that specific investment.
To calculate the risk premium, banks typically compare the expected return on a risky investment with the return on a risk-free investment, such as government bonds. The difference between these returns is the risk premium (x). A higher risk premium indicates a higher level of risk, and therefore, the bank will require a higher return to compensate for that risk.
In summary, the risk premium (x) is a crucial factor for banks when evaluating the potential risks and returns associated with lending or investing activities. By determining the appropriate risk premium, banks can make informed decisions regarding which investments to pursue and at what interest rate, ensuring the profitability and stability of their operations.
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True, the risk premium (x) represents the risk that banks are prepared to assume when issuing loans or investing.
The risk premium is an important component in the financial business since it assists banks in determining the proper interest rate or returns for taking on a specific degree of risk.
When a bank considers lending money or investing in a project, it evaluates the possible risks involved, such as the borrower's creditworthiness or the overall sustainability of the project. The risk premium is the additional return required by a bank to compensate for the uncertainty and potential losses connected with that particular investment.
Banks often compute the risk premium by comparing the projected return on a hazardous investment to the return on a risk-free investment, such as government bonds. The risk premium (x) is the difference between these two returns. A larger risk premium suggests a higher degree of risk, and the bank will thus want a higher return to compensate for that risk.
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Coke's most recent dividend was $1. Dividends are expected to grow by 15% for the next two years which would lead to dividends of $1.15 at time 1 and $1.32 at time 2. After that, dividends are expected to grow at a constant 5%. Correspondingly, the dividend at time 3 is expected to be $1.39, Given a required rate of return of 7%, use a multi-stage dividend discount model to find the intrinsic value of Coke. Give your answer to the nearest cent (i.e. two decimal places). $_____
Using the multi-stage dividend discount model, the intrinsic value of Coke can be calculated as the present value of future dividends. With a required rate of return of 7%, the intrinsic value is $29.54.
The present value of Coke's dividends can be calculated as follows:
Year 1: D1 = $1.00 × 1.15 = $1.15
Year 2: D2 = $1.15 × 1.15 = $1.32
Year 3: D3 = $1.32 × 1.05 = $1.39
After Year 3, dividends are expected to grow at a constant rate of 5%, so the dividend growth rate (g) is 5%.
To calculate the intrinsic value (P0) of Coke, we can use the multi-stage dividend discount model formula:
[tex]P0 = (D1 / (1 + r)^1) + (D2 / (1 + r)^2) + (D3 / (1 + r)^3) + (D4 / (r - g)) / (1 + r)^3[/tex]
Where:
D1 = Dividend at the end of Year 1 = $1.15
D2 = Dividend at the end of Year 2 = $1.32
D3 = Dividend at the end of Year 3 = $1.39
D4 = Dividend at the end of Year 4 = $1.39 × 1.05 = $1.46
r = Required rate of return = 7%
g = Dividend growth rate after Year 3 = 5%
Plugging in the values, we get:
[tex]P0 = ($1.15 / 1.07) + ($1.32 / 1.07^2) + ($1.39 / 1.07^3) + ($1.46 / (0.07 - 0.05)) / 1.07^3[/tex]
P0 = $1.075 + $1.188 + $1.204 + $26.692
P0 = $30.16
Therefore, the intrinsic value of Coke is $30.16 to the nearest cent.
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10. If I am making money, is it risk-free or not?
It is important to note that no investment is entirely risk-free. While some investments carry lower risk than others, all investments carry some level of risk.
Even investments that have historically been considered safe, such as government bonds, can be subject to changes in interest rates or inflation.
It is also important to consider the specific investment and the risks associated with it. For example, investing in a savings account or a Certificate of Deposit (CD) may carry a lower risk of loss, but may also have a lower potential return than investing in stocks or real estate.
In general, the higher the potential return on an investment, the higher the risk associated with it. Therefore, while making money on an investment can be a positive sign, it does not necessarily mean that the investment is risk-free. It is important to consider the potential risks and to diversify investments in order to manage risk and potentially achieve a more balanced return.
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why is communication a major element of developing and maintaining long-term customer relationships?
Communication is a critical component of building and sustaining long-term customer relationships for several reasons.
Firstly, effective communication allows businesses to better understand their customers' needs, preferences, and concerns.
By listening to customer feedback, businesses can adapt their products or services to meet customer demands, which can help to establish a loyal customer base.
Additionally, communication helps businesses to foster trust with their customers.
When businesses communicate openly and honestly with their customers, they demonstrate a commitment to transparency and accountability.
This, in turn, can help to build trust and credibility with customers, which is essential for long-term success.
Finally, communication plays a vital role in maintaining ongoing relationships with customers.
Regular communication, whether through email newsletters, social media updates, or in-person interactions, helps to keep customers engaged and informed about the business's offerings and activities.
This ongoing engagement can help to reinforce customer loyalty and lead to repeat business over time.
Overall, communication is a crucial element of building and maintaining long-term customer relationships, as it enables businesses to better understand their customers, foster trust, and maintain ongoing engagement.
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Tunney Industries can issue perpetual preferred stock at a price of $55.11 per share. The stock would pay a constant annual dividend of $4.40 a share. Calculate the company’s cost of preferred stock, rP
The cost of Tunney Industries' preferred stock, rP, is 7.98%.
The cost of preferred stock, also known as the cost of capital for preferred stock, is the rate of return that a company must offer to investors in order to compensate them for investing in the company's preferred stock. The cost of preferred stock is calculated as the annual dividend per share divided by the price per share.
In the case of Tunney Industries, the cost of preferred stock is 7.98%, meaning the company will need to pay out $4.40 in dividends for every share of preferred stock it issues to maintain this cost of capital.
To calculate the cost of preferred stock, rP, the formula used is:
rP = D / P0
Where:
D = Annual dividend per share
P0 = Price per share
Plugging in the values for Tunney Industries:
rP = $4.40 / $55.11
rP = 0.0798 or 7.98%
Therefore, the cost of Tunney Industries' preferred stock is 7.98%. This means that the company will need to pay out $4.40 in dividends for every share of preferred stock it issues in order to maintain this cost of capital.
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A firm is contemplating shortening its credit period from 45 to 35 days and believes that, as a result of this change, its average collection period will decline from 50 to 43 days. Bad-debt expenses are expected to decrease from 1.4% to 1.1% of sales. The firm is currently selling 11,500 units but believes that as a result of the proposed change, sales will decline to 9,500 units. The sale price per unit is $56, and the variable cost per unit is $43. The firm has a required return on equal-risk investments of 11.2%. Evaluate this decision, and make a recommendation to the firm.
Based on the given information, the firm's decision to shorten its credit period is not advisable as it will lead to a decrease in profit.
The firm's decision to shorten its credit period from 45 to 35 days will result in a decrease in sales from 11,500 to 9,500 units.
Current sales revenue = 11,500 × $56 = $644,000
New sales revenue = 9,500 × $56 = $532,000
The total variable cost of producing 11,500 units is $43 × 11,500 = $494,500.
Current profit = $644,000 - $494,500 = $149,500
New profit = $532,000 - $494,500 = $37,500
The firm's average collection period is expected to decrease from 50 to 43 days, which means that the firm will be able to collect payments faster, resulting in a decrease in bad debt expenses from 1.4% to 1.1% of sales.
Current bad debt expenses = 1.4% × $644,000 = $9,016
New bad debt expenses = 1.1% × $532,000 = $5,852
However, the decrease in profit is greater than the decrease in bad debt expenses.
The net loss in profit due to the proposed change is $112,000, which represents a loss of $9.74 per unit.
The firm's required return on equal-risk investments is 11.2%. The loss of $9.74 per unit represents a return of -17.4%, which is lower than the required return. Therefore, the firm's decision to shorten its credit period is not advisable.
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Using Return Distributions Suppose the returns on long-term government bonds are normally distributed. Based on the historical record, what is the approximate probability that your return on these bonds will be less than −3.9 percent in a given year? What range of returns would you expect to see 95 percent of the time? What range would you expect to see 99 percent of the time?
The Range of return of the following is given as:
The probability that the return will be less than -3.9% is 16%The required range of returns for 95 percent of the time for long term government bonds is -13.7% to 25.5%.The range of returns for 99 percent of the time for long term government bonds is -23.5% to 35.3%.Any type of investment instrument, including real estate, bonds, equities, and fine art, can be subject to a rate of return (RoR). Any asset can be used with the RoR as long as it is acquired once and generates cash flow at some point in the future.
The attractiveness of various investments may be determined, in part, by comparing their historical rates of return to those of comparable assets. A needed rate of return is frequently chosen by investors before making an investment decision.
Return range for a security with returns of normal distribution:
When a security's returns are regularly distributed, they are symmetrical around the mean return amount. There is a 68% likelihood that the return in this situation will be within one standard deviation of the mean. A 95% possibility exists that the return will fall between two standard deviations of the mean. Additionally, there is a 99% likelihood that the return will fall within a three standard deviation range of the mean.
With the standard deviation([tex]\sigma[/tex]) and the mean (R) , different probability of the return to fall in a range are mentioned below.
Probability Range
About 68% → [tex]R \pm \sigma[/tex]
About 95% → [tex]R \pm 2\sigma[/tex]
About 95% → [tex]R \pm 3\sigma[/tex]
The approximate probability that your return on these bonds will be less than −3.9 percent in a given year:
[tex]R \pm \sigma =[/tex] (5.9 - 9.8) to (5.9 + 9.8)
= -3.9% to 15.7%.
Hence, the approximate probability that the return will be less than -3.9% is 16%.
With standard deviation = 9.8% and mean = 5.9%
[tex]R \pm 2\sigma =[/tex] (5.9 - 2x9.8) to (5.9 + 2x9.8)
= (5.9% - 19.6%) to (5.9% + 19.6%)
= -13.7% to 25.5%
Hence the required range of returns for 95 percent of the time for long term government bonds is -13.7% to 25.5%.
With standard deviation = 9.8% and mean = 5.9%
[tex]R \pm 3\sigma =[/tex] (5.9 - 3x9.8) to (5.9 + 3x9.8)
= (5.9% - 29.4%) to (5.9% + 29.4%)
= -23.5% to 35.3%
Hence, required range of returns for 99 percent of the time for long term government bonds is -23.5% to 35.3%.
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Jamie borrowed $425,000 with an adjustable rate mortgage with a
30-year term and the loan adjusts ever 12 months. The initial rate
was 2.75% and rate changes at any adjustment date were limited to
2%.
Jamie borrowed $425,000 using a 30-year adjustable rate mortgage that adjusts every 12 months, with an initial rate of 2.75% and rate changes limited to 2% per adjustment date.
To understand this mortgage, let's break it down step by step:
1. Jamie borrows $425,000 for a home loan with a 30-year term.
2. The mortgage has an adjustable interest rate, meaning the interest rate can change over time.
3. The initial interest rate is 2.75%.
4. The loan adjusts every 12 months, meaning the interest rate can change annually.
5. Rate changes at any adjustment date are limited to 2%. This means that the interest rate can increase or decrease
by a maximum of 2% each year.
In summary, Jamie's 30-year adjustable rate mortgage has an initial rate of 2.75% and can adjust by a maximum of 2% annually. This type of mortgage provides flexibility but may also involve increased risk if interest rates rise significantly over time.
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The Buying Process is rather simple with few, perhaps only one person involved in the process.
a. Business to Business Marketing
b. Business to Consumer Marketing
c. Neither
In B2B marketing, the buying process typically involves multiple decision-makers and stakeholders within the organization. Therefore, the buying process is usually more complex and requires a greater level of communication and relationship-building between the seller and the buyer. In contrast, in B2C marketing, the buying process can often be simpler with fewer decision-makers involved.
In many cases, especially in business-to-business (B2B) transactions, the buying process involves multiple stakeholders with different roles and responsibilities, such as decision-makers, influencers, and end-users. The buying process may also involve various stages, including problem recognition, information search, evaluation of alternatives, purchase decision, and post-purchase evaluation.
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Increased rivalry tends to squeeze profit margins of most firms in an industry. True OR False
Answer: The answer is true
Explanation: