Solution Library

Change in the Price of a Bond When Yield to Maturity Increases

Question An 11-year, 4.5 percent coupon bond pays interest annually. The bond has a face value of $2,100. What is the change in the price of this bond if the market yield to maturity increases to 5.5 percent, from the current market rate of 4.5%?  Summary: This question belongs to finance and ... Read More

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Research Project on Dividend Policy

Question Research project on dividend policy: A large number of theories have been developed in this area. Extensive empirical tests have also been carried out and reported in the literature. The general expectation is that you need to carry out a literature review, empirically test an establishe ... Read More

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Backwardation or Contango of a Market

Question The United States Oil Fund (ticker: USO) is a popular exchange-traded security that is designed to track changes in the price of oil (specifically, West Texas Intermediate or WTI). Since spot oil is expensive to store, the fund uses futures contacts to generate its returns. In simplified f ... Read More

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Comparison of Short Plain Vanilla Forward with Short Target Forward Contract

Question This question concerns a simplified version of the target forwards contract introduced in class during the Aracruz Cellulose discussion. You are comparing two alternatives: A short plain vanilla forward contract with a delivery price of K1 = 100; and A short target forward with a ... Read More

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Comparison of Short Plain Vanilla Forward Contract with Short Target Forward Contract

Question Assume that the one-month rate of interest is zero. What does the decomposition of the target forward in Part 2 tell you about the value of the call option embedded in the target forward? Use the following steps: From the information given in the question, the plain vanilla forward with ... Read More

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Valuation and Market Estimation of Alibaba Prospects

Question This question concerns Alibaba the internet e-commerce firm that recently went public. It is an open ended question that requires you to utilize the valuation techniques you have learnt in the course and also to do independent research. Research Alibaba’s business model, particula ... Read More

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Portfolio of the Company Dangote Cement PLC

Question Dangote Cement Plc is a Nigeria based producer of cement. Its head office e is based in Lagos Nigeria.  The Company is engaged in the preparation, manufacture, control, research, sale and distribution of cement and related products. The production activities of the Company are underta ... Read More

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Cash Flow Statements of Fenwicke Company

Question Fenwicke Company organized and began operating a subsidiary in a foreign country on January 1, 2015, by investing LCU 68,000. This subsidiary immediately borrowed LCU 170,000 on a five-year note with 6 percent interest payable annually beginning on January 1, 2016. The subsidiary t ... Read More

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Project Analysis and Operating Leverage for a New Product Launching Project

Question Project Analysis and Operating Leverage For a new product launching project, you find that the project will cost $600,000, have a five-year life with no salvage value, depreciation is straight line to zero. Sales are projected at 250 units per year and the selling price per unit will be ... Read More

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Latin American Minerals Leasing Mining Equipment from Central Park Leasing

Question Latin American Minerals (LAM) is trying to decide whether to lease or buy new equipment for its mining operations. The equipment costs $5,000,000 and qualifies for a 25 percent CCA rate. The equipment will have a $600,000 salvage value in 5 years. LAM’s tax rate is 40 percent, and th ... Read More

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Acquisition of TGT Inc by ACQ Corp

Question ACQ Corp. is analyzing the possible acquisition of TGT Inc. ACQ estimates the acquisition will increase its total after-tax annual cash flows by $7.6 million indefinitely. The appropriate discount rate for the incremental cash flows is 10 percent. The financial analyst of ACQ has collected ... Read More

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Financial Statement Analysis of Hollywood Fashions, California Financial Group

Question Financial Statement Analysis The following parts of the question are not related. (a) Hollywood Fashions has sales of $11,500, total assets of $6,000, and a debt-equity ratio of 1.2. If its return on equity is 20 percent, what must be its net income? (b) California Financial Group has ... Read More

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