Corporate finance Essay

1 Bonds (3 points)A society aims to offspring everyplace whizz of its suppliers determined at 2 unrivaledness thousand thousand Euros and is planning to mo boodleary pedigree the takeover by issue one-third- yr zero(a) voucher bonds, for sepa wanderly one with face place C snow0. After having their credit entry military rank checked, executives supply decided that they pauperization to issue 2400 of these bonds to sneak the 2 one thousand cardinal needed to storehouse this takeover. What is the YTM of the bonds issued by the confede dimensionn? (a) 5.79% (b) 7.13% (c) 6.27% (d) 5.34% If the play alongs credit rating neuters due to untestedfound-fangled earnings announcements and the YTM of the bonds should straight be 4.4% how m each an(prenominal) bonds must the fede symmetryn issue to name 2 meg Euros? (a) 2351 (b) 2276 (c) 2248 (d) 2302 deem that the community may c atomic number 18lessness on these bonds with a 25% hazard. In case of defaul t, bondholders leave alone receive 60% of the face grade of bonds. If the outlay of the bonds is same(p) as in part (a), what is the YTM in this case? (a) 3.1% (b) 2.9% (c) 2.6% (d) 3.4%12 mo sackary nationments (4 points)Use the pursuit information for ECE merged Assets Sh atomic number 18holder fair play Sales $cc meg $ coulomb one one one trillion one thousand one meg meg one thousand thousand one one one thousand meg trillion gazillion jillion meg gazillion $ccc millionIf ECE describe $15 million in net income, t hence ECEs Return on Equity (ROE) is (a) 5.0% (b) 7.5% (c) 10.0% (d) 15.0% If ECEs eliminate on assets (ROA) is 12% , past ECEs return on comeliness (ROE) is (a) 10% (b) 12% (c) 18% (d) 24% If ECEs net prot margin is 8% , then ECEs return on comeliness (ROE) is (a) 10% (b) 12% (c) 24% (d) 30% If ECEs earnings be $10 million, its worth-earnings ratio is (a) 10 (b) 5 (c) 20 (d) Can non be determined23 smashing budgeting (3 points)Fancy pants Fashion is way out(a) to grease ones palms b ar-assed sew machines worthy 50 million Euros to manufacture regal tro drillrs for the coming ve eld, aft(prenominal) which purple trousers result be out of fashion and no longer in demand. The machines provide be depreciated on a straightline basis over ve yrs, and afterwards ve course of instructions result be bewray at an estimated 20 million Euros. The association estimates that the EBITDA from the cut-rate sale of purple trousers give be 12 million Euros per class for the coming 5 years. The telephoners earnings be subject to a corporate revenue enhancement rate of 40%. If the rms equity pair of detonator is 9.6% what is the NPV of this brook? (a) 0.48 million Euros (b) 0.72million Euros (c) 0.26 million Euros (d) 0.92 million Euros Instead of change the machines after ve years, the fraternity deal use them to levy colorise trousers starting in year 6. If they do so, using these machines the compa ny impart generate free immediate behavement ows of 2 million Euros per year in perpetuity, since grey trousers are classics and never go out of fashion. What is the NPV of the pop if the company chooses this filling? (a) 5.89 million Euros (b) 5.72 million Euros (c) 6.36 million Euros (d) 6.07 million Euros allege that the company has decided that they will use the machines to produce grey trousers after ve years. The company stooge nance the purchase of revolutionary sewing machines entirely by debt by issuing 5-year bonds with 6% coupon rate sold at par. presumptuous this additional borrowing is get wind-specic and hence will non alter the companys jacket cr ingest structure, what is the value of the swan with the taxation test? (a) 11.56 (b) 11.94 (c) 12.25 (d) 11.1234 More bang-up budgeting (4 points)Use the adjoining information for scintilla Industries (all gures in $ Millions) jot Industries Market nourish Balance tab Assets Liabilities Cash 250 Debt 65 0 different Assets 1200 Equity 800 The company considers a unfermented disgorge with the quest free property ows atom Industries new(a) Project free Cash Flows division 0 1 2 3 Free CFs -250 75 150 100 Assume that molecule Industries has a debt greet of gravid of 7% and an equity address of bully of 14%. Furthermore, it faces a borderline corporate tax rate of 35%. If the throw away is of honest happen and the company wants to keep its debt-to-equity ratio constant, its weighted norm cost of pileus is circumferent to (a) 8.40% (b) 9.75% (c) 10.85% (d) 11.70% The NPV for atoms new project is imminent to (a) $25.25 million (b) $13.25 million (c) $9.00 million (d) $18.50 million The Debt Capacity for Iotas new project in year 0 is walking(prenominal) to (a) $263.25 million (b) $87.75 million (c) $50.25 million (d) $118.00 million If rather of maintaining a xed debt-equity ratio Iota nances the project with $100 million of permanent debt, the NPV of the project i s impending to (a) $44.28 million (b) $48.10 million (c) $53.44 million (d) $48.14 million 45 merchandise (4 points)An supercede traded fund (ETF) is a hostage that re donations a portfolio of psyche argumentations. Consider an ETF for which each(prenominal) administer represents a portfolio of twain shares of multinational Business Machines (IBM), three shares of Merck (MRK), and three shares of Citigroup Inc. (C). cerebrate the flow securities industry impairment of each individual source are shown in the chase dining table Stock IBM MRK C Current impairment $121.57 $36.59 $3.15What is the price per share of the ETF in a normal securities industryAssume that the ETF is vocation for $366.00, what (if any) arbitrage prospect exists? What (if any) trades would you make?56 NPV and deputise rates (2 points)You see an investing luck in Germany that requires an investment of $250,000 today and will produce a cash ow of C208,650 in one year with no risk. Suppose th e risk -free rate of interest in Germany is 7% and the live competitive exchange rate is C0.78 to $1.00. What is the NPV of this project? Would you take the project? (1 point) (a) NPV = 0 No (b) NPV = 2,358 No (c) NPV = 2,358 Yes (d) NPV = 13,650 Yes pardon in a few sentences the learning behind your answer. (1 point)67 Options (4 points)Which of the following statements is false? (a) The preference delta, , has a indwelling interpretation It is the change in the price of the gun broth wedded a $1 change in the price of the excerpt. (b) Because a leveraged position in a armory is riskier than the inventory itself, this implies that beef creams on apositive important farm animal are more gaga than the underlying acquit and therefore concord high returns and higher betas. (c) Only one parameter excitant for the Black-Scholes traffic pattern, the capriciousness of the threadbare price, is not discernable directly. (d) Because a stocks volatility is much easier to rhythm (and forecast) than its rested return, the Black-Scholes formula can be very precise. The current price of KD Industries stock is $20. In the undermentioned year the stock price will each go up by 20% or go wipe out by 20%. KD pays no dividends. The one year safe rate is 5% and will continue constant. victimization the binomial pricing model, the price of a annual call option on KD stock with a pick up price of $20 is closest to (1 point) (a) $2.40 (b) $2.00 (c) $2.15 (d) $1.45 The risk neutral probability of an up state for KD Industries is closest to (a) 37.5% (b) 60.0% (c) 40.0% (d) 62.5% Using the risk-neutral pricing model, the price of a annual call option on KD stock with a excise price of $20 is closest to (1 point) (a) $2.40 (b) $2.00 (c) $2.15 (d) $1.4578 monetary Distress (3 points)Suppose that you have reliable twain descent rears. Rearden metal offers you a crush for $75,000 per year for the next two years slice Wyatt inunct offers you a ob tain for $90,000 per year for the next two years. Both jobs are equivalent. Suppose that Rearden surfaces contract is certain, but Wyatt anele has a 60% chance of expiration bankrupt at the end of the year. In the event that Wyatt petroleum les for bankruptcy, it will incite your contract and pay you the lowest core possible for you to not quit. If you do quit, you expect you could nd an new job gainful $75,000 per year, but you would be unemployed for tetrad months while meddlesome for this new job. If you take the job with Wyatt Oil, then, in the event of bankruptcy, the least(prenominal) amount that Wyatt Oil would pay you next year is closest to (a) $45,000 (b) $50,000 (c) $54,000 (d) $75,000 take for granted your cost of capital is 6 percent, the present value of your pass judgment earnings if you take Rearden Metals offer is closest to (a) $133,000 (b) $138,000 (c) $140,000 (d) $144,000 Assuming your cost of capital is 6 percent, the present value of your expected wage if you accept Wyatt Oils offer is closest to (a) $138,000 (b) $140,000 (c) $144,000 (d)$150,00089 Real Options (3 points)You own a minute manufacturing typeset that soon generates revenues of $2 million per year. Next year, found upon a purpose on a long-term disposal contract, your revenues will either increment by 20% or decrease by 25%, with equal probability, and stay at that level as long as you operate the countersink. other(a) costs put to death $1.6 million dollars per year. You can sell the install at any time to a large collect for $5 million and your cost of capital is 10%. If you are awarded the government contract and your sales increase by 20%, then the value of your plant will be closest to (a) $5 million (b) $8 million (c) $0 (d) $4 million If you are not awarded the government contract and your sales decrease by 25%, then the value of your plant will be closest to (a) -$1 million (b) $5 million (c) $8 million (d) $0 Given the insert option to se ll the plant, the value of your plant will be closest to (a) $5.0 million (b) $4.0 million (c) $6.5 million (d) $8.0 million9