Chatman Mortgage, Inc.
Joi Chatman recently received her finance degree and has decided to enter the mortgage broker
business. Rather than working for someone else, she will open her own shop. Her cousin Mike has
approached her about a mortgage for a hous
Question 1
A company that utilizes the MACRS system of depreciation:
Answers will have equal depreciation costs each year of an asset's life.
:
will have a greater tax shield in year two of a project than it would have if the firm
had opted for straight-
CHAPTER 9
1.
Forecasting risk is the risk that a poor decision is made because of errors in projected cash flows. The danger is greatest with a new product because the cash flows are probably harder to predict.
2.
With a sensitivity analysis, one variable
Chapter 7
3.
When we use discounted payback, we need to find the value of all cash flows today. The
value today of the project cash flows for the first four years is:
Value today of Year 1 cash flow = $5,800/1.12 = $5,178.57
Value today of Year 2 cash flo
RWJJ 4.11
Use the general formula for PV of a series of cash flows.
=
960
1+
!
+
If k = 13%, PV = 3676.43
If k = 18%, PV = 3290.85
840
1+
!
+
1935
1350
+
!
1+
1+ !
RWJJ 17.1
a. The call options are in-the-money. The stock price is
82, and the strike price is 80 for all the options listed.
If Stock Price > Strike Price, a call is in-the-money.
Intrinsic Value is Max(S X,0) = Max(82-80,0) = 2.
b. The put options are n
Chapter 9
6.
We need to calculate the NPV of the two options, go directly to market now, or utilize test
marketing first. The NPV of going directly to market now is:
NPV = CSuccess (Prob. of Success) + CFailure (Prob. of Failure)
NPV = $26,000,000(.50) +
CH11
1.
Some of the risk in holding any asset is unique to the asset in question. By investing in a variety of assets, this unique
portion of the total risk can be eliminated at little cost. On the other hand, there are some risks that affect all investme
CH11
1. Some of the risk in holding any asset is unique to the asset in question. By investing in a variety of assets, this unique portion
of the total risk can be eliminated at little cost. On the other hand, there are some risks that affect all invest
NAME_
Corporate Finance
Exam 1
Part 1. 16 points: Answer ALL of the following questions. (4 point per question).
1. The Income Statement for Loco Corporation is shown below. Total Assets for Loco are
5,000,000, and Locos Equity Multiplier equals 1.20.
Loc
RWJJ 17.22
Draw the binomial trees for the underlying asset, and for
the put option:
107
92
Max(95-107,0) = 0
put
81
Max(95-81,0) = 14
a. Use the binomial model to calculate the value of the call
option
u = 107/92 = 1.16304348
d = 81/92 = 0.88043478
rf =
The Starlight Electric Corporation (SEC) is confronted with the problem of building
a large or small plant for producing a newly-developed product which has an
economic life of 10 years. The decision depends, among ot
Chapter 11
7.
The expected return of an asset is the sum of each return times the probability of that return
occurring. So, the expected return of the stock is:
E(RA) = .05(.325) + .15(.147) + .50(.115) + .30(.298) = .1086, or 10.86%
To calculate the stan
Ch12
1.
No. The cost of capital depends on the risk of the project, not the source of the money.
2.
Interest expense is tax-deductible. There is no difference between pretax and aftertax equity costs.
3.
You are assuming that the new projects risk is the
NAME_
Corporate Finance
Exam 4
Part 1. 16 points: Answer ALL of the following questions. (4 point per question).
1. When making a capital budgeting decision, suppose you do not take into consideration a
real option inherent in a project. What error might
RWJJ 9.8
Draw the decision tree:
Success (.75)
27
Research
Fail (.25)
No
Research
Success (.6)
Fail (.40)
5
27
5
Work back by calculating the expected values at the right of
the diagram:
(.75)(27) + .25(5) = 21.5
(.6)(27) + .4(5) = 18.2
Research
21.5
18.2
RWJJ 17.22
Draw the binomial trees for the underlying asset, and for
the call option:
84
73
c
60
Max(84-7
0
Max(60-7
0
,0) = 14
,0) = 0
a. Use the binomial model to calculate the value of the call
option
u = 84/73 = 1.15068493
d = 60/73 = 0.82191781
rf =
1
2
RECALL EXAMPLE:
C = 20, which starts at t = 1
g = 0.05
r = 0.09
Step 1: Perpetuity:
-35 + (20/(0.09-0.05)
Step 2: Standing at t=7, what is value of this perpetuity from t = 8 onwards?
(20*(1+0.05)^7)/(0.09-0.05)
Step 3: Standing at t = 0, what is valu
Professor Sapnoti Eswar
Assignment 1: Cash Flows
Solutions
Question 1: Combined Communications is a new firm in a rapidly growing industry. The
company is planning on increasing its annual dividend by 15 percent a year for the next
4 years and then decrea
UniversityofCincinnati
ProfessorSapnotiEswar
Assignment 2: Discount Rates
Solutions
Q1: Suppose a stock had an initial price of $73 per share, paid a dividend of $1.20 per
share during the year, and had an ending share price of $82. Compute the percentage
University of Cincinnati!
Professor Sapnoti Eswar
!
Assignment 3: Diversification, CAPM
Solutions
!
!
!
Question 1: A portfolio contains four assets. Asset 1 has a beta of .7 and represents 35 percent
of the portfolio. Asset 2 has a beta of 1.3 and repres
Carl H. Lindner College of Business
COURSE NUMBER:
FIN4001
COURSE TITLE:
Corporate Finance
TERM:
Spring Semester 2015
INSTRUCTOR:
E-mail:
Office:
Office Phone:
Office Hours:
Sapnoti Eswar
sapnoti.eswar@uc.edu
LH 409
513-556-6770
Tue/Thurs 2pm 3pm, or by a
RWJJ 19.16
The shares and/or the rights are not priced correctly, and
money can be earned by exploiting the mispricing.
Consider the following strategy:
Buy 4 rights costing 4*6 = $24. You will be able to use
these to purchase the shares in the near futur
Assignment #2
Real Estate Finance, Fall 2016
Dr. Michael Eriksen, University of Cincinnat
Please Note: Using this worksheet in a different semester than the one
listed above will be viewed as plagarism and a violaton of the University's
Honor Policy.
Name
FIN4014
Quiz five
Name:
Student ID:
You observe following information of bonds A, B, and C.
Bond
Maturity
Par
A
B
C
6 month
12 month
18 month
$1000
$1000
$1000
Annual
Coupon
Rate
0%
4%
4%
Price
$950
$940
930
Construct the spot rate curve z1, z2, and z3.
Z
CustID
CustName
1 Alice
2 Bob
3 Camilla
4 David
5 Emily
6 Frank
7 Gladys
8 Henry
9 Ingrid
10 Jake
11 Kathleen
12 Larry
13 Monica
14 Ned
15 Olivia
16 Peter
17 Queenie
18 Ralph
19 Stephanie
20 Thomas
21 Ursula
22 Victor
23 Wendy
24 Xavier
25 Yolanda
26 Zeke
International Finance
MGF 403
Professor Yong H. Kim, Ph.D.
International Finance
International Finance
N1: Multinational Financial
Management
Study Objectives
Identify the management goal and organizational
structure of the Multinational Corporation (MNC)
Lesson Objectives
3
LESSON 1:
OVERVIEW OF REAL ESTATE
FINANCE AND INVESTMENT
Understand Differences Between Real and
Personal Property
Explain Why Real Estate is Financed Primarily
Using Debt
Understand Advantages and Disadvantages of
Investing in Real Es