Assignment 4 1. Describe a real or made up but realistic situation that could cause you or someone you know to have to use money from a financial reserve. (3-6 sentences. 2.0 points) Someone caught Ebola a serious illness that required a long hospital stay with large medical bills and left them unable to work. He then had to use money from a financial reserve like a savings account or a 401k plan to pay the bills.
Describe at least two reasons for this decision. (3-6 sentences. 2.0 points) 3. Would you rather have a savings account that offered simple interest, or an account that offered compound interest? Why?
We assume that the amount of debt has been constant over 2007. A better option to calculate cost of debt would be to use a synthesized rating based on the interest coverage ratio and use the corresponding default spread, but unfortunately we do not have data of these spreads for 2007. We use the market value of equity to estimate the weight of equity. The market capitalization of the firm was 128,2 million on 31-12-2007 (we assume that this is the date of the balance sheet, since this isn’t mentioned in the case). From this we can calculate the following ratio’s: debt/equity = 0,31 debt/(debt+equity) = 0,24 equity/(debt+equity) = 0,76 In calculating these ratio’s we use gross debt instead of net debt, because in our opinion the debt and cash of the firm
What are the pros and cons of using NYMEX contracts versus using the risk management products offered by KCNB? Is the use of a monthly average price a net advantage or disadvantage to J&L? What about for the bank? Answer: NYMEX PROS The benefit of the NYMEX contract was that, it provides the mark to the market transaction facility in which J&L’s position was settled daily and this market to market restricted towards lower exposure of risks as 5% margin was required for the contract from both the parties and any increase and decrease in the position of the buyer and seller were deducted on a daily basis. CONS For J&L Rail Road cannot use the hedging on diesel fuel because of the reason that NYMEX did not deal with the fuel hedging contracts and for that reason J&L firstly has
What was PacifiCorp Worth before its acquisition by Berkshire? Are we overpaying? We are not overpaying for PacifiCorp. We purchased PacifiCorp, from Scottish Power plc, for $5.1 billion in cash and $4.3 billion in liabilities and preferred stock, for a total of $9.4 billion. Since PacifiCorp is not a publicly traded company, we must use valuation multiples from comparable firms to determine the value of the firm.
During the first five to eight years of buying a house, a large percentage of the mortgage payments is going towards the interest of the loan ("Renting Verse Buying: Advantage and Disadvantages", 2012). However, homeowners are not throwing the money away in the same way as when renting (Cox, 2012). Assuming that the house does not lose value, some of the money paid toward a mortgage is retained ("Renting Verse Buying: Advantage and Disadvantages", 2012). Monthly payments while buying, should be made directly to the bank until the house is paid in full ("Renting Verse Buying: Advantage and
Solving for FV you obtain $2.59. This formulation recognizes the “interest on interest” phenomenon. 8-4 For the same stated rate, daily compounding is best. You would earn more “interest on interest.” 8-5 False. One can find the present value of an embedded annuity and add this PV to the PVs of the other individual cash flows to determine the present value of the cash flow stream.
Based on this estimate, should Vodafone shareholders support the deal? What fraction of the synergies is appropriated by Vodafone shareholders and what fraction by Mannesmann shareholders? What is the present value of the expected synergies as shown in Exhibit 10? (Assume that the synergies related to revenues and costs grow at 4% annually past 2006, that savings from capital expenditures do not extend beyond 2006, and that the merger will not affect the firm’s level of working capital.) Use the average exchange rate of EUR/GBP=1.5789, and the Goldman Sachs WACC.
Your answer to question 1 should contain terminologies like expected and unexpected inflation as well as inflation risk premium. Question 2 is straightforward, as we did discuss in class three qualitative indicators of an additional asset class (the fourth one is quantitative). Do TIPS satisfy those requirements? Please be explicit. Question 3 is self-explanatory!
In this essay you will know the three main requirements to a smart safe money plan. The first thing that must be done is being clear how much money you earn and spend. You should be clear of all the incomes you have during a year and then during each month in order to control all of them including money gifts from relatives or not monthly incomes like companies shares. After that you should do the same exact thing but with your expenses, monthly expenses and year expenses that can be movie tickets, the rent, even the dentist that is just twice in a year. Finally you must list your expenses and reduce or eliminate the ones that are not necessary and don’t affect your standard of living creating a balance; “Avoid extremes: be moderate in saving and in spending; an equable and easy gait.” (Service) Previously you developed the control in your money, now the objective is giving the saving a “salary”.