Reference no: EM131225140

You are not allowed to do this exam with other people.

You are not allowed to discuss any problems in this exam with other people.

Show all of your work for any possible partial credit.

All necessary calculations should be done on this excel file to show how to get your outputs. Then, I can figure out the whole process as to how your answers were obtained. Therefore, simply showing numbers as a result does not earn any point.

Be sure to answer exactly what is asked in the problems.

Save your work file in the following format of the file name: Final_PartII_FA15_Last Name_First Name.xls. Then, submit it through the link of "Submit_Final_PartII" located under the tab of "Final Exam." Any submission through the email will not be accepted.

Note that including any special symbol in the file name may cause a trouble in uploading or downloading your file. So, don't use any special symbols, such as $, #, *, &, etc.

Absolutely...."One File Policy!!!" You have to pack all your answers into this excel file. If you need a word document to write your answer down, please incorporate MS word document into this excel file. Follow these operations to import MS document into the excel file: Insert (from menu bar)>Object...>choose "Word Document" from the drop-down list.

Part -1:

JYS Investment Fund, in which you plan to invest some money, has total capital of 600 million invested in 5 stocks:

1. Calculate the expected market return E(rM ) and the portfolio (fund) beta to find the required rate of return on the fund using the CAPM. Required rate of return on the fund (portfolio)?

2. Calculate the required rates of return on individual stocks using the CAPM. Use the expected market return (R M) in your answer 1) and the return on risk-free asset ( Rf) and beta values given in the problem.

Part -2:

1. Jim Bo's currently has annual cash revenues of $240,000 and annual operating expenses of $185,000 including $35,000 in depreciation. The firm's marginal tax rate is 40 percent. A new cutting machine can be purchased for $120,000 that will increase revenues by $50,000 per year while operating expenses would increase to $205,000, including $42,000 in depreciation. Compute Jim Bo's annual incremental after-tax net cash flows.

2. Baker Company is considering an investment in a new metal lathe. If the new lathe is purchased, revenues will increase by $5,000 per year and cash operating costs will decline by $10,000 per year. The depreciation expense of the lathe will be $60,000 and depreciated on a straight- line basis over 10 years to a zero estimated salvage value. Baker's marginal tax rate is 40%. Determine the annual net cash flows generated by the lathe.

3. Last month, Lloyd's Systems analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project took place, the Federal Reserve changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's expected NPV can be negative, in which case it should be rejected.

Part -3:

Zair Electronics can make either of two investments at time 0. Assuming a required rate of return of 14%, determine for each project (a) the payback period, (b) the net present value, (c) the profitability index, and (d) the internal rate of return. Assume under MACRS the asset falls in the five-year property class and that the corporate marginal tax rate is 34%. The initial investments required and yearly savings(EBIT)excluding depreciation and taxes are shown below:

Assume that there is no difference in the level of net working capital for both of projects and no salvage value at the end of useful life. You have to calculate net cash flows that fill the blanks in the template provided below first.

Make sure to show all of your work!

You work in Walt Disney Company's corporate finance and treasury department and have just been assigned to the team estimating Disney's WACC. You must estimate this WACC in preparation for a team meeting later today. You quickly realize that the information you need is readily available online.

1. Go to https://finance.yahoo.com. Under the "Market Data," you will find the yield to maturity for ten-year Treasury bonds listed as "10 Yr Bond (%)." Collect this number as your risk-free rate.

2. In the box next to the "Get Quotes" button, type Walt Disney's ticker symbol (DIS), and click Search. Once you see the basic information for Disney, find and click "Key Statistics" on the left of the screen. From the key statistics, collect Disney's market capitalization (its market value of equity), enterprise value (market value equity +net debt), cash, and beta.

3. To get Disney's cost of debt and the market value of its long-term debt, you will need the price and yield to maturity on the firm's existing long-term bonds. Go to https://www.finra.org, click on "For Investors" and then click on the menu of "Market Data Center" from the right of the screen. Choose "Bonds" from the menu on the left of the screen and choose "Search." Under "Search," click "Corporate," type Disney's ticker symbol (DIS), and click "Show Results." A list of Disney's outstanding bond issues will appear.
Assume that Disney's policy is to use the yield to maturity on non-callable ten-year obligations as its cost of debt. Find the non-callable bond issue that is as close to ten years from maturity as possible. Find the yield to maturity for your chosen bond issue (it is the column titled "Yield") and enter that yield as your pre-tax cost of debt. Also, tell the maturity date (mm/dd/yyyy).

4. You now have the price for each bond issue, but you need to know the size of the issue. Returning to the Web page, hove the cursor around "Price" then arrange the bond issues in ascending order. Copy and paste the symbols of the bond issues and their prices into the Excel spreadsheet. Now, you need to know the amount outstanding of each bond issue. Place the mouse cursor on the symbol of each bond issue and right click on your mouse button and choose ‘Open in new window' to open a Web page with all of the information about the bond issue. Scroll down until you find "Amount Outstanding" on the right side. Copy and paste the information onto the Excel spreadsheet. Repeat this step for all of the bond issues. Note that bond prices keep changing during the market operation.

So, now you have symbols, prices, and outstanding amounts of all Disney's bond issues in three columns in the Excel spreadsheet. Noting that the outstanding amounts are quoted in thousands of dollars (e.g., $60,000 means $60,000,000), record the issue amounts in the column of the outstanding amount.

5. The price of each bond issue in your spreadsheet is reported as a percentage of the bond's par value. For example, 104.50 means that the bond issue is trading at 104.50% of its par value. You can calculate the market value of each bond issue by multiplying the amount outstanding by (Price/100). Do so for each issue and then calculate the total of all the bond issues. This is the market value of Disney's debt.

6. Compute the weights for Disney's equity and debt based on the market value of equity and Disney's market value of debt, computed in step 5.

7. Calculate Disney's cost of equity capital (i.e., ke) using the CAPM, the risk free rate (Rf) you collected in step 1, and recent 10 year average market return (S&P500) of 7.60%.

8. Assuming that Disney has a tax rate of 35%, calculate its effective cost of debt capital (i.e., kd).

9. Calculate Disney's WACC.

10. Calculate Disney's net debt by subtracting its cash (collected in step 2) from its debt. Recalculate the weights for the WACC using the market value of equity and net debt.

Attachment:- Part _Name.rar