Chapter 1, Problem 18QA

Consider the following information regarding a new investment that a company intends to undertake:. State of the Economy Probability Market Return Investment Return Expansion 0.30 40% 60% Normal 0.50 10% 25% Recession 0.20 -15% -40% b). Compute the correlation between the market the investment return

The following table presents forecasted financial and other information for Scandinavian Furniture: Projected EBIT Earnings after tax Free cash flow Havasham's WACC Expected growth rate in FCFs after 2014 Warranted MV firm/FCF in 2014 Warranted P/E in 2014 O $3,628 million O $363 million O $3,833 million 2012 $317 197 135 O $161 million 8.2% 4.0% What is an appropriate estimate of Scandinavian Furniture's terminal value as of the end of 2014, using the perpetual-growth equation as your estimate? 19.4 18.7 2013 $339 210 144 2014 $363 225 155

Which of the years would the level of competition in the banking industry in Ghana be welfare improving from the perspective of customers based on the calculated five-firm concentration ratios in question (1) and why?

The financial manager for "ERR" industrial Company would extend the credit terms from "net 30" to "net 45" in order to stimulate credit sales. 'ERR' Company also benefits from relaxing of terms from its suppliers from "net 30" to "net 35". The manager is wondering how to estimate the financial impact of these alternatives would have on the shareholder's wealth. The financial manager estimates that the daily sales increase at a growth rate equals 10% following the extension of DSO. You gathered the following information:Purchase amount = 40% of sales amount Annual sales amount = $31,025,000 The annual cost of capital = 10% Inventory turnover =18.25 1- Calculate the daily NPV of the current terms. 2- Calculate the daily NPV of the proposed terms. 3- Based on your own calculations, what is your recommendation? Why? 4- Calculate the NPVCCP of the present terms. Interpret. 5- Calculate the ANPVCCP-aggregate of the Company. Interpret.

Consider the following sensitivity analysis of EBIT and earnings per share (EPS)  where $34,000 is the expected level of EBIT after the acquisition and $20,000 is the recession level of EBIT that might be anticipated. What other information can be interpreted from the chart below? EBIT DEPS EEPS           5,000 0.00 0.40           12,500 1.00 1.00           20,000 2.00 1.60   Recession Level EBIT (-22%)   34,000 3.87 2.72   Expected EBIT

Blue Devil Corp. has two sources of funds: long-term debt and equity capital. The company has profit centers in the following regions with the following net incomes and total assets:   Net Income Assets North America $800,000  $10,000,000 Asia 1,170,000 12,000,000 Europe 680,000 8,000,000   Required: a. Calculate ROI for each profit center, and identify which region has the best performance. Round your answer to two decimal places. b. Calculate the residual income for each profit center based on a desired ROI of 8.5%, and identify which region’s performance is below the company’s expectation.

DCC exports high-speed digital switching networks, and their largest and most important clients are in Asia. A recent financial crisis in Asia has diminished the prospects of new sales to the Asian market in the near term. However, you believe that DCC is a good investment for the long term. Suppose you hold 1,000 shares of DCC and the following two options are available in the market: (a) Call A: Delta = 0.6674, Gamma = 0.0176 (b) Call B: Delta = 0.574, Gamma = 0.019 What should be the options holdings if the combined stock and options portfolio is both delta and gamma-neutral (up to two decimals)? Assume that one option contract is based on 100 units of the stock. O a. Short 73.7 contracts of Call A and long 68.27 contracts of Call B O b. Long 73.7 contracts of Call A and short 68.27 contracts of Call B Short 68.27 contracts of Call A and short 73.7 contracts of Call B O d. Long 73.7 contracts of Call A and long 68.27 contracts of Call B

Medina Weeks, a manufacturing company headquartered in Canada, has a competitive advantage that will probably deteriorate over time. Analyst Flavio Torino expects this deterioration to be reflected in declining sales growth rates as well as declining profit margins. To value the company, Torino has accumulated the following information: Current sales are C$600 million. Over the next six years, the annual sales growth rate and the net profit margin are projected to be as follows: Beginning in year 6, the 7 percent sales growth rate and 10 percent net profi t margin should persist indefinitely.·       Capital expenditures (net of depreciation) in the amount of 60 percent of the sales increase will be required each year.·       Investments in working capital equal to 25 percent of the sales increase will also be required each year.·       Debt financing will be used to fund 40 percent of the investment in net capital items and working capital.·       The beta for Medina Weeks is 1.10; the…