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(a) Suppose that a factor will buy an exporter’s receivables at a 3.5% per month discount. In addition the factor will charge an extra 2.75% fee for non-recourse financing. If the exporter decides to factor $2.5 million in 180-day receivables, how much will the exporter receive? If the financing is with recourse, will the amount received by the exporter be different? Explain with quantitative evidence.
(b) Find the annual percentage rate of return for the factor in both the recourse and non- recourse financing.
(c) Diamond company based in the U.S will receive two million pounds tomorrow for its exports to an importer in London. It wants to determine its maximum one day loss (due to potential decline in the value of the pound) based on a 99% confidence interval. The firm estimated the standard deviation of the daily percentage change in the pound during the previous 90 days and the result was 2.5 %. If the firm expects the percentage change in the pound to fall by 1.2 %, find the value of the pound based on the maximum one day loss given that the spot rate for the pound is $1.62. Also determine the potential dollar loss for the Diamond company.
Suppose that you intend to buy a house for $200,000. Calculate leverage ratio for this investment in each of the given situations:
When evaluating mutually exclusive capital budgeting projects, the NPV and IRR could conflict with each other in the ranking of projects. List and explain three reasons why a conflict could exist. Which technique is best to use in a conflict? Explain..
The firm's net working capital changed from $26 at the beginning of the year to $30 at the end,
The current stocks price is $40. The average continuously compounded return of the stock is 12%. The continuously compounded risk-free rate is 5%.
Waldo Corporation has recently retained your accounting firm to prepare its income tax return.
What are the firm's income tax liability and its after-tax income?
What is the value of a one-month call option with an exercise price of $40? What is the value of a two-month call option with an exercise price of $40?
These are the forecasts of revenues over the lifetime of a project. Assume all cash flows occur at the end of the year. This hint is optional; you don't have to read this. This is only to help you, if you are confused by this hint just ignore it and ..
Suppose investors can earn a return of 2% per 6 months on a Treasury note with 6 months remaining until maturity. The face value of the T-bill is $10,000. What price would you expect a 6-month maturity Treasury bill to sell for?
Your boss has asked you to evaluate the economics of replacing 1.000 60-Watt incandescent light bulbs (ILBs)
"If these percentages are consistent over the past few years, then this is a reliable estimating procedure."
What is Jake's weighted average cost of capital?
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