A firm is considering two mutually exclusive projects, A and B. The projects are

different in that they have different returns depending on general economic conditions. The

firm forecasts that return on the market, and the returns on each project, along with their

associated probabilities will be given by the following table. You can assume a 5% risk free

rate and a 6% market risk premium. Assume the CAPM holds. Compare the expected

returns to the cost of capital for each project and decide which project the firm should choose.

Extreme Recession

Moderate Recession

Normal

Moderate Growth

Extreme Growth

Pr[economic condition]

15%

20%

30%

20%

15%

Return on the market

-12%

0%

12%

24%

36%

Return on project A

-35%

2%

10%

20%

20%

Return on project B

-9%

0%

12%

22%

28%

COST OF CAPITAL FOR PROJECT A ACROSS CONDITIONS =

COST OF CAPITAL FOR PROJECT B ACROSS CONDITIONS =

Which project  should  firm choose  and why?

Your firm is considering a new three-year project. You know that the

unlevered cost of equity for firms with a similar risk as your target is 8%. At the end of the

project, all available funds are distributed to equity and debt holders. Use the following

financial statements to answer the questions on the next page:

Year

0

1

2

3

Income statement

Sales

$175,000

$175,000

$175,000

COGS

$26,250

$26,250

$26,250

Depreciation

$100,000

$100,000

$100,000

EBIT

$48,750

$48,750

$48,750

Interest payment on debt

$9,000

$9,000

$9,000

Profit Before tax

$39,750

$39,750

$39,750

Taxes

$21,863

$21,863

$21,863

Profit after tax

$17,888

$17,888

$17,888

Dividends

$17,888

$17,888

$17,888

Retained earnings

$0

$0

$0

Balance Sheet

Cash and Mark. Sec.

$0

$100,000

$200,000

$300,000

Current Assets

$0

$0

$0

$0

Fixed Assets

   At cost

$300,000

$300,000

$300,000

$300,000

   Acc. Depreciation

$0

$100,000

$200,000

$300,000

   Net Fixed Assets

$300,000

$200,000

$100,000

$0

Total Assets

$300,000

$300,000

$300,000

$300,000

Current liabilities

$0

$0

$0

$0

Debt

$150,000

$150,000

$150,000

$150,000

Stock

$150,000

$150,000

$150,000

$150,000

Acc. Ret. Earn.

$0

$0

$0

$0

Total liab.and equity

$300,000

$300,000

$300,000

$300,000

1. a) How large an equity investment does the project require upfront?

1. b) How much equity is recovered at the end of the project?

1. c) Show the cash to and from equity holders for the entire project. Don’t forget

about dividends, initial, and terminal equity flows. Actual cash, not free cash flow!

Year

0

1

2

3

Total cash flows to equity

1. d) Based on the cash flows in part c, what is the IRR for the equity holders?

1. e) What is the present value of the tax shield for this three-year project?

Remember, this is not a perpetuity, it’s a three-year project.

1. f) Is this a good project for shareholders?

) Consider a firm that is financed THREE ways: common equity, preferred equity, and long term debt. The firm is considering replacing all of the machinery in its Cleveland plant. They have more than enough cash on hand to pay for the project without raising

external capital. Some relevant information about the firm is given below. Based on all THREE sources of funding, what cost of capital should the firm use to evaluate the project?

Stock Price (Common Shares)

$                    15

Number of common shares outstanding

$ 5,000,000

Equity beta (for common stock)

2.5

Stock Price (Preferred Shares)

$                      8

Number of preferred shares outstanding

$ 10,000,000

Dividends per share on preferred stock

$1.00

Market value of Total Debt outstanding

$      50,000,000

Yield to maturity on the firm's long term debt

6.5%

Coupon rate on the firms long term debt

2%

Coupon tax ratae

35%

Risk-free rate

4.5%

Market Risk Premium

5.5%

A protective collar involves buying an out-of-the-money put and writing an out-

of-the-money call on an underlying asset that you own. Let’s say you own an S&P 500 index

security that is currently trading at $30/share. You bought the index at $10 per share so you

currently have a big capital gain. You don’t want to sell your shares, but you want to lock in

your profits with a protective collar for the next year. You want to make sure you can sell

your shares for at least $29/share. The standard deviation of returns on the S&P 500 is 20%

and the assume risk free rate is 2%.

1. a) How much would it cost to buy the put?

1. b) What strike price should you set on the call so that you make the same premium that you paid for the put (zero net cost)?

1. c) Draw the net profit diagram for the entire protective collar position (long stock,  long put, short call) at maturity (including the premiums). Carefully label in detail all axis, strike prices, payoffs, etc.

Drayton McLane sold the Astros a few years back for about $645 Million. (You

can assume he sold it at the end of 2011). He originally purchased the team at the end of

1992 for $117 million. Back in 1992 the S&P 500 stock market index was at about $30 and it

was about $120 at the end of 2011 (adjusted for splits and dividends). You can assume the

yield on treasuries was about 4% over the period and the expected market risk premium was

5.5%. Also, forget about any other cash flows from ownership rights, franchise fees,

subsidies for the stadium etc. Assume the whole deal was 100% equity. Based on the

purchase and sale price, was it a good deal?

The Weston Enchilada Company has a levered equity beta of 0.8. The company is

thinking about getting into the Whataburger business. Currently, Weston Enchilada is

financed with 50% long-term debt. The debt is risk free and pays 4% interest before taxes. A

little research suggests that the Whataburger business is expected to yield 16% on after-tax

total operating cash flows. For comparison, another Whataburger in town has an equity beta

of 2.5 but has 20% debt in its capital structure. You can assume that the market return is

12%, marginal tax rates on everything are 35% and the new project would be financed with

50% debt. Find the WACC for the new Whataburger venture and decide what Weston

Enchilada should do?

Consider two ways of getting a mortgage on a house worth $750,000. You plan to

make a down payment of $300,000 at closing. You need to borrow the rest of the $450,000.

The first option is a 15 year fixed-rate mortgage at a 5.25% effective annual interest rate

(assume monthly compounding with 12 payments per year to get a monthly interest rate).

In the second option, you can “buy” a lower effective annual interest rate of 4.5% by paying

the bank an additional $25,000 cash at closing (also assume 12 monthly payments over the

year with monthly compounding). You are still borrowing $450,000, but now you are paying

an additional $25,000 in cash up front at origination (this is commonly called paying “points”

on a mortgage). All other costs are the same under both options.

1. a) Using the monthly interest rate over 180 payments, what would your monthly

payment be under the first scenario?

1. b) Using the monthly interest rate over 180 payments, what would be your

monthly payment under the second scenario?

1. c) Show which option is better.

"What are the potential long-term consequences of ongoing climate change on global ecosystems and human societies, and what actions can be taken on a global scale to mitigate these effects?"

1. Introduction to python Python in Today's Programming 
2. Importance of Python in Various Industries
3. Widely used in various industries such as finance, healthcare, and gaming
4. Offers flexibility, ease of use, and readability, making it a popular choice for developers
5. Allows for rapid prototyping and development, enabling faster time-to-market for productsAdvanced Features of Python
6. Advanced features such as decorators, generators, and list comprehensions
7. Powerful libraries and frameworks such as NumPy, Pandas, and Django
8. Wide range of use cases, from data analysis to web development and scripting
9. Python's Advantage Over Other Languages
10. Readability and simplicity of code, reducing the likelihood of bugs and errors
11. Large and active community, with plenty of resources and libraries available
12. Extensive documentation and support make it a great choice for beginners and experts alikePython's Future in Development and AI/ML
13. Continued growth in the field of artificial intelligence and machine learning
14. Wide range of use cases and applications, including natural language processing, computer vision, and predictive modeling
15. Expected to remain a dominant language in development and AI/ML for years to comePython's Role in Data Science and Visualization
16. Wide range of tools and libraries available for data manipulation, analysis, and visualization
17. Popular languages for data science, with a growing number of job opportunities in the field
18. Allows for easy and effective communication of results and insights to stakeholders and decision-makers.
19. Python's Usage in Industries like Finance, Healthcare, and Gaming
20. Widely used in finance for tasks such as algorithmic trading, risk analysis, and financial modeling
21. Applications in healthcare include data analysis, image analysis, and machine learning for disease diagnosis
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Data Structures explanation

What are the chief problems and concerns facing refugee youth? How will you, in your capacity as a youth worker, support your client in overcoming these problems?

True or False:  Shareholders demand and deserve higher expected rates of return than bondholders do. Therefore, debt is the cheaper capital source. We can reduce the WACC by borrowing more.

True or False: MM's proposition II assumes increased borrowing does not affect the interest rate on the firm's debt.

Tue or False:   In a perfect capital market, minimizing the weighted average cost of capital is equivalent to maximizing the firm's value.