1.Last year National Aeronautics had a FA/Sales ratio of 40%, comprised of $250 million of sales and $100 million of fixed assets. However, its fixed assets were used at only 75% of capacity. Now the company is developing its financial forecast for the coming year. As part of that process, the company wants to set its target Fixed Assets/Sales ratio at the level it would have had had it been operating at full capacity. What target FA/Sales ratio should the company set?
2.Prepare a cash flow summary for the following investment proposal
Service life 8 years
Recovery period 5 years
Depreciation method Accelerated
Purchase price $9700
Installation and shipping cost $ 300
Change in net working capital $ 500
Annual revenue $8000
Annual expense: years 1 through 5 $3000
Annual expense: years 6 through 8 $5000
Estimated salvage value $2000
Tax rate 40%
3.Suppose a firm has the following balance sheet
Assets

Claims 

Current assets 
$400,000,000 
Current liabilities 
$200,000,000 
Fixed assets 
$600,000,000 
Bonds ($1000 par) 
$400,000,000 


Preferred stock (($25 par) 
$200,000,000 


Retained earnings 
$100,000,000 


Common stock ($10 par) 
$100,000,000 
Total assets

$1,000,000,000 
Total claims 
$1,000,000,000 
The bonds sell currently for $980, pay an annual 8% coupon, net $0.98 for each dollar sold, and mature in 20 years. The preferred stock sells currently for $30, pays an annual $3 dividend, and has 4% flotation costs. The common stock sells currently for $12; next year's dividend is expected to be $0.75 with an anticipated annual growth rate of 6% and the flotation costs are 6%. The firm's tax rate is 40%.
(a) Find the component costs
(b) Find the component weights
(c) Find the weighted average cost of capital using retained earnings
(d) Find the weighted average cost of capital using new common stock
4.Suppose an investor took long positions in both a stock and the put option on that stock. The stock and the put were trading for 161/8 and 7/8 respectively at the time of the opening trade. The exercise price on the put is 16 and it expires in 6 months.
Note the stock and option prices are quoted in fractional terms so 161/8 is $16.125 and 7/8 is $0.875.
(a) Find the holding period payoffs, both dollar and percent, for both positions if the stock price
is 123/4 when the closing trade is made and the closing trade occurs at expiration.
(b) Find the holding period payoffs, both dollar and percent, for both positions if the stock price
is 173/8 when the closing trade is made and the closing trade occurs at expiration.
(c) Find the annualized holding period payoffs for both positions if the stock price is 143/4 at
the close and the holding period is 90 days. The closing trade occurs at expiration.
Suppose an investor is considering three investments with expected returns and probabilities as indicated below
5.
Asset A

Asset B 
Asset C 

ri

prob 
ri

prob 
ri

prob 
 20% 
0.20 
 40% 
0.60 
 40% 
0.40 
0% 
0.20 
40% 
0.40 
10% 
0.20 
10% 
0.30 


50% 
0.40 
20% 
0.10 




40% 
0.20 




(a) Find the expected return E(r) for each investment
(b) Find the standard deviation of return σ for each investment
(c) Comment on the nature of the riskreturn tradeoff given your answers to parts a and b above
6.A firm is considering three investment projects. Estimates of the postinvestment values of selected financial data are shown below.
Project 1
Net income = 20,000,000
Revenues = 100,000,000
P/E ratio = 25
Expenses = 80,000,000
Outstanding shares = 15,000,000
Project 2
Net income = 28,000,000
Revenues = 250,000,000
P/E ratio = 15
Expenses = 222,000,000
Outstanding shares = 12,000,000
Project 3
Net income = 80,000,000
Revenues = 680,000,000
P/E ratio = 21
Expenses = 600,000,000
Outstanding shares = 50,000,000
Which project or projects should the firm select? Why
Subject  Business 
Due By (Pacific Time)  10/21/2015 08:50 pm 
Tutor  Rating 

pallavi Chat Now! 
out of 1971 reviews More.. 
amosmm Chat Now! 
out of 766 reviews More.. 
PhyzKyd Chat Now! 
out of 1164 reviews More.. 
rajdeep77 Chat Now! 
out of 721 reviews More.. 
sctys Chat Now! 
out of 1600 reviews More.. 
sharadgreen Chat Now! 
out of 770 reviews More.. 
topnotcher Chat Now! 
out of 766 reviews More.. 
XXXIAO Chat Now! 
out of 680 reviews More.. 