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Get college assignment help at uniessay writers Bond Valuation: Basic Bond Valuation bno (cont.) Mills Company, a large defense contractor, on January 1, 2016, issued a 10% coupon interest rate, 10-year bond with a $1,000 par value that pays interest annually Investors who buy this bond receive the contractual right to two cash flows: (1) $100 annual interest (10% coupon interest rate the end of each year, and (2) the $1,000 par value at the end of the tenth year. $1,000 par value) at X Assuming that interest on the Mills Company bond issue is paid annually and that the required return is equal to the bond’s coupon interest rate, I = $100, rg 10%, M = $1,000, and n 10 years.

IT spend vs. industry benchmarks IT cash spend by tower vs. (as % of revenue) industry benchmarks Industry Review 1 Industry Review 2 4,0 1.5 1.5% 4% Client Spend 1.1 3 1.0- 0.8 0.5 0.5 0.3 0.3 0.2 0.1 0.0 App Dev End User IT service App Support Data Data Voice IT Network Network Finance, Computing Desk Admin, Center IT Cash Spend as % of Revenue

Deep-diving into costs, Bain analysis revealed that App cost (App support App Development) was a major cost for the company. Further analysis showed that the top 250 apps were responsible for 90% of the total cost of ownership (TCO) for the app segment even though the total number of apps was 1600. Total Cost of Ownership, by app ($M), Indexed Application TCO PERCENT OF APPLICATION, RANKED BY TOTAL COST ТOTAL COSTS Top 5 Applications Top 10 Applications Top 25 Applications Top 100 Applications Top 250 Applications 30% 40% 55% 78% 91% Primary focus area 100 Number of Applications 250 1600 Figure 2 Deciding to focus on these 250 apps, Bain decided to look at the costs involved Total Top 250 Apps by TCO ($M), Indexed $50.0M $42.0M $36.0M $128M 100% Out of scope 80 Need to Keep (costs remain) Don’t Know Function (may hold upside redundancy) 60- Business Case (upside potential for redundancy) 40 Already Retired (costs to go away) 20 Strong Hypothesis for Redundancy (base case opportunity) 0 Marketing, Sales, and Supply Chain Shared Non-ERP Systems

To look at costs from another angle for the 250 applications, Bain analyzed costs by the category of apps. The company divides its apps into the following categories – these are Platinum, Gold, Silver and Copper and others Application Count and Spend, Indexed 100%- Others 80- Bronze 60- Silver 40- Gold 20- Platinum Annual Application Spend Application Count by Criticality Tier Figure 4 Q5. What cannot be inferred from the graph (Figure 4)? a) Platinum and Gold categories represent 90% of costs but only 40% of application count b) Silver category apps are most cost efficient c) The company has almost the same number of apps in the gold category as in the bronze category d) Apps in the platinum category account for less than 10% of total number of apps

o What patient issues might arise when working in an institutional pharmacy setting? o Which issues may be unique to institutional pharmacy settings?

at the heart of business decisions. Marketing is an approach to business that puts the a. product b.company c. customer, client, partner and society d. bottom line e. employee A trust fund pays $45,000 each year-end in perpetuity. If the trust earns 9.7% per annum, compounding annually the value of the trust fund today is closest to (to the nearest whole dollar; don’t use the $ sign or comma separators):

New Heritage Doll Company: Capital Budgeting In mid-September of 2010, Emily Harris, vice president of New Heritage Doll Company’s production division, meetings in October. Two proposals stood out based on their potential to strengthen the division’s innovative product lines and drive future growth. However, due to constraints on financial and managerial resources, Harris knew it was possible that the firm’s capital budgeting committee would decline to approve both projects. She also knew that New Heritage’s licensing and retail divisions would promote compelling projects of their own recommend one of her projects over the other weighing project proposals for the company’s upcoming capital budgeting was Consequently, Harris had to be prepared to The Doll Industry Revenues in the U.S. toy and game industry totaled $42 billion in 2008 and were projected to increase by 4.6% per year to $52.5 billion by 2013. The market was divided into two broad segments: video games (48%) and traditional toys and games (52%). The second segment was further divided into infant/preschool toys (14.5%), dolls (14.1%), outdoor

After analyzing these internal costs, Bain looked at the outsourced costs. The storage costs in this regard proved to be a major chunk. Historically, the client cost for storage was lower than the benchmark. However, at the end of year 3, the analysis revealed that for the client’s biggest vendor, the cost for storage when compared to benchmark was as follows: Monthly Price Per GB Blended Storage, Indexed $0.60 Client Cost 0.40 Benchmark 0.20- Year 1 Year 4 Year 2 Year 3 Figure 5 Q6. Calculate the approximate value of CAGR (Yr1- Yr4) for client’s cost (refer to the figure 5 above): Number of Years Ending Value Beginning Value -1 CAGR = { a) -11% b) -2% c) 5% d) 9%

504,282 Question 34 (1 point) Right before the final exam, David has earned cumulative grades on his MBA 7300 as follows Based on the grading weights specified below, what will David need at least on the final order to achieve an A grade for this course? exam in Weight Components Grade Case Presentation 5% A: 2 90% Case Briefs B: 2 80% and < 90 % 30% Quizzes C: 70% and < 80% 15% 20 % Mid-term Exam D: 2 60% and < 70 % Comprehensive Final 30 % F:< 60 % 4 7 9 D N Mi C Y Question120( pom Using the following information to construct an income statement and balance sheet for 2011. Assume tax rate is 40%. (Common Equity is a plug in number). 2011 Item

Video Submit Excel Online Structured Activity: Evaluating risk and return Stock X has a 9.5% expected return, a beta coefficient of 0.8, and a 40% standard deviation of expected returns. Stock has a 12.0% expected return, a 5%. The data has been collected in the beta coefficient of 1.1, and a 20.0% standard deviation. The risk-free rate 6%, and the market risk premium Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Open spreadsheet Calculate each stock’s coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations. CVy 4,21 CVy= 1.67 b. Which stock riskler for a diversifled Investor? Thoraforo tho atocls with tho lowor bot ic oore rialae T E Hirmmifind insentore tho ralant rinle i meacured h. bat- Ctocls v han tho Le.e.beke Question 1 0/10 b. Which stock is riskier for a diversified investor? Submit I. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is more risky. Stock X has the lower beta so it is more risky than Stock Y II. For diversified investors the relevant risk is measured by standard deviation fexpected returns. Therefore, the stock with the lower standard expected returns is more risky. Stock Y has the lower standard deviation so it is more risky than Stock X deviation III. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock Y has the higher beta so it is less risky than Stock X. IV. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is more risky. Stock Y has the higher beta so t Is more risky than Stock X V. For dlversifled Investors the relevant risk Is measured by standard devlation expected returms. Therefore, the stock with the higher standard devlation expected returns Is more risky. Stock X has the hlgher standard devlatlon so It Is more risky than Stock Y c. Calculate each stock’s required rate of return. Round your answers to two decimal places. 10.00% 11.50% Current soore 0/10 pts (0 %) 1561438740000 Autosaved at 4:24 PM Back Next Question 1 0/10 Calculate each stock return. Round your answers to two decimal places. required rate Submit 10.00% ry= 11.50% ry A- diversified investor? On the basis of the two stocks’ expected and required returns, which stock would be more attractive to Stock Y. Do not round intermediate calculations. Calculate the required return a portfolio that has $3,000 invested in Stock X and $5,500 invested two decimal places. Round your answer If the market risk premium increased to 6%, which of the two stocks would have the larger increase in required return? Check My Work Reset Problem Current score 0/10 pts (0 % ) Autosaved at 4:24 PM Back Next 1561438740000

Get college assignment help at uniessay writers X Ch 08: Exploring Finance Visualizations – The Security Market Line and Risk Premium Changes Conceptual Overview: Explore how risk premium changes affect the security market line. The Security Market Line defines the required rate return (rf in the slider) and a risk premium determined by the market-risk premium (RPM) multiplied by the security’s beta coefficient for risk. Drag the slider below the graph to change the relationship between a security’s beta coefficient and the amount of the market risk premium. Drag left or right on the graph to move the cursor to evaluate securities with different beta coefficients. In this graph, the risk-free retun is fixed at 6 % return for a security to be worth buying or holding. The line, depicted in blue in the graph, is the sum of the risk-free A-A 6%5% 1 = 6% 5.00% = 11.00% r = rRF RPM* beta = Req. Rate of Return 15 . 11% Risk Premium 5.00 % 10 15- A-Z 11% Risk Premium = 5.00 % 10. goe Risk-Free Return 6.0 % 2.0 2.5 1.5 0.5 1.0 0,0 Beta Coefficient RPM= 5 10 4 Ch 08: Exploring Finance Visualizations – The Security Market Line and Risk Premium Changes fixed at 6 % in this 1. If the market-risk premium were 4% and a security’s beta coefficient were 2.0, what would be the required rate of return for the security? (The risk-free return graph.) 4% 6% A-Z 10% .14% Select- 2. If the market-risk premium doubles (say, from 4% to 8%), the required rate of return for a security more than doubles exactly doubles increases by less than double decreases -Select Save

Question 3 point possible (graded) Bond L: 2-year zero coupon bond, pays $200 at maturity Bond M: 1-year zero coupon bond, pays $10 at maturity Bond N: 2-year zero coupon bond, pays $10 at maturity Bond O: 2-year, 5% coupon (paid annually) bond, face value $200 Suppose you combine Bonds L, M, and N to produce a Portfolio LMN, and that the Yield to Matu rity is the same for all three bonds and the portfolio considered. Which of the following is true? Price of LMN > Price of O Price of LMN = Price of O Price of LMN < Price of O Cannot determine if one price is greater than another without further information Question 4 1 point possible (graded) What is the price of the following US T-Bond? (Use any method you prefer) Face value: $100 Maturity: 7 years Coupon rate 2.5% (paid annually) Yield 7.5% Question 5 point possible (graded) Suppose you observe that the above bond is trading at $83.00. What is the yield? Question 6 0.0/1.0 point (graded) Calculate the price, duration, and modified duration of this bond when the yield is 9% (Enter all answers with two decimal places). Question 7 0.0/1.0 point (graded) Suppose the yield for the bond from the previous question increases by 1½2 percentage points. With out re-calcu lating the price, what is the expected change (in %) in the bond's price? That is, what is the expected percentage change using the Duration approximation? What would be the new price predicted by (modified) duration? Question 8 point possible (graded) Noting that the price obtained in the previous question is an approximation, which of the following will be true for the actual (not approximated) price at the new yield? Actual Price Duration of bonds A and B Question 10 point possible (graded) A certain investor who will hold a bond to maturity and cares only about the return to his investment, must choose among three different 5-year sovereign bonds issued by the Republic of Fredonia: (i) a premium bond, (ii) a discount bond, (ii) a par bond. Which of the following is true about the investor’s preferences? He will prefer the premium bond over the other two, because it is more valuable He will prefer the discount bond, because it is cheaper He will prefer the par bond, because it is appropriately priced He will be indifferent to all three, because they are equivalent in his analysis

1. Consider a project with free cash flows in one year of $137,022 or $188,017, with each being equally likely. The initial investment required for the project is $100,655, and outcome the project’s cost of capital is 20%. The risk-free interest rate is 11% a. What is the NPV of this project? b. Suppose that to raise the funds for the initial investment, the project is sold to investors all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money unlevered equity? c. Suppose the initial $100,655 is instead raised by borrowing at the risk-free interest rate. What are the cash flows of the levered equity, and what is its initial value accord ing to MM as an can be raised in this way-that is, what is the initial market value of the

5. Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of $5000 on which it pays interest of 10% each year. Both companies have identical projects that generate free cash flows of $5600 or $5300 each year. After paying any interest on debt, both companies use all remaining free cash flows to pay dividends each year. a. Fill in the table below showing the payments debt and equity holders of each firm will receive given each of the two possible levels of free cash flows. АВС XYZ Debt Payments Equity Dividends Debt Payments FCF Equity Dividends $5600 $5300 b. Suppose you hold 10% of the equity of ABC. What is another portfolio you could hold that would provide the same cash flows? c. Suppose you hold 10% of the equity of XYZ. If you can borrow at 10%, what is an alterna- tive strategy that would provide the same cash flows?

7. Cisoft is a highly profitable technology firm that currently has $5 billion in cash. The firm has decided to use this cash to repurchase shares from investors, and it has already announced these plans to investors. Currently, Cisoft is an all-equity firm with 6 billion shares outstanding. These shares currently trade for $20 per share. Cisoft has issued no other securities except for stock options given to its employees. The current market value of these options is $10 billion What is the market value of Cisoft’s non-cash assets? a. b. With perfect capital markets, what is the market value of Cisoft’s equity after the share repurchase? What is the value per share?

9. Zetatron is an all-equity firm with 270 million shares outstanding, which are currently trading for $23.64 per share. A month ago, Zetatron announced it will change its capital structure by borrowing $921 million in short-term debt, borrowing $820 million in long- term debt, and issuing $1,015 million of preferred stock. The $2,756 million raised by these issues, plus another $94 million in cash that Zetatron already has, will be used to repurchase existing shares of stock. The transaction is scheduled to occur today. Assume perfect capital markets. What is the market value balance sheet for Zetatron a. i. Before this transaction? i. After the new securities are issued but before the share repurchase? iii. After the share repurchase? b. At the conclusion of this transaction, how many shares outstanding will Zetatron have, and what will the value of those shares be?

11. Consider the entrepreneur described in Section 14.1 (and referenced in Tables 14.1-14.3) Suppose she funds the project by borrowing $750 rather than $500. According to MM Proposition I, what is the value of the equity? What are its cash flows if the economy is strong? What are its cash flows if the economy is weak? b. What is the return of the equity in each case? What is its expected return? What is the risk premium of equity in each case? What is the sensitivity of the levered equity return to systematic risk? How does its sensitivity compare to that of unlevered equity? How does its risk premium compare to that of unlevered equity? d. What is the debt-equity ratio of the firm in this case? What is the firm’s WACC in this case? a. C. e. TABLE 14.1 The Project Cash Flows Date 0 Date 1 Weak Economy Strong Economy $1400 $900 -$800 TABLE 14.2 Cash Flows and Returns for Unlevered Equity Date 1: Cash Flows Date 0 Date 1: Returns Weak Economy Weak Economy Initial Value Strong Economy Strong Economy Unlevered equity $1400 $900 $1000 40% -10% TABLE 14.3 Values and Cash Flows for Debt and Equity of the Levered Firm Date 1: Cash Flows Date 0 Weak Economy Initial Value Strong Economy Debt $500 $525 $525 Levered equity $875 $375 E= $900 Firm $1000 $1400

17. Mercer Corp. is a firm with 10 million shares outstanding and $84 million worth of debt out- standing. Its current share price is $73. Mercer’s equity cost of capital is 8.5%. Mercer has just announced that it will issue $354 million worth of debt. It will use the proceeds from this debt pay off its existing debt, and use the remaining $270 million to pay an immediate dividend. Assume perfect capital markets. Estimate Mercer’s share price just after the recapitalization is announced, but before the transaction occurs b. Estimate Mercer’s share price at the conclusion of the transaction. (Hint: Use the market value balance sheet. Suppose Mercer’s existing debt was risk free with a 4.39% expected return, and its new debt is risky with transaction to a. 2 C. a 4.93% expected return. Estimate Mercer’s equity cost of capital after the

*19. Indell stock has a current market value of $150 million and a beta of 0.70. Indell currently has risk-free debt as well. The firm decides to change its capital structure by issuing $39.34 million in additional risk-free debt, and then using this $39 million plus another $11 million in cash to repurchase stock. With perfect capital markets, what will be the beta of Indell stock after this transaction?

21. Yerba Industries is an all-equity firm whose stock has a beta of 0.70 and an expected return of 18.50%. Suppose it issues new risk-free debt with a 6.50% yield and repurchases 5% of its stock. Assume perfect capital markets. a. What is the beta of Yerba stock after this transaction? b. What is the expected return of Yerba stock after this transaction? Suppose that prior to this transaction, Yerba expected earnings per share this coming year of $4.50, with a forward P/E ratio (that is, the share price divided by the expected earnings for the coming year) of 10. c. What is Yerba’s expected earnings per share after this transaction? Does this change benefit shareholders? Explain d. What is Yerba’s forward P/E ratio after this transaction? Is this change in the P/E ratio rea- sonable? Explain

all-equity firm with 130 million shares outstanding currently trading for 23. Zelnor, Inc., is an $15.52 per share. Suppose Zelnor decides to grant a total of 13 million new shares to employees part of a new compensation plan. The firm argues that this new compensation plan will motivate employees and is better than giving salary bonuses because it will not cost the firm anything a. If the new compensation plan has no effect on the value of Zelnor’s assets, what will be the share price of the stock once this plan is implemented? b. What is the cost of this plan for Zelnor investors? Why is issuing equity costly in this case? as

The post Question: Bond Valuation: Basic Bond Valuation Bno (cont.) Mills Company, A Large Defense Contractor, On January 1, 2016, Issued A 10% Coupon Interest Rate, 10-year Bond With A $1,000 Par Value That Pays Interest Annually Investors Who Buy This Bond Receive The Contractual Right To Two Cash Flows: (1) $100 Annual Interest (10% Coupon Interest Rate The End Of … appeared first on uniessay writers.

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November 3, 2019