Chapter 8 questions: 8.1. The two primary factors that affect interest rates on

Chapter 8 questions:
8.1. The two primary factors that affect interest rates on debt securities are risk and inflation. Explain the role of each factor. I will explain the first factor.
First, the risk inherent in a business, and hence its ability to repay debt capital, affects the return lenders would require; the higher the perceived risk, the higher the interest rate. Investors would be unwilling to lend to high-risk businesses unless the interest rate was higher than on loans to low-risk businesses.
Second factor (you answer)
8.2. Briefly describe the features of the following types of debt ( I will explain the first one, term loan):
a. Term loan
A term loan is a contract under where a borrower agrees to make a series of interest and principal payments, on specified dates, to a lender. Investment bankers are generally not involved. The word ‘term’ means a specific period of time. Term loans are negotiated between a borrowing business and the lender. Typically, the lender is a financial institution such as a bank, a mutual fund, an insurance company, or a pension fund, but it can also be a wealthy private investor. Most term loans have maturities of 3 to 15 years for businesses borrowing the money. Term loans are typically amortized in equal installments over the life of the loan, so part of the principal of the loan is retired (i.e. paid down) with each payment. The interest rate on a term loan either can be fixed for the life of the loan or variable. If it is fixed, the rate used will be close to the rate on equivalent maturity bonds issued by businesses of comparable risk. If the rate is variable, it is usually set at a certain number of percentage points over an index rate (the LIBOR rate is used in the U.S. as the index rate) such as the prime rate. When the index rate goes up or down, so does the interest rate that must be paid on the outstanding balance of the loan.
b. Bond
c. Line of credit
d. Municipal bond
8.3. Briefly explain the following debt features:
a. Loan agreement
b. Restrictive covenant
c. Trustee
DO NOT ANSWER D IN THE TEXT
8.4.
a. What do bond ratings measure? (I will answer this one) Bond ratings rate the probability of default; the higher the rating, the lower the probability of the issue going into default.
b. How do investors interpret bond ratings?
c. Why are bond ratings important?
Do not answer d in the book.
8.5. Critique this statement: The use of debt financing lowers the profits of the firm, and hence debt financing should be used only as a last resort.
Chapter 8 problems:
8.3. St. Vincent’s Hospital has a target capital structure of 35 percent debt and 65 percent equity. Its cost of equity estimate is 13.5 percent and its cost of tax- exempt debt estimate is 7 percent. What is the hospital’s corporate cost of capital?
8.5. Morningside Nursing Home, a not-for-profit corporation, is estimating its corporate cost of capital. Its tax-exempt debt currently requires an interest rate of 6.2 percent, and its target capital structure calls for 60 percent debt financing and 40 percent equity (fund capital) financing. Its estimated cost of equity is 16.4 percent. What is Morningside’s corporate cost of capital?
Chapter 9 questions:
9.1
a. What is capital investment analysis? Why are capital investment decisions so important to businesses? ( I will answer this first one)
Decisions regarding the acquisition of new land, buildings, and equipment are called capital investment, or capital budgeting, decisions. Thus, capital investment analysis is the process by which an organization’s capital is allocated to specific uses. Capital investment decisions are of fundamental importance to the success or failure of any business, for these decisions, more than anything else, shape a business’s future.
b. What is the purpose of placing capital investments into categories, such as mandatory replacement, or expansion of existing products, services, or markets?
c. Should financial analysis play the dominant role in capital investment decisions? Explain your answer.
d. What are the four steps of capital investment financial analysis?
9.2
a. What is the opportunity cost of capital?
b. How is this rate, the opportunity cost of capital, used in discounted cash flow (DCF) analysis?
c. Is this rate, the opportunity cost of capital, a single number that is used in all situations?
9.3 Describe the following project breakeven and profitability measures. Be sure to include each measure’s economic interpretation.
a. Payback
b. Net present value (NPV)
c. Internal rate of return (IRR)
Chapter 9 problems:
9.2 Consider the following net cash flows:
What is the net present value if the opportunity cost of capital (discount rate) is 10 percent? ANSWER: $1,715.87 ( I will provide the first solution =)
Add an outflow (or cost) of $1,000 at Year 0. Now, what is the net present value? REMEMBER TO SHOW YOU WORK AS I HAVE ABOVE=)
9.6 Assume that you are the chief financial officer at Porter Memorial Hospital. The CEO has asked you to analyze two proposed capital investments—Project X and Project Y. Each project requires a net investment outlay of $10,000, and the opportunity cost of capital for each project is 12 percent. The projects’ expected net cash flows are as follows:
Calculate each project’s payback, NPV, and IRR. I will provide the solution here for you to answer b.
b. Which project (or projects) is financially acceptable? Explain your answer.
Rubric
Lab Assignments Rubric
Lab Assignments Rubric
Criteria Ratings Pts
This criterion is linked to a Learning OutcomeAccuracy
Key to demonstrating understanding is the accuracy of calculated answers.
40 pts
Full Marks
32 pts
80%
28 pts
70%
5 pts
Needs Substantial Improvement
40 pts
This criterion is linked to a Learning OutcomeOrganization/Communication
Key to demonstrating the mastery of communication in a clear and organized manner. **This is an all or no points condition.
10 pts
Full Marks
0 pts
No Marks
10 pts
Total Points: 50

Visit CFP.net, financialplanningassociation.org, adviserinfo.sec.gov and NAPFA.o

Visit CFP.net, financialplanningassociation.org, adviserinfo.sec.gov and NAPFA.org,
Considering the various compensation models which would you choose if you ran your Registered Investment Advisory firm? Comment on why you chose the particular model and what the positive and negative aspects are for both the firm and the client. In addition to describing and commenting on your compensation model describe what you see as your firms average client (income, wealth, career, etc..). Does the clientele you are targeting affect your decision about your compensation structure? Why or why not? It would be helpful to go to the IADP website to view the Part 2 Brochures of some RIA firms to check out their compensation models and their average clients. The IADP website can be found here: IAPD – Investment Adviser Public Disclosure – Homepage (sec.gov) . If you are not familiar with any RIA firms to look up you can use this list to check out some firms here in NJ: Top 10 Financial Advisor Firms in New Jersey | SmartAsset.com (15 points)

It’s time to drill down on the bond market. You can search FINRA.org for bonds i

It’s time to drill down on the bond market. You can search FINRA.org for bonds issued by Starbucks. If you have another company you are interested in it is okay with me if you choose it. Go to Syllabus/ Course Info and look under Bond Markets, there is a wealth of information there please make sure you make good use of it. What kind of information can you find on your company, how many bonds do they have outstanding, what countries were they issued in? What are the yields that these bonds pay? All corporate bonds in the US are priced versus US treasuries. For example, a five-year bond for a corporation will have a yield that is higher than the five-year Treasury bond. That is called the spread over treasuries. What is the spread that Starbucks whatever company you want to look at must pay over the treasury yield curve? There is no word limit however I expect a minimum of 200 words.
http://finra-markets.morningstar.com/BondCenter/Default.jsp

we have to answer the following 2 questions for the attached case as an essay. 1

we have to answer the following 2 questions for the attached case as an essay. 1st Q has A,B,C sections & 2nd question is an opinion based on the attached case. please use external material for support. reference is APA style.
1. In 1720, were the SSC’s shares fairly priced at:
a. the peak price of GBP950 per share,
b. the proposed rescue price of GBP400 per share, and/or
c. the price prevailing in early October 1720 of about GBP250 per share? What price-to-earnings ratio would such prices imply? Using any of the standard equity valuation models, solve for the growth rate necessary to justify these share prices. Alternatively, solve for the present stream of earnings necessary to justify the price. (For reference to basic equity valuation models, see Richard A. Brealey, Stewart C. Myers, and Franklin Allen, Principles of Corporate Finance, 12th ed. [New York: McGraw-Hill Education, 2017], 92–93.)
2. What should John Hanger do?

1. THE TIME VALUE OF MONEY Some financial advisors recommend you increase the am

1. THE TIME VALUE OF MONEY
Some financial advisors recommend you increase the amount of federal income taxes withheld from your paycheck each month so that you will get a larger refund come April 15th. That is, you take home less today but get a bigger lump sum when you get your refund. Based on your knowledge of the time value of money, what do you think of this idea? Explain.
2. INTEREST RATE RISK
Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?
Please number each of your answers. This is very important so that I understand which questions you are responding to.

MINICASE: The Nom-Nom Cake Company Danh and Linh Nguyen formed the Nom-Nom Cake

MINICASE: The Nom-Nom Cake Company
Danh and Linh Nguyen formed the Nom-Nom Cake Company in Los Angeles, CA in 2013. Their company produced a variety of specialty cakes. While getting their new company off the ground, Danh and Linh continued to work at their primary jobs. Linh handled marketing and distribution while Danh performed all of the baking. The company grew rapidly and was featured three years later on a popular cooking show, followed by interviews in trendy magazines. Sales really took off after that, and the company began receiving orders from all across the United States and also from overseas customers.
Thanks to this explosive sales growth, Danh and Linh left their “regular” jobs behind and began producing specialty cakes full time. They also hired additional workers to help them keep up with orders. However, the influx of orders has created more demand than they can manage with their current capacity. They are producing as many cakes as they can, but demand for their cakes continues to grow, and they are becoming swamped by larger and increased numbers of orders. A national supermarket chain and a famous restaurant recently contacted Nom-Nom Cake Company about selling their cakes in the supermarkets and featuring them in restaurants all across America.
Danh and Linh have operated the company as a sole proprietorship thus far. Assume they have approached you as a consultant to help manage and direct the company’s future growth. Specifically, they have asked you to advise them on the following questions:
What are the advantages and disadvantages of changing the company organization from a sole proprietorship to an LLC?
What are the advantages and disadvantages of changing the company organization from a sole proprietorship to a corporation?
Ultimately, what action(s) do you recommend Danh and Linh take regarding the company and why?

(Answer All Questions; Submit as One Essay) 1. AGENCY PROBLEMS Who owns a corpor

(Answer All Questions; Submit as One Essay)
1. AGENCY PROBLEMS
Who owns a corporation? Describe the process whereby the owners control the firm’s management. Describe the main reason why an agency relationship exists in the corporate form of organization. In this context, describe the types of problems that can arise.
2. ENTERPRISE VALUE
A firm’s enterprise value is equal to the market value of its debt and equity, less the firm’s holdings of cash and cash equivalents. This figure is particularly of interest to potential purchasers of the firm. Why?
3. CURRENT RATIO
Explain what it means for a firm to have a current ratio of .50. Would the firm be better off with a current ratio of 1.50? What if it were 15.0? Explain your answers.
4. PEER GROUP ANALYSIS
As a financial manager, how might you use the results of peer group analysis to evaluate the performance of your firm? How is a peer group different from an aspirant group?
Please number each of your answers. This is very important so that I understand which questions you are responding to.

Please show calculations/equations used to solve. Problem 5-22: Arnot Internati

Please show calculations/equations used to solve.
Problem 5-22: Arnot International’s bonds have a current market price of $1,200. The bonds have an 11% annual coupon payment, a $1,000 face value, and 10 years left until maturity. The bonds may be called in 5 years at 109% of face value (call price 5 $1,090).
a. What is the yield to maturity?
b. What is the yield to call if they are called in 5 years?
c. Which yield might investors expect to earn on these bonds, and why?
d. The bond’s indenture indicates that the call provision gives the firm the right to call them at the end of each year beginning in Year 5. In Year 5, they may be called at 109% of face value, but in each of the next 4 years the call percentage will decline by 1 percentage point. Thus, in Year 6 they may be called at 108% of face value, in Year 7 they may be called at 107% of face value, and so on. If the yield curve is horizontal and interest rates remain at their current level, when is the latest that investors might expect the firm to call the bonds?
Problem 7-17: What is the required rate of return on a preferred stock with a $50 par value, a stated annual dividend of 7% of par, and a current market price of (a) $30, (b) $40, (c) $50, and (d) $70? (Assume the market is in equilibrium with the required return equal to the expected return.)
Mini Case Study
During the last few years, Jana Industries has been too constrained by the high cost of capital to make many capital investments. Recently, though, capital costs have been declining, and the company has decided to look seriously at a major expansion program proposed by the marketing department. Assume that you are an assistant to Leigh Jones, the financial vice president. Your first task is to estimate Jana’s cost of capital. Jones has provided you with the following data, which she believes may be relevant to your task:
* The firm’s tax rate is 25%.
* The current price of Jana’s 12% coupon, semiannual payment, noncallable bonds with 15 years remaining to maturity is $1,153.72. There are 70,000 bonds. Jana does not use short-term interest-bearing debt on a permanent basis. New bonds would be privately placed with no flotation cost.
* The current price of the firm’s 10%, $100 par value, quarterly dividend, perpetual preferred stock is $116.95. There are 200,000 outstanding shares. Jana would incur flotation costs equal to 5% of the proceeds on a new issue.
* Jana’s common stock is currently selling at $50 per share. There are 3 million outstanding common shares. Its last dividend (D0) was $3.12, and dividends are expected to grow at a constant rate of 5.8% in the foreseeable future. Jana’s beta is 1.2, the yield on T-bonds is 5.6%, and the market risk premium is estimated to be 6%. For the own-bond-yield-plus-judgmental-risk-premium approach, the firm uses a 3.2% risk premium.
a. (1) What sources of capital should be included when you estimate Jana’s weighted average cost of capital?
(2) Should the component costs be figured on a before-tax or an after-tax basis?
(3) Should the costs be historical (embedded) costs or new (marginal) costs?
b. What is the market interest rate on Jana’s debt, and what is the component cost of this debt for WACC purposes?
d. (1) What are the two primary ways companies raise common equity?
(2) Why is there a cost associated with reinvested earnings?
(3) Jana doesn’t plan to issue new shares of common stock. Using the CAPM approach, what is Jana’s estimated cost of equity?
f. What is the cost of equity based on the own-bond-yield-plus-judgmental-risk-premium method?
m. Jana is interested in establishing a new division that will focus primarily on developing new Internet-based projects. In trying to determine the cost of capital for this new division, you discover that specialized firms involved in similar projects have, on average, the following characteristics: Their capital structure is 10% debt and 90% common equity; their cost of debt is typically 12%; and they have a beta of 1.7. Given this information, what would your estimate be for the new division’s cost of capital?
n. What are three types of project risk? How can each type of risk be considered when thinking about the new division’s cost of capital?

Reply to each question with a minimum of 350 words and have at least one relevan

Reply to each question with a minimum of 350 words and have at least one relevant reference for each question.
1. If you were able to put together a portfolio that completely eliminated all risk, what return would you expect to earn and why?
2. If someone called you and told you that he/she could guarantee you high returns on your investments with little or no risk, what would you do and why.
3. When there is uncertainty in the marketplace, what happens to yield spreads and why?
4. Your grandfather has great faith in bonds and has heard about some “high yield bonds” that are available. He has asked you for your opinion. What advice will you give him?

1. THE TIME VALUE OF MONEY Some financial advisors recommend you increase the am

1. THE TIME VALUE OF MONEY
Some financial advisors recommend you increase the amount of federal income taxes withheld from your paycheck each month so that you will get a larger refund come April 15th. That is, you take home less today but get a bigger lump sum when you get your refund. Based on your knowledge of the time value of money, what do you think of this idea? Explain.
2. INTEREST RATE RISK
Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?
Please number each of your answers. This is very important so that I understand which questions you are responding to.