Question 1Consider the following mutually exclusive investmentsT=01Investment A:-10020Investment B:-100100 212031.25 a. Find IRRs for both projectsb. Draw a graph, where you will show the NPV of each project as afunction of its discount rate (i.e NPV on the vertical axis and r onthe horizontal axis). Both NPVs should be on the same graph.c. Find the cross over rated. Please describe as fully as possible which project is the best. Question 2Price Coupon YTM Time to maturity ?02%1 year8905%?2 years800?5%3 yearsAssume semi-annual coupon payments. Find missing values in the table above.Please show details of your solution.Question 3(a) The risk-free rate of return is 8 percent, the required rate of return on themarket, E[Rm] is 12 percent, and Stock X has a beta coefficient of 1.4. If thedividend expected during the coming year, D 1, is $2.50 and g = 5%, at whatprice should Stock X sell?(b) Now suppose the following events occur simultaneously:(1) The Federal Reserve Board increases the money supply, causing theriskless rate to drop to 7 percent. 1 (2) Investors’ risk aversion declines: this fact, combined with the decline inRF, causes RM to fall to 10 percent.(3) Firm X has a change in management. The new group institutes policiesthat increase the growth rate to 6 percent. Also, the new managementstabilizes sales and profits, and thus causes the beta coefficient to declinefrom 1.4 to 1.1.After all these changes, what is Stock X’s new equilibrium price? (Note: D1goes to $2.52.)Question 4Given that the risk-free rate is 5%, the expected return on the market portfolio is20%, and the standard deviation of returns to the market portfolio is 20%, answer thefollowing questions:a. You have $100,000 to invest. How should you allocateyour wealth between the risk free asset and the marketportfolio in order to have a 15% expected return?b. What is the standard deviation of your portfolio in (a)?Question 5Eureka Ltd, is a rapidly growing chain of retail stores. A security analyst’s reportindicates that debt yielding 8% composes 25% of Eureka’s overall capital structure.Furthermore, Eureka’s dividends are expected to grow at a rate of 9% per year.Currently, common stock in the company is priced at $30, and it should pay $1.50 pershare in dividends during the coming year. The risk free rate is currently equal to 2% andthe expected return on the SP 500 index is 10%. The company’s estimated beta is 1.5.a. Calculate Eureka’s cost of equity using dividend growth modelb. Calculate Eureka’s cost of equity using the capital asset pricing modelc. Assuming a 40% tax rate, calculate Eureka’s weighted average cost of capital.Question 6One year ago your company purchased a machine for $110,000. You have learned that thenew, much better machine is available for $150,000. In will be depreciated on a straightline basis and has no salvage value. You expect the machine to produce $60,000 per yearin revenue and cost $20,000 per year to operate for the next ten years. The currentmachine is expected to produce $40,000 per year in revenue and also costs $20,000 peryear to operate. The current machine’s depreciation expense is $10,000 per for the next10 years, after which it will be discarded. It will have no salvage value. The market value 2 of the current machine today is $50,000. Your company’s tax rate is 45% and theopportunity cost of capital is 10%. Should your company replace its year-old machine?Question 7The Amazing Video Co. has just paid an annual dividend of 40 cents. Youforecast that for the next five years dividends will grow at the rate of 25% a yearover the period. From year five on, you expect the growth rate to fall to theindustry average of 8% and to remain at this level forever after.a. Draw the time line showing the dividends per share of this stock for years 1through 6.b. If the expected rate of return for this stock is 15%, calculate its price.Question 8a. What effective annual rate results from daily compounding of 8%?b. Suppose that you have a mortgage on your house. You make monthly payments.Your bank quotes APR equal 8.5% per year. What is your effective annual rate?Question 9a. How long will it take to triple your money with an interest rate of 10 percent?b. On the advice of your broker ten years ago, you invested in a $6 stock that isnow selling for $30. At what rate has your capital grown?c. Your father is about to retire. His firm has given him the option of retiring with alump sum of $50,000 or an annuity of $8,000 for ten years. Which is worthmore now, if the discount rate is (1) 6%, (2) 18%?d. You are offered a $15,000 life insurance policy requiring thirty annual paymentsof $195 each. What is the compound value of the payments that you will havemade after the policy is paid up, assuming that the discount rate is 10 percent?Question 10Suppose that an analyst has noticed that the return on equity of the XYZ Company hasdeclined from 2012 to 2013.(millions) 2013 Sales 2012 $1,000$400 Total assets 3 $90 $2,000 Taxes $30 $100 Interest expense $380 $30 Earnings before interest and taxes $900 $2,000 Shareholders’ equity $1,250 a. Fill in the following table (please show detailed calculations for each ratio,including the formula used, below that table):2013 2012 Return on equityReturn on assetsFinancial leverage ratioTotal asset turnoverNet profit marginOperating profit marginb. Using the DuPont formula, explain the source of this decline. 4 $1,000

Question 1Consider the following mutually exclusive investmentsT=01Investment A:-10020Investment B:-100100 212031.25 a. Find IRRs for both projectsb. Draw a graph, where you will show the NPV of each project as afunction of its discount rate (i.e NPV on the vertical axis and r onthe horizontal axis). Both NPVs should be on the same graph.c. Find the cross over rated. Please describe as fully as possible which project is the best. Question 2Price Coupon YTM Time to maturity ?02%1 year8905%?2 years800?5%3 yearsAssume semi-annual coupon payments. Find missing values in the table above.Please show details of your solution.Question 3(a) The risk-free rate of return is 8 percent, the required rate of return on themarket, E[Rm] is 12 percent, and Stock X has a beta coefficient of 1.4. If thedividend expected during the coming year, D 1, is $2.50 and g = 5%, at whatprice should Stock X sell?(b) Now suppose the following events occur simultaneously:(1) The Federal Reserve Board increases the money supply, causing theriskless rate to drop to 7 percent. 1 (2) Investors’ risk aversion declines: this fact, combined with the decline inRF, causes RM to fall to 10 percent.(3) Firm X has a change in management. The new group institutes policiesthat increase the growth rate to 6 percent. Also, the new managementstabilizes sales and profits, and thus causes the beta coefficient to declinefrom 1.4 to 1.1.After all these changes, what is Stock X’s new equilibrium price? (Note: D1goes to $2.52.)Question 4Given that the risk-free rate is 5%, the expected return on the market portfolio is20%, and the standard deviation of returns to the market portfolio is 20%, answer thefollowing questions:a. You have $100,000 to invest. How should you allocateyour wealth between the risk free asset and the marketportfolio in order to have a 15% expected return?b. What is the standard deviation of your portfolio in (a)?Question 5Eureka Ltd, is a rapidly growing chain of retail stores. A security analyst’s reportindicates that debt yielding 8% composes 25% of Eureka’s overall capital structure.Furthermore, Eureka’s dividends are expected to grow at a rate of 9% per year.Currently, common stock in the company is priced at $30, and it should pay $1.50 pershare in dividends during the coming year. The risk free rate is currently equal to 2% andthe expected return on the SP 500 index is 10%. The company’s estimated beta is 1.5.a. Calculate Eureka’s cost of equity using dividend growth modelb. Calculate Eureka’s cost of equity using the capital asset pricing modelc. Assuming a 40% tax rate, calculate Eureka’s weighted average cost of capital.Question 6One year ago your company purchased a machine for $110,000. You have learned that thenew, much better machine is available for $150,000. In will be depreciated on a straightline basis and has no salvage value. You expect the machine to produce $60,000 per yearin revenue and cost $20,000 per year to operate for the next ten years. The currentmachine is expected to produce $40,000 per year in revenue and also costs $20,000 peryear to operate. The current machine’s depreciation expense is $10,000 per for the next10 years, after which it will be discarded. It will have no salvage value. The market value 2 of the current machine today is $50,000. Your company’s tax rate is 45% and theopportunity cost of capital is 10%. Should your company replace its year-old machine?Question 7The Amazing Video Co. has just paid an annual dividend of 40 cents. Youforecast that for the next five years dividends will grow at the rate of 25% a yearover the period. From year five on, you expect the growth rate to fall to theindustry average of 8% and to remain at this level forever after.a. Draw the time line showing the dividends per share of this stock for years 1through 6.b. If the expected rate of return for this stock is 15%, calculate its price.Question 8a. What effective annual rate results from daily compounding of 8%?b. Suppose that you have a mortgage on your house. You make monthly payments.Your bank quotes APR equal 8.5% per year. What is your effective annual rate?Question 9a. How long will it take to triple your money with an interest rate of 10 percent?b. On the advice of your broker ten years ago, you invested in a $6 stock that isnow selling for $30. At what rate has your capital grown?c. Your father is about to retire. His firm has given him the option of retiring with alump sum of $50,000 or an annuity of $8,000 for ten years. Which is worthmore now, if the discount rate is (1) 6%, (2) 18%?d. You are offered a $15,000 life insurance policy requiring thirty annual paymentsof $195 each. What is the compound value of the payments that you will havemade after the policy is paid up, assuming that the discount rate is 10 percent?Question 10Suppose that an analyst has noticed that the return on equity of the XYZ Company hasdeclined from 2012 to 2013.(millions) 2013 Sales 2012 $1,000$400 Total assets 3 $90 $2,000 Taxes $30 $100 Interest expense $380 $30 Earnings before interest and taxes $900 $2,000 Shareholders’ equity $1,250 a. Fill in the following table (please show detailed calculations for each ratio,including the formula used, below that table):2013 2012 Return on equityReturn on assetsFinancial leverage ratioTotal asset turnoverNet profit marginOperating profit marginb. Using the DuPont formula, explain the source of this decline. 4 $1,000

Question 1Consider the following mutually exclusive investmentsT=01Investment A:-10020Investment B:-100100 212031.25 a. Find IRRs for both projectsb. Draw a graph, where you will show the NPV of each project as afunction of its discount rate (i.e NPV on the vertical axis and r onthe horizontal axis). Both NPVs should be on the same graph.c. Find the cross over rated. Please describe as fully as possible which project is the best. Question 2Price Coupon YTM Time to maturity ?02%1 year8905%?2 years800?5%3 yearsAssume semi-annual coupon payments. Find missing values in the table above.Please show details of your solution.Question 3(a) The risk-free rate of return is 8 percent, the required rate of return on themarket, E[Rm] is 12 percent, and Stock X has a beta coefficient of 1.4. If thedividend expected during the coming year, D 1, is $2.50 and g = 5%, at whatprice should Stock X sell?(b) Now suppose the following events occur simultaneously:(1) The Federal Reserve Board increases the money supply, causing theriskless rate to drop to 7 percent. 1 (2) Investors’ risk aversion declines: this fact, combined with the decline inRF, causes RM to fall to 10 percent.(3) Firm X has a change in management. The new group institutes policiesthat increase the growth rate to 6 percent. Also, the new managementstabilizes sales and profits, and thus causes the beta coefficient to declinefrom 1.4 to 1.1.After all these changes, what is Stock X’s new equilibrium price? (Note: D1goes to $2.52.)Question 4Given that the risk-free rate is 5%, the expected return on the market portfolio is20%, and the standard deviation of returns to the market portfolio is 20%, answer thefollowing questions:a. You have $100,000 to invest. How should you allocateyour wealth between the risk free asset and the marketportfolio in order to have a 15% expected return?b. What is the standard deviation of your portfolio in (a)?Question 5Eureka Ltd, is a rapidly growing chain of retail stores. A security analyst’s reportindicates that debt yielding 8% composes 25% of Eureka’s overall capital structure.Furthermore, Eureka’s dividends are expected to grow at a rate of 9% per year.Currently, common stock in the company is priced at $30, and it should pay $1.50 pershare in dividends during the coming year. The risk free rate is currently equal to 2% andthe expected return on the SP 500 index is 10%. The company’s estimated beta is 1.5.a. Calculate Eureka’s cost of equity using dividend growth modelb. Calculate Eureka’s cost of equity using the capital asset pricing modelc. Assuming a 40% tax rate, calculate Eureka’s weighted average cost of capital.Question 6One year ago your company purchased a machine for $110,000. You have learned that thenew, much better machine is available for $150,000. In will be depreciated on a straightline basis and has no salvage value. You expect the machine to produce $60,000 per yearin revenue and cost $20,000 per year to operate for the next ten years. The currentmachine is expected to produce $40,000 per year in revenue and also costs $20,000 peryear to operate. The current machine’s depreciation expense is $10,000 per for the next10 years, after which it will be discarded. It will have no salvage value. The market value 2 of the current machine today is $50,000. Your company’s tax rate is 45% and theopportunity cost of capital is 10%. Should your company replace its year-old machine?Question 7The Amazing Video Co. has just paid an annual dividend of 40 cents. Youforecast that for the next five years dividends will grow at the rate of 25% a yearover the period. From year five on, you expect the growth rate to fall to theindustry average of 8% and to remain at this level forever after.a. Draw the time line showing the dividends per share of this stock for years 1through 6.b. If the expected rate of return for this stock is 15%, calculate its price.Question 8a. What effective annual rate results from daily compounding of 8%?b. Suppose that you have a mortgage on your house. You make monthly payments.Your bank quotes APR equal 8.5% per year. What is your effective annual rate?Question 9a. How long will it take to triple your money with an interest rate of 10 percent?b. On the advice of your broker ten years ago, you invested in a $6 stock that isnow selling for $30. At what rate has your capital grown?c. Your father is about to retire. His firm has given him the option of retiring with alump sum of $50,000 or an annuity of $8,000 for ten years. Which is worthmore now, if the discount rate is (1) 6%, (2) 18%?d. You are offered a $15,000 life insurance policy requiring thirty annual paymentsof $195 each. What is the compound value of the payments that you will havemade after the policy is paid up, assuming that the discount rate is 10 percent?Question 10Suppose that an analyst has noticed that the return on equity of the XYZ Company hasdeclined from 2012 to 2013.(millions) 2013 Sales 2012 $1,000$400 Total assets 3 $90 $2,000 Taxes $30 $100 Interest expense $380 $30 Earnings before interest and taxes $900 $2,000 Shareholders’ equity $1,250 a. Fill in the following table (please show detailed calculations for each ratio,including the formula used, below that table):2013 2012 Return on equityReturn on assetsFinancial leverage ratioTotal asset turnoverNet profit marginOperating profit marginb. Using the DuPont formula, explain the source of this decline. 4 $1,000