...* Chapter 4: Problems 4-1, 4-12 * Chapter 5: Problems 5-1, 5-4, and 5-9 Question 4-1 What is the relationship between the price of a financial asset and the return that investors require on that asset, holding other factors constant? The relationship between the price and the return that an investor requires is that the return will need to be greater to increase the return on investment. If the return is lower and the price is high then the return on investment will be lower, the higher the price goes the higher the return on that must be to be worth the initial investment. Question 4-12 Go to www.stockcharts.com/freecharts/yieldcurve.html and click on the animated yield-curve graph (be sure JAVA is enabled on your browser). Answer the following questions: a. Is the yield curve typically upward sloping, downward sloping, or flat? The yield curve is typically upward sloping. b. Notice the behavior of the yield curve and the S&P 500 between July 28, 1998, and October 19, 1998. In August 1998, Russia defaulted on billions of dollars of foreign debt. Then, in late September came the news that at the behest of the Federal Reserve, fifteen financial institutions would infuse $3.5 billion in new capital into hedge fund Long-Term Capital Management, which had lost nearly $2 billion in the previous month. Comment on these events as they relate to movements in the yield curve and the S&P 500 that you see in the animation. I could not access...
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...P11-1 West Coast Manufacturing Company (WCMC) is executing an initial public offering with the following characteristics. The company will sell 10 million shares at an offer price of $25 per share, the underwriter will charge 7% underwriting fee, and the shares are expected to sell for $32 per share by the end of the first day’s trading. Assume that this IPO is executed as anticipated. a. Calculate the initial return earned by investors who are allocated shares in the IPO. Profit per share = $7 Return for investor =7/25=28% b. How much will WCMC receive from this offering? Total no shares issued = 10 million Price per share = $25 Total amount collected from investors 25*10 million = $250 million. Underwriting fee 7% Underwriting fee paid from collection =7%*250 million = $17.50million. Net proceeds = $250 million - $17.50 = $232.50 million WCMC will receive 232.50 million c. What is the total cost (underwriting fee and under pricing) of this issue to (WCMC)? Total of issue Underwriting fee = $17.50 million Under-pricing value = profits earned by investors at end of 1 day =$7*10 million = $70 million Total cost of issue =$17.5 million = $70 million = $87.50 million P11-2 Suppose you purchase shares of Engel, Inc (EI) which recently executed an IPO at the post-offering market price of $32 per share and you hold the shares for one year. You the sell you EI shares for $35 per share. EI does not pay dividends and you not subject to capital gain taxation...
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...Chapter 1, Problem 1 A) Calculate the tax disadvantage to organizing a U.S. business today as a corporation, as compared to a partnership, under the following conditions. Assume that all earnings will be paid out as cash dividends. Operating income (operating profit before taxes) will be $500,000 per year under either organizational form. The tax rate on corporate profits is 35% (= 0.35), the average personal tax rate for the partners is also 35%, and the capital gains tax rate on dividend income is 15% (= 0.15). As a partnership the $500,000 will only be taxed one time, so $500,000 x (1-0.35) = $325,000. As a corporation the $500,000 will be taxed two times at corporate level and personal level, so $500,000 x (1-0.35) (1-0.15) = $276,250. The difference is $48,750 less in a corporation. B) Now recalculate the tax disadvantage using the same income but with the maximum tax rates that existed before 2003. These rates were 35% on corporate profits and 38.6% (= 0.386) on personal investment income. As a partnership before 2003 partners would receive $500,000 x (1-0.386) = $ 307,000. As a corporation before 2003 again it would be taxed twice (corporate and personal levels) so they would receive $500,000 x (1-o.35) (1-0.386) = $199,550. The difference is that corporate receives $107,450 less. Chapter 2, Problem 2 Given the balance sheets and selected data from the income statement of SMG Industries that follow, answer parts a-c. A) Calculate the firm’s operating...
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...Case Study MG360 PAPER MG360 Review Questions FI360 DQ Response FI360 Workplace Violence and Bullying * How should you approach this paper? Laws are society's attempt to solve its problems. You could explore a topic through research, identify a problem (harassment, crime, scams on the internet, etc), discuss solutions, and evaluate the solutions to see if they are effective. Make suggestions of your own. I want to know what you think. Most topics will follow this format but you are not bound to it. * What am I looking for in a paper? I will grade based on content, organization, readability, and grammatical correctness. * Content includes your ideas as well as your research. * Organization includes external transitions (section to section) and internal transitions (paragraph to paragraph and sentence to sentence). * Readability means how well the paper flows. Avoid wordiness and the passive voice. Don't start your sentences with "it is" or "there are." * Grammatical correctness includes spelling and other grammar errors including subject-verb agreement. After you write your paper, leave it in a drawer for a day then read each word out loud. You will find most of your errors. Please write your paper in third person. You should always avoid using personal pronouns such as you and I in a researched paper. To state your opinion, you could use a phrase like "the author posits". * Basically, write five to seven pages about...
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...FI360 Financial Management Chapter 13: Problems 13-1 P13-1. The initial proceeds per bond, the size of the issue, the initial maturity of the bond, and the years remaining to maturity are shown in the following table for a number of bonds. In each case the bond has a $1,000 par value, and the issuing firm is in the 40% tax bracket. a. Indicate whether each bond was sold at a discount, at a premium, or at its par value. b. Determine the total discount or premium for each issue. c. Determine the annual amount of discount or premium amortized for each bond. d. Calculate the unamortized discount or premium for each bond. e. Determine the after-tax cash flow associated with the retirement now of each of these bonds, using the values developed in part (d). Premium/discount per bond = Proceeds per bond – Par value per bond Total Premium/discount = Premium/Discount per bond ´ Size of issue (# of bonds) Annual premium/discount amortized per bond = Prem/Disc per bond ¸ Initial maturity (in years) [Premiums added to earnings each year, so increase taxable income and taxes paid; Discounts deducted from earnings each year, so reduce taxable income and taxes paid] Unamortized premium/discount per bond = Annual prem/Disc per bond ´ Number years remaining After-tax cash flow = [– (Unamortized prem/Disc per bond ´ Size of issue ´ Corporate tax rate)] [Retiring premium bonds: remaining premium realized as income, increasing taxes payable; Retiring discount bonds:...
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