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BA 318 BA/318 BA318 Final Exam

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BA 318 BA/318 BA318 Final Exam

 

1. [2 Points] Y ou are purchasing a new house for $350,000. Y ou are required to pay 20% as down payment. In addition to the house price, the real-estate agent charges you 3% of the house value as commission, and other closing costs are $15,000. You have only enough money to pay for the down payment. You can finance the rest of all costs through a 30 year loan. To payoff the loan, you agree to pay equal monthly payments that included principal payments plus 5% compound interest on the unpaid balance over the next 30 years. Calculate your equal monthly mortgage payments. 

2. [2 Points] You own a 25-year maturity bond that you purchased 5 years ago. The bond pays $90 in annual interest, with a $1,000 par value. Your required rate of return is 6 percent. 

3. [3Points] You just married and are planning for retirement in 40 years from now. Currently you have $10,000 in a savings account and $20,000 in stocks. In addition, you plan to add to your savings by depositing $500 per month in your savings account at the end of each month over the next 20 years and then $1,000 per month at the end of each month for the final 20 years until retirement. 

4. [2 Points] Stock

1 2 3 4 5

The risk-free rate percent.

You own a portfolio consisting of the following stocks:

Percentage
of Portfolio Beta

Expected Return

5% 1.20 14% 25 0.65 10 15 1.00 12 20 1.4 16 35 0.90 11

is 3 percent. Also, the expected return on

the market portfolio is 13.8 

5. [1 Point] Ali’s Corporation is issuing new common stock at a market price of $25. Next year a dividend of $2 will be paid. Dividends are expected to grow at an annual rate of 12% forever. Flotation costs will be 20% of market price. What is Ali’s cost of equity? 

[1 Points] Suppose that currently Stock ZYZ promises annual rate of return of 12%. The stock’s beta is 0.75(β = 0.75, the return on market portfolio is

11.6% and risk free rate of return is 8%. Based on Capital Asset Pricing Model (CAPM) make a recommendation on whether or not to invest in this stock. 

[2 Points] You are asked to calculate a food corporation’s cost of capital for different division. This corporation has three divisions of restaurant, snack food

and beverages. Information on each division’s beta (β ), cost of capital raised

from debt (kand its targeted equity and debt ratios (Wand Wrespectively are given in the following table. The tax rate for this corporation is 35%. The risk free rate (krf is 3% and return on market portfolio(kis 12%. Calculate

the divisional weighted average cost of capital (WACC)for corporation’s restaurant, snack, and beverage. 

[5 Points] Your friend owns a 6,000 ftbuilding in downtown. At current market, this building can sell for CD$5,500,000.00 (CD$=Canadian Dollar) . Current exchange rate between CD and US$ is: $1US= CD1.35. Instead of selling it, your friend wants to demolish the building and build a six story building (total of 36,000 ft2) with retail on the first floor, and rental apartments on the other five floors. Given the information in the following table, your friend asks for your recommendation on whether or not to build the apartments or to sell the building “as is” to a Canadian Company at the above current market offer price. Please, 

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