Problem 16.1 The Baltic Sea
Assume the U.S. dollar returns (monthly averages) shown below for the three Baltic republics. Calculate the Sharpe and Treynor
measures of market performance.
Problem 18.1 Natural Mosaic
Natural Mosaic Company (U.S.) is considering investing Rs50,000,000 in India to create a wholly owned tile manufacturing plant to export to the European market. After
five years the subsidiary would be sold to Indian investors
Problem 12.1 DeMagistris Fashion Company
DeMagistris Fashion Company, based in New York City, imports leather coats from Acua Leather Goods, a reliable
and longtime supplier, based in Buenos Aires, Argentina. Payment is in Argentine pesos. When the peso l
Problem 2.1 Emaline Returns
If the share price of Emaline, a New Orleans-based shipping firm, rises from
$12 to $15 over a one-year period, what is the rate of return to the
shareholder if the following:
a. The company paid no dividends
b. The company pai
Problem 8.1 Amber McClain
Amber McClain, the currency speculator we met earlier in the chapter,sells eight June futures contracts for
500,000 pesos at the closing price quoted in Exhibit 8.1.
a. What is the value of her position at maturity if the ending
Problem 7.1 Traveling Down Under
Terry Lamoreaux has homes in both Sydney, Australia and Phoenix, Arizona. He travels between
the two cities at least twice a year. Because of his frequent trips he wants to buy some new, high
quality luggage. He's done his
Problem 3.1 Gilded Question
Before World War I, $20.67 was needed to buy one ounce of gold. If, at the same time
one ounce of gold could be purchased in France for FF410.00, what was the exchange
rate between French francs and U.S. dollars?
Problem 13.1 Corcovado Pharmaceuticals
Corcovado Pharmaceuticals cost of debt is 7%. The risk-free rate of interest is 3%. The expected
return on the market portfolio is 8%. After effective taxes, Corcovados effective tax rate is 25%. Its
Problem 11.1 Trident Europe (A)
Using facts in the chapter for Trident Europe, assume the exchange rate on January 2, 2006, in Exhibit 11.4 dropped in value from $1.2000/ to $0.9000/
rather than to $1.0000/. Recalculate Trident Europes translated balance
Steele Insulators is analyzing a new type of insulation for interior walls.
Management has compiled the following information to determine whether or
not this new insulation should be manufactured. The insulation project has an
initial fixed asset req
Stellar Plastics is analyzing a proposed project. The company expects to sell
12,000 units, plus or minus 5 percent. The expected variable cost per unit is
$3.20 and the expected fixed costs are $30,000. The fixed and variable cost
estimates are consi
100. Hybrid cars are touted as a "green" alternative; however, the financial aspects
of hybrid ownership are not as clear. Consider a hybrid model that has a list
price of $5,500 (including tax consequences) more than a comparable car with
a traditional g
Hollister & Hollister is considering a new project. The project will require
$522,000 for new fixed assets, $218,000 for additional inventory, and $39,000
for additional accounts receivable. Short-term debt is expected to increase by
$165,000. The pro
The change in revenue that occurs when one more unit of output is sold is
referred to as:
A. marginal revenue.
B. average revenue.
C. total revenue.
E. scenario revenue.
Refer to section 11.3
Difficulty: 1 E
Brubaker & Goss has received requests for capital investment funds for next
year from each of its five divisions. All requests represent positive net present
value projects. All projects are independent. Senior management has decided
to allocate the a
Dog Up! Franks is looking at a new sausage system with an installed cost of
$397,800. This cost will be depreciated straight-line to zero over the project's 7year life, at the end of which the sausage system can be scrapped for $61,200.
The sausage sy
Learning Objective: 10-01 How to determine the relevant cash flows for a proposed project.
Topic: Aftertax salvage value
Bruno's Lunch Counter is expanding and expects operating cash flows of
$29,000 a year for 4 years as a result. This
85. You are in charge of a project that has a degree of operating leverage of 2.64.
What will happen to the operating cash flows if the number of units you sell
increase by 4 percent?
A. 15.84 percent decrease
B. 2.27 percent decrease
C. no change
The Card Shoppe needs to maintain 20 percent of its sales in net working
capital. Currently, the shoppe is considering a 6-year project that will increase
sales from its current level of $379,000 to $421,000 the first year and to
$465,000 a year for t
A company is considering a project with a cash break-even point of 22,600
units. The selling price is $28 a unit, the variable cost per unit is $13, and
depreciation is $14,000. What is the projected amount of fixed costs?
When the operating cash flow of a project is equal to zero, the project is
operating at the:
A. maximum possible level of production.
B. minimum possible level of production.
C. financial break-even point.
D. accounting break-even point.
E. cash break
Gateway Communications is considering a project with an initial fixed asset
cost of $2.46 million which will be depreciated straight-line to a zero book value
over the 10-year life of the project. At the end of the project the equipment will
be sold f
Consider the following income statement:
What is the amount of the depreciation tax shield?
Depreciation tax shield = $77,300 .32 = $24,736
Difficulty: 1 Easy
Scenario analysis is defined as the:
A. determination of the initial cash outlay required to implement a project.
B. determination of changes in NPV estimates when what-if questions are
C. isolation of the effect that a single variable has on th
Precise Machinery is analyzing a proposed project. The company expects to
sell 2,100 units, give or take 5 percent. The expected variable cost per unit is
$260 and the expected fixed costs are $589,000. Cost estimates are
considered accurate within a
The accounting break-even production quantity for a project is 12,320 units.
The fixed costs are $216,000 and the contribution margin per unit is $28. The
fixed assets required for the project will be depreciated on straight-line basis to
zero over th
Bid per building = $3,465,923.54/2 = $1,732,961.77
When rounded to the nearest $100, the bid price is $1,733,000
Difficulty: 2 Medium
Learning Objective: 10-03 How to set a bid price for a project.
Problem 15.1 Avon's Foreign-Source Income
Avon is a U.S.-based direct seller of a wide array of products for women. Avon markets leading beauty,
fashion and home products in more than 100 countries. As part of the training in its corporate treasury
Problem 14.1 JPMorgan: Petrobrs's WACC
JPMorgans Latin American Equity Research department produced the following WACC
calculation for Petrobrs of Brazil versus Lukoil of Russia in their June 18, 2004 report.
Evaluate the methodology and assumptions used
Problem 10.1 P & G India
Proctor and Gambles affiliate in India, P & G India, procures much of its toiletries product line from a Japanese company. Because of the
shortage of working capital in India, payment terms by Indian importers are typically 180 da