1) Calf Corner, Inc. purchases supplies on terms of 3/20, net 45. If Calf Corner does not pay during the discount period, what are the nominal annual cost and the effective annual cost of forgoing the discount? [Use a 365-day year in your calculations.]

A. Nominal = 24.85% and effective = 37.23%

B. Nominal 24.85% and effective = 44.70%

C. Nominal 45.15% and effective = 56.00%

D. Nominal 45.15% and effective = 58.74%

E. Nominal 45.15% and effective = 62.92%

2) Juneau Salmon Inc., a large salmon canning firm operating out of Valdez, Alaska, has a new automated production line project it is considering. The project has a cost of $275.000 and is expected to provide after-tax annual cash flows of $83,306 for eight years. The firm's management is uncomfortable with the IRR reinvestment assumption and prefers the modified IRR approach. You have calculated a cost of capital for the firm of 12 percent. What is the project's MIRR?

A. 15.06%

B. 14.10%

C. 12.04%

D. 16.25%

E. 17.87%

3) Klott Company encounters significant uncertainty with its sales volume and price in its primary product. The firm uses scenario analysis in order to determine an expected NPV, which it then uses in its budget. The base case, best case, and worse case scenarios and probabilities are provided in the table below. What is klott's expected NPV, standard deviation of NPV, and coefficient of variation of NPV?

	Probability of Outcome	Unit Sales Volume	Sales Price	NPV (Thousands)
Worst case	0.30	6,000	$3,6000	-$6,000
Base case	0.60	10,000	4,200	+13,000
Best case	0.10	13,000	4,400	+28,000

A. Expected NPV = $35,000; _NPV = 17,500; CV_NPV = 2.00

B. Expected NPV = $35,000; _NPV = 11,667; CV_NPV = 0.33

C. Expected NPV = $10,300: _NPV =12,083; CV_NPV = 1.17.

D. Expected NPV = $13,900; _NPV = 8,476; CV_NPV = 0.61

E. Expected NPV = $8,800; _NPV = 10,638; CV_NPV = 1.21.

4) Explain why risk-free rate is positively related to the value of call option.

5) Suppose you believe that Ace Company's stock price is going to decline from its current level of $80.50 sometime during the next 5 months. For S4.10 you could buy a 5-month put option giving you the right to sell 1 share at a price of $83 per share. If you bought this option for $4.10 and Adelco's stock price actually dropped to $62, what would your pre-tax net profit be?

6) According to the OPM, what is the value of a call option with the following characteristics?

Stock price = $27.00 ... Strike price = $25.00 ... Time to expiration = 6 months ...

Risk-free rate = 6.0% ... Stock return standard deviation = 0.49

7) A company currently pays a dividend of $2 per share (D₀ = $2). It is estimated that the company's dividend will grow at a rate of 20% per year for the next 2 years, and at a constant rate of 7% thereafter. The company's stock has a beta of 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock's current price?

8) Consider a stock with a current price of $27. Suppose that over the next 6 months the stock price will either go up by a factor of 1.41 or down by a factor of 0.71. Consider a call option on the stock with a strike price of $25 that expires in 6 months. The risk-free rat is 6%.

A. Using the binomial model, what are the ending values of the stock price? What are the payoffs of the call option?

B. Suppose you write one call option and buy N shares of stock. How many shares must you buy to create a portfolio with a riskless payoff (i.e., a hedge portfolio)? What is the payoff of the portfolio?

C. What is the value of the call option?

D. What is the value of the put option on the stock with the same maturity and the same strike price?

9) Stewart Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a projects MIRR can be less than the WACC (and even negative), in which case it will be rejected.

WACC	11.0%
Year	0	1	2	3
Cash flows	-$800	$350	$350	$350