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DECEMBER2019 Keats Bhd capital structure consists of 50% debt, 30% common stock, and 20% preferred stock. The company has three potential development projects The projects initial investment and their required rates of return are given below: Project Initial Investment (RM) Rate of Return% Delima 800,000 11 Cempaka 900,000 16 Baiduri 500,000 18 The following are the sources of funds for the above investments: Common stock Market price is RM10 per share and the current dividend is RM1 per share. The expected growth rate is 8%. For the first RM600,000 issuance of the common stock, the flotation cost is 5% of selling price. Beyond RM600,000 the flotation cost will be 10% of the selling price. Preferred Shares The cost of 4% for the first RM300,000. Further additional amount required will cost 7%. Debt The cost after tax is 10% for the first RM500,000. If additional amount is required, the cost after tax will be 15%. You are required to required to: A) Determine the weighted marginal cost (WMCC) and construct the investment opportunity schedule (105) graph.EF5400 Advanced International Trade Practice Problem Set 1 1. Consider an economy in which there are two countries, i = 1,2, and a continuum of goods, indexed by ke [0, 1]. Goods are produced using labor: Mi (k ) = 4 (1) / m (k) . where a; (k) is the unit labor requirement for producing good & in country i, y (k) is the output of good & produced in country i and l (k) is the amount of labor used in production. Assume that the unit labor requirement functions are an (k) = call-*) 12 (k) = cox The representative consumer in each country has the utility function [ lage ( R ) LA. This consumer is endowed with 4 units of labor where h = 12 = I. (a) Define an equilibrium of the economy. Calculate expressions for all of the equilibrium prices, p.(k), and quantities, c(k), y:(k), and (k). Draw a graph that illustrates the pattern of specialization in production, consumption, and trade. (b) Suppose now each country imposes an ad valorem tariff ~ on imports from the other country. Repeat the analysis of part (a). (c) For the model in part (b), calculate GDP in each country. 2. Consider an economy in which there is a continuum of goods, s E [0, 09). which are ordered so that higher-indexed goods involve more advanced tech- nologies in the production process. An individual consumer has preferences given by u(c) = e- log (c(s, t ) + 1) ds dt.Question 1 [15 marks] Consider a five-year currency swap with a notional principal of USD100, 000, where A receives annual payments in Australian dollars and B receives an- nual payments in New Zealand dollars at a contracted exchange rate of 1.2900 (AUD/USD). Suppose the market exchange rate assumes the following values: Year Market Exchange rate (AUD/USD) 0 1.2900 1.2880 2 1.3021 3 1.3050 1.3100 1.2965 1.2890 1.2875 1.2910 1.3050 10 1.2900 Prepare a table showing the gross payments and the net payments in AUD between A and B based on the market exchange rates.Question 2 [20+20 marks] 2.1 Suppose you long one Australian dollar call and one Australian dollar put with an exercise exchange rate of 0.75 (USD/AUD). The price of call and the price of put is USD0.06. Using the 10 period (spot) exchange rates below: Time Spot Exchange Rate (USD/AUD) O 0.35 1 0.40 2 0.45 3 0.50 4 0.55 5 0.60 0.65 0.70 8 0.75 Co 0.80 10 0.85 11 0.90 12 0.95 13 1.00 14 1.05 15 1.10 (a) Compute the net call payoff, net put payoff and net combined payoff. (b) Plot separately the Net Long call payoff, the net long put payoff and the net combined payoff. (c) Name and provide definition of the shape of the combined payoff obtained from part (b)