Entries by Eliud Macharia

Which is not a an assumption underlying M&M Proposition 1?Symmetric informationNo arbitrage Corporate investments are risk free No Taxes

October 14, 2020 in /by

Which is not a an assumption underlying M&M Proposition 1?Symmetric informationNo arbitrage Corporate investments are risk free No Taxes   “Looking for a Similar Assignment? Order now and Get 10% Discount! Use Code “Newclient”

 

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1) You are the manager of General-Ford, a large North American automobile manufacturer. Demand for your product has been high and you are looking at the following three alternative plans: Plan I: Spend $40 million today on a factory in Alabama that will be completed in 1 year. You expect to receive $24.2 million in profits from this factory at the end of the second year, at which time you also expect to sell the factory to Toyhonda, a Japanese competitor, for a further $24.2 million. Plan II: Spend $100 million today in a joint venture with Nisubishi. You expect to begin generating yearly profits of $11 million at the end of the first year and every year thereafter. You expect the joint venture to last forever. Plan III: Spend $100 million today to buy stock in Google on which you expect an annual rate of return of 12%, which you expect will continue forever. The market interest rate is 10%. (Assume the inflation rate is constant at 0, and is expected to remain so for the duration of the above investments.) a) Which of the above plans would you undertake if you could undertake just one? Explain your answer and show any calculations. b) Which of the plans would you do if you could do as many of them as you wish? Explain your answer and show any calculations. c) If the prevailing market interest rate were 8%, and you could choose as many of the above plans as you liked, which would you choose? 2) Find the PV of a stream of payments lasting 4 years. Each payment is for $300, and the discount rate is 5%. The payments are all received at the end of the year, starting with the first payment, received exactly one year from the present. Show your work. 3) Find the PV of the following perpetuity: Yearly payment = $5,000 (received at the end of each year) Discount rate = 8% Show your work. 4) You are negotiating to buy a small business. The seller assures you that the annual profits will be stable forever at $15,000, and that they have a present discounted value of $750,000, which is his asking price for the business. Calculate the discount rate he must be using. Show your work.

October 14, 2020 in /by

1) You are the manager of General-Ford, a large North American automobile manufacturer. Demand for your product has been high and you are looking at the following three alternative plans: Plan I: Spend $40 million today on a factory in Alabama that will be completed in 1 year. You expect to receive $24.2 million in profits from this factory […]

 

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Questions 1) Find the PV of a stream of payments lasting 4 years. Each payment is for $300, and the discount rate is 5%. The payments are all received at the end of the year, starting with the first payment, received exactly one year from the present.Show your work. 2) Find the PV of the following perpetuity: Yearly payment: $5000 (received at the end of each year)Discount rate : 8% Show your work. 3) You are negotiating to buy a small business. The seller assures you that the annual profits will be stable forever at 15,000 and that they have a present discounted value of 750,000. What is his asking price for the business?Calculate the discounted rate he must be using. Show your work. 4) After graduation from Harvard Extension, you decide to stay in the Cambridge area and start your own business. You think you see a couple of opportunities. Knowing first-hand the pressure Harvard students are under, you consider opening abusiness that allows them to let off steam and get rid of their aggression: A paintball center right in The Square.The cost of the project would be $250,000, payable up front, while revenues are expected to be $13,000 per year, forever. Assume profits are always received at the end of the year and the only cost for the project is its acquisition price, $250,000, payable immeadiately. A) If the rate of return on comparable projects is 4%, is this project worthwhile? Show your calculations. B) What is the project’s internal rate of return (IRR)? Show your calculations. C) You are also considering a second business opportunity: Supplying fish, fresh from the bottom of the Charles River, to Harvard Dining Services, for the next three years. For this they will pay you $35,000 immediately. You figure it will cost you $14,000 a year in supplies to provide this culinary joy.So, the revenue and costs of the project can be summarized as follows: -Immediate and only revenue: 35,000- Costs in Year 1 : 14,000 – Costs in Year 2 : 14,000- Costs in Year 3 : 14,000 Find this project internal rate of return (IRR). Show your calculations 5) You are the manager of General- ford, a large north american car manufacturer. Demand for your product has been high and you are looking at the following three alternatives. Plan I. Spend 40 million dollar today on a factory in Alabama that will be completed in one year. You expect to receive $24.2 million in profits from this factory at the end of the second year, at which time you also expect to sell the factory to Toyhonda, a Japanese conpetitor, for $24.2 million. Plan II. Spend $100 million today in a joint venture with Nisubishi. You expect to begin generating yearly profits of $11 million at the end of the first year and every year thereafter. You expect the joint venture to last forever. Plan III. Spend $100 million today to buy stock in google on which you expect an annual rate of return of 12% which you expect to continue forever. The market interest rate is 10%. (Assume the inflation rate is constant at 0, and is expected to remain so for the duration of the above investments) A) which of the above plans would you undertake if you could undertake just one. Explain your answer and show any calculations. B) which of the pland would you do if you could do as many of them as you wish. Explain your answer and show any calculations C) if the prevailing market interest rate were 8%, and you could choose as many of the above plans as you liked. Which would you choose?

October 14, 2020 in /by

Questions 1) Find the PV of a stream of payments lasting 4 years. Each payment is for $300, and the discount rate is 5%. The payments are all received at the end of the year, starting with the first payment, received exactly one year from the present.Show your work. 2) Find the PV of the following […]

 

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Your friend chose an ARM for the purchase of their new home. They would like to determine what the payment schedule will be. You decide to help and determine the following information to help you provide the answer. The contract rate is Prime – 0.75% where the current prime rate is 3.25%. The mortgage is a 15 year 1/1 ARM 3/2/5. Fees are $995 and there are no points. The purchase price of the home is $200,000 and the LTV of the mortgage is 80%. You expect that Prime will be 3.25% in Year 1 4.25% in Year 2 5.50% in Year 3 6.75% in Year 4 4.00% in Year 5 What is the monthly mortgage payment for each of the first 5 years?What is the amortization schedule for each of the first 5 years?

October 14, 2020 in /by

Your friend chose an ARM for the purchase of their new home.  They would like to determine what the payment schedule will be.  You decide to help and determine the following information to help you provide the answer.  The contract rate is Prime – 0.75% where the current prime rate is 3.25%.  The mortgage is […]

 

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Question You have just purchased a primary home for $345,000 with a 20% down payment on a 30-year Fixed Rate Mortgage, Monthly Payments, 3.625% Interest Rate. Property Taxes are 100 Mills with 75 Effective Mills. Fees for this loan are $2250 and it cost 2 points to get the loan rate down to 3.625%, both were paid up front. What is the Monthly Mortgage Payment? What is the monthly PITI payment? How much money do you need at closing? Show the first three years of the amortization schedule (include the beginning balance, interest payment, principal payment, and ending balance for each year). What is the APR if the loan goes for 30 years? What is the APR if the loan goes for 15 years? If your down payment was $45,000 and the fees were $2250, which you paid up front. Property Taxes are 100 Mills with 75 Effective Mills. What is your Monthly PITI Payment if you escrow the taxes and insurance into the monthly payment? What would be the monthly PITI payment of the property in part G if this was your vacation home in Ohio?

October 14, 2020 in /by

Question You have just purchased a primary home for $345,000 with a 20% down payment on a 30-year Fixed Rate Mortgage, Monthly Payments, 3.625% Interest Rate.  Property Taxes are 100 Mills with 75 Effective Mills.  Fees for this loan are $2250 and it cost 2 points to get the loan rate down to 3.625%, both […]

 

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You have been relocated from Cleveland to San Francisco to begin your new career in finance. The relocation company offers you 3-2-1 Buy Down Financing. The primary home you find has a value of $729,000. You have a 8% down payment on a 30-year Fixed Rate Mortgage, Monthly Payments, 3.875% Interest Rate. Property Taxes are 110 Mills with 75 Effective Mills. Fees for this loan are $3250 and it cost 1 point to get the loan rate down to 3.875%, both were paid up front. What is the value of the required buy down account?

October 14, 2020 in /by

You have been relocated from Cleveland to San Francisco to begin your new career in finance.  The relocation company offers you 3-2-1 Buy Down Financing.  The primary home you find has a value of $729,000.  You have a 8% down payment on a 30-year Fixed Rate Mortgage, Monthly Payments, 3.875% Interest Rate.  Property Taxes are […]

 

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In January 2001 you purchased a home for $250,000 with a 30 year mortgage with a 6% interest rate. The down payment was $50,000 and the fees paid upfront are $2500. After fifteen years of payments you noticed that new 30 year rates are at 4% and 15 year rates are at 3.0%. If the cost to refinance is $2000 would you refinance (show calculations and comments)? Show the fifteen year solution Show the thirty year solution

October 14, 2020 in /by

In January 2001 you purchased a home for $250,000 with a 30 year mortgage with a 6% interest rate.  The down payment was $50,000 and the fees paid upfront are $2500.  After fifteen years of payments you noticed that new 30 year rates are at 4% and 15 year rates are at 3.0%.  If the […]

 

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1.In the country of Extensia, the central bank engages in open market operations, using Extensia government bonds (T-Bonds). The most recent data show the following values for key monetary variables (B stands for billions of dollars): Cash held by the public $1B Checking deposits $9B R 10% E 10% 1a. Calculate the money multiplier. 1b. Now, assume the Extensia Central Bank sells $1B worth of T-Bonds. Will the money supply increase or decrease? Explain. 1c. Assuming no change in E (the proportion of deposits that banks want to hold as excess reserves), or R (the proportion of deposits that banks are required to hold), and no change in cash held by the public, what will be the new money supply in Extensia after the central bank’s action? Show your calculations and formula 2) By one measure, the stock market has had an annual return of 0.5% (1/2 of 1 percent) per year since 2006. If you had invested $10,000 in the market in 2006, how much would you have by 2011, exactly five years later Assume you did not make any additions or withdrawals after your initial investment, and that your return was compounded annually. Round your final answer to the nearest cent.

October 14, 2020 in /by

1.In the country of Extensia, the central bank engages in open market operations, using Extensia government bonds (T-Bonds). The most recent data show the following values for key monetary variables (B stands for billions of dollars): Cash held by the public $1B Checking deposits $9B R 10% E 10% 1a. Calculate the money multiplier. 1b. Now, assume the Extensia […]

 

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