FRL3000 FINAL

Assume the current spot rate is C$1.2568 and the one-year forward rate is C$1.2455. Also assume the nominal risk-free rate in Canada is 3.7 percent compared to 4.1 percent in the U.S. Using covered interest arbitrage, how much additional profit can you earn over that which you would earn if you invested $1 in the U.S for one year?

$.0054

You can invest in an account that pays simple interest or an account that pays compound interest. In either case, you plan to invest $658 today and both accounts have an annual interest rate of 5.5%. How much more interest will you receive in the 7th year in the account that pays compound interest? Round your answer to the nearest penny, and do not type the "$" sign.

$13.71

A gym owner is considering opening a location on the other side of town. The new facility will cost$1.49 million and will be depreciated on a straight-line basis over a 20-year period. The new gym is expected to generate $563,000 in annual sales. Variable costs are 47 percent of sales, the annual fixed costs are $91,300, and the tax rate is 40 percent. What is the operating cash flow?

$154,054

You own a portfolio that has a total value of $270,000 and it is invested in Stock D with a beta of .73 and Stock E with a beta of 1.50. The beta of your portfolio is equal to the market beta. What is the dollar amount of your investment in Stock D?

$175,324.68

You are planning a trip to the United Kingdom and expect that you will spend 2,100 pounds. How much will your spending be in U.S. dollars if the exchange rate is .7251 pounds per dollar?

$2,896.15

You just bought a house for $350,000 with a 10% down payment. The remainder is financed by a fully amortizing 30-year level payment mortgage at an APR of 5%. How much are the monthly payments?

$350,000 x 10% = $35,000 30 years = 360 months APR = 5% $1879 https://lcef.org/calculators/MortgageApr.html

Alpha-Omega, Inc. is evaluating a new 4-year project. The equipment necessary for the project will cost $2,900,000 and can be sold for $317,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 34 percent. What is the aftertax salvage value of the equipment?

$379,601

Power Manufacturing has equipment that it purchased 5 years ago for $2,450,000. The equipment was used for a project that was intended to last for 7 years. However, due to low demand, the project is being shut down. The equipment was depreciated using the straight-line method and can be sold for $380,000 today. The company's tax rate is 34 percent. What is the aftertax salvage value of the equipment?

$488,800 Annual depreciation=(Cost-Salvage value)/Useful Life =(2,450,000/7)=$350,000/year Hence book value as on date of sale=Cost-Accumulated Depreciation =$2,450,000-(350,000*5)=$700,000 Hence loss on sale=(700,000-380,000)=$320,000 Hence after-tax salvage value=Sale proceeds+(loss on sale*Tax rate) =380,000+(320,000*0.34) =$488,800

What is your account balance in 8 years if you invest $4,008 today at 3.3% APR compounded weekly?

$5,196.73 https://www.iowatrust.bank/calculator/compound-interest

9)XYZ is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.33 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 15 percent of its initial cost. The company believes that it can sell 24,500 tents per year at a price of $66 and variable costs of $26 per tent. The fixed costs will be $415,000 per year. The project will require an initial investment in net working capital of $201,000 that will be recovered at the end of the project. The required rate of return is 10.9 percent and the tax rate is 34 percent. What is the NPV?

$642,663

Consider a project with the following cash flows: -$948, $306, $296, $154, $407, and $267, at year-dates 0,1, 2, ..., 5, respectively. What is the project's payback in years?

-948 3.47

The current spot rate between the pound and dollar is £.7547/$. The expected inflation rate in the U.S is 2.27 percent and the expected inflation rate in the U.K. is 2.78 percent. Assuming relative purchasing power parity holds, what will the exchange rate be next year?

0.7585

A project costs $202 and subsequent cash flows for dates 1 and 2 are $79 and $46, respectively. If there is only one more cash flow at date 3, and the project's internal rate of return is 9.66%, what is the amount of the date 3 cash flow? Round your final answer to 2 decimal places and leave out the "$" sign. If negative (an outflow), include a "-" sign.

1.078

The stock of Big Joe's has a beta of 1.64 and an expected return of 13.30 percent. The risk-free rate of return is 5.8 percent. What is the expected return on the market?

10.37% E(R) = R(F) + β (RM - RF)13.30 = 5.8 + 1.64 (RM -5.8)13.30 -5.8 = 1.64 RM - 9.5127.5 + 9.512 = 1.64 RM17.012 = 1.64 RMRM = 10.373

What is the quote for a bond with a coupon rate of 8%, semiannual payments, yield to maturity 7.3% and maturity in 10 years?

104.761

XYZ stock has a beta of 1.14. The market risk premium is 7.90 percent and the risk-free rate is 3.33 percent annually. What is the company's cost of equity?

12.34% Cost of Equity = Risk free rate + Beta* Market risk premium = 3.33 + 1.14*7.90 = 12.34%

Peter and Mary want to buy identical GT2 911s in 7 years, to establish bragging rights at the Nordschleife. Paul will buy a Huracan, but wisely isn't going to bother showing up. The GT2 costs $378,000 today which is expected to increase at an annualrate of 2.2% per year. Both will invest a single amount today in accounts that pay 5.5% APR, but Peter's account compounds monthly,and Mary's semiannually. How much more must Mary invest compared to Peter? Round your final answer to the nearest whole dollar and leave out the "$" sign.

12.98

Assume the spot rate for the Japanese yen currently is ¥102.32 per $1 and the one-year forward rate is ¥102.69 per $1. A risk-free asset in Japan is currently earning 2.5 percent. If interest rate parity holds, approximately what rate can you earn on a one-year risk-free U.S. security?

2.14%

What is the standard deviation of the returns on a $30,000 portfolio that consists of Stocks S and T? Stock S is valued at $18,000.State ofEconomyProbability ofState of EconomyRate of Returnif State OccursStock SStock TBoom.05.11.09Normal.85.08.07Bust.10−.05.04

2.80%

Consider a project with the following cash flows: -$478, $143, $245, $110, $234, and $345, at year-dates 0,1, 2, ..., 5, respectively. What is the project's payback in years?

2.82

Mojo Mining has a bond outstanding that sells for $2,156 and matures in 16 years. The bond pays semiannual coupons and has a coupon rate of 6.98 percent. The par value is $2,000. If the company's tax rate is 35 percent, what is the aftertax cost of debt?

4.03%

What is the standard deviation of the returns on a portfolio that is invested in Stocks A, B, and C? Twenty percent of the portfolio is invested in Stock A and 35 percent is invested in Stock C. State ofEconomyProbability ofState of EconomyRate of Returnif State OccursStock AStock BStock CBoom.04.17.09.09Normal.81.08.06.08Recession.15−.24.02−.13

5.65%

Too Young, Inc.,has a bond outstanding with a coupon rate of 6.9 percent and semiannual payments. The bond currently sells for $1,905 and matures in 15 years. The par value is $2,000. What is the company's pretax cost of debt?

7.43%

XYZ, Inc. purchased a building for $689,000 and made repairs costing $136,000. The annual taxes on the property are $8,200. The building has a current market value of $730,000 and a current book value of $394,000. The building is mortgage-free. If the company decides to use this building for a new project, what value, if any, should be included in the initial cash flow of the project for this building?

730,000

Wentworth's Five and Dime Store has a cost of equity of 11.2 percent. The company has an aftertax cost of debt of 4.8 percent, and the tax rate is 39 percent. If the company's debt-equity ratio is .72, what is the weighted average cost of capital?

8.52%

You just returned from a trip to Italy and have 770 euros remaining. How many dollars will you receive when you return home if the exchange rate is .9183 euros per U.S dollar?

838.51 770/0.9183

All else constant, which one of the following will increase a company's cost of equity if the company computes that cost using the security market line approach? Assume the firm currently pays an annual dividend of $1 a share and has a beta of 1.2.

A reduction in the risk-free rate

You are comparing two annuities that offer regular payments of $2,500 for five years and pay .75 percent interest per month. You will purchase one of these today with a single lump sum payment. Annuity A will pay you monthly, starting today, while annuity B will pay monthly, starting one month from today. Which one of the following statements is correct concerning these two annuities?

Annuity B has a smaller present value than annuity A.

Railway Cabooses expected dividend in one year is $1.56 per share. The company has been reducing the dividends by 6.85% each year.How much are you willing to pay today to purchase stock in this company if your required rate of return is 15.34%? Round your final answer to 2 decimal places and leave out the "$" sign.

Answer: Calculation of Current Price of the share using dividend growth model : Current Price = Expected Dividend / (Required rate - Growth rate) Expected Dividend = Current Dividend * (1 + growth rate ) = 1.56 * (1-0.0685) =1.45314 Hence Current Price = 3.9285 /(15.34% + 6.85%) = $6.55

XYZ is expected to pay an annual dividend of $5.11 on its common stock in one year. The current stock price is $78.27 per share. The company announced that it will increase its dividend by 3.55 percent annually. What is the company's cost of equity?

Cost of equity=(D1/Current price)+Growth rate =(5.11/78.27)+0.0355 which is equal to =10.08%(Approx).

Hildegard bought a bond that will pay her $45 each year in interest plus $1,000 at maturity. The bond was quoted at $1,008.45, and she paid a dealer $1,010.34 for the bond. What is the $1,008.45 called?

Dirty price

You are expecting cash flows in years 1, 2, and 4 to be $89, $77, and $63, respectively. If the present value of these cash flows is $323 and the discount rate is 4.5%, what is the year 3 cash flow? Include the sign of the cash flow "-" if it is negative, and round your final answer to the nearest whole dollar. Do not type the "$" sign in your answer.

FV = $89(1.045)^3 + $77(1.045)^2 + $63 = $248.6497101 Difference = $323 − 248.6497101 = $74.35028988 PV = $74.35028988/1.045 = $71

Which one of the following is an example of systematic risk?Corn prices increase due to increased demand for alternative fuelsA toymaker has to recall its top-selling toyA flood washes away a firm's warehouseInvestors panic causing security prices around the globe to fall precipitouslyA city imposes an additional one percent sales tax on all products

Investors panic causing security prices around the globe to fall precipitously

On Friday evening, Bank A loans Bank B Eurodollars that must be repaid the following Monday morning. Which one of the following is most likely the interest rate that will be charged on this loan?

London Interbank Offer Rate

Steve has invested in twelve different stocks that have a combined value today of $121,300. Fifteen percent of that total is invested in Wise Man Foods. The 15 percent is a measure of which one of the following?

Portfolio Weight

XYZ Inc has a capital structure that includes bonds, preferred stock, and common stock. Which one of the following rights is most apt to be granted to the preferred shareholders?

Right to share in company profits prior to other shareholders

Which one of the following statements related to risk is correct?

The systematic risk of a portfolio can be effectively lowered by adding T-bills to the portfolio.

The maintenance expenses on a rental house you own average $200 a month and property taxes are $4,800 annually. The house cost $238,500 when you purchased it four years ago. The house was recently appraised at $247,600. If you sell the house you will incur $12,900 in costs. What value should you place on this house should you opt to use it as your professional office?

The value to be placed on this house while determining the usage of this house as a professional office The Value to be placed will be the Opportunity Cost of the purchase of house. Opportunity Cost = Appraised Value of the house - Expenses that would incur if the house is sold = $247,600 - 12,900 = $234,700 "Therefore, The value to be placed on this house = $234,700"

Which one of the following is the primary determinant of a firm's cost of capital?

Use of the funds raised

ABC Inc will pay a dividend of $9.4, $9.8, $8.6, and $0.1 for years 1, 2, 3, and 4, respectively. Thereafter, the dividend will grow at 1.2% per year forever. If the annual required rate of return for the stock is 7.8%, what is it's current price? Round your answer to the nearest whole dollar, and leave out the "$" sign.

Value after year 4=(D4*Growth rate)/(Required return-Growth rate) =(0.1*1.012)/(0.078-0.012) =1.53333 Hence current price=Future dividend and value*Present value of discounting factor(rate%,time period) =9.4/1.078+9.8/1.078^2+8.6/1.078^3+0.1/1.078^4+1.53333/1.078^4 =25

You have a portfolio that is equally invested in Stock F with a beta of .89, Stock G with a beta of 1.31, and the risk-free asset. What is the beta of your portfolio?

Weight of each=(1/3) Portfolio beta=Respective beta*Respective weight =(1/3*0.89)+(1/3*1.31)+(1/3*1)[Beta of market=1;Beta of risk-free assets=0] =1.07(Approx)

Which one of the following relationships applies to a premium bond?

Yield to maturity > Current yield, and Yield to maturity < Coupon rate

The annual inflation rate in the U.S is expected to be 2.14 percent and the annual inflation rate in Poland is expected to be 4.47 percent. The current spot rate between the zloty and dollar is Z4.1148/$.Assuming relative purchasing power parity holds, what will the exchange rate be in four years?

Z4.5119/$

Answer this question based on the dividend growth model. If you expect the market rate of return to increase across the board on all equity securities, then you should also expect:

an increase in all stock values.

Alpha-Omega Inc is analyzing a project that requires $180,000 of fixed assets. When the project ends, those assets are expected to have an aftertax salvage value of $45,000. How is the $45,000 salvage value handled when computing the net present value of the project?

cash flow final year of project

Mr. Black and Mr. White have agreed to exchange C$12,500 for $10,000 with the exchange occurring four months from now. This agreed-upon exchange rate is called the:

forward rate

Helmut will invest $10,000 a year for the next 30 years. The final account balance of these savings is called the:

future value

A project has an initial cost of $31,800 and a market value of $29,600. What is the difference between these two values called?

netpresent value

A cost-cutting project will decrease costs by $66,500 a year. The annual depreciation will be $16,050 and the tax rate is 34 percent. What is the operating cash flow for this project?

operating cash flow=Decrease in costs*(1-tax rate)+Tax savings on annual depreciation =67100*(1-0.34)+(0.34*16500) which is equal to =$49347

An investment had a nominal return of 14.79% last year. The inflation rate was 1.49%. What was the "exact" real return on the investment? Quote your answer to 2 decimal places as a percentage, but leave out the "%" symbol.

real return =[ (1 + nominal return) / (1+inflation rate)]-1 =>[(1.1479) / (1.0149)]-1 =>1.07101727-1 =>0.07101727 =>7.10%

Jenner's is a multi-division firm that uses its overall WACC as the discount rate for all proposed projects. Each division is in a separate line of business and each presents risks unique to those lines. Given this, a division within the firm will tend to:

receive less project funding if its line of business is riskier than that of the other divisions.

George and Pat just made an agreement to exchange U.S. dollars for Australian dollars based on today's exchange rate. Settlement will occur tomorrow. Which one of the following is the exchange rate that applies to this agreement?

spot exchange rate

The fact that a proposed project is analyzed based on the project's incremental cash flows is the assumption behind which one of the following principles?

stand-alone principle

The weighted average cost of capital for a company is least dependent upon the:

standard deviation of the company's common stock.

GL Plastics spent $1,200 last week repairing a machine. This week the company is trying to decide if the machine could be better utilized if they assigned it a proposed project. When analyzing the proposed project, the $1,200 should be treated as which type of cost?

sunk

The expected return on a stock given various states of the economy is equal to the:

weighted average of the returns for each economic state.