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1. What are the differences between capital leasing and purchasing? What are the pros and cons either way??
2. Suppose that the current spot exchange rate of the EUR is USD 1.15 / EUR and the 3-month forward exchange rate is USD $1.18 / EUR. The 3-month interest rate is 4% per annum in the US and 2% per annum in Germany. Assume that you can borrow EUR 1,000,000 or its USD 1,000,000.
a. Determine whether interest rate parity is currently holding.
b. If IRP is no holding, how would you carry out covered interest arbitrage (CIA)? Show all the steps and determine the arbitrage profit. Assume you choose to keep your profits in US dollars.
Company A's historical returns for the past three years are: 6.0%, 15%, and 15%. Similarly, the market portfolio's returns were: 10%, 10%, and 16%. Suppose the risk-free rate of return is 4%. What is the cost of equity capital (required rate of retur..
Suppose that you invested $10,000 dollars using the dollar-cost-averaging approach. Assume that on Feb-1-10, and on Feb-1-11, you purchased $5,000 worth of stock (each year). What was the Semi-Annual Current Yield of this bond. On July 1, 2012, you p..
Homemade Home Cooling Inc. is considering in investing in new solar cooling units for office buildings. A market survey was undertaken at a cost of $150,000 that indicated that the firm would be able to sell 510 units per year for the next 4 years at..
Zero coupon bonds pay the investor the face value on the maturity date. What is the implicit in the first year of the bonds is?
Roderick Electric Scooter, Inc., staff has come up with the following estimates for the electric scooter project: Conduct sensitivity analysis. What are the principal uncertainties in the project? Assume an initial investment of $16 million to be dep..
The operating margin is always less than the total margin.
A stock will not pay a dividend for 3 years and then will pay a $5 dividend (D4) that will grow constantly at 5%. If the required rate of return for this stock is 10%, what is the value today?
Haskell Corp. is comparing two different capital structures. What is the price per share of equity under Plan I? Plan II?
Olin Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1541 per unit; variable costs = $318 per unit; fixed costs = $4103748; quantity = 72846 units. Suppose the company believes all of its estimates are acc..
The Starr Co. just paid a dividend of $1.10 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year, indefinitely. Investors require a return of 11 percent on the stock. What is the current price? Current p..
Rebecca receives a life insurance benefit. If she uses the money to purchase 20-year annuity the annual payments will be X. If a 10-year annuity is purchased, the annual payments will be 1.5X. Both calculations are based on an annual interest rate i...
What is the quarterly growth rate of the stock’s dividends?
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