Question 1 (Introduction to Financial Management) (20%) Firms often involve themselves in projects that do not result directly in profits. For example, Apple, which we featured in the chapter introduction, donated $50 million to Stanford University hospitals and another $50 million to the African aid organization (Product) RED, a charity fighting against AIDS, tuberculosis, and malaria. Do these projects contradict the goal of maximization of shareholder wealth? Why or why not? Prepare a short (max 1-page) essay.

Question 2 (Time Value of Money) (20%) In 2013 Bill Gates had a private wealth of about $28 billion after he reduced his stake in Microsoft from 21% to around 14% by moving billions into his charitable foundation. Let's see what Bill Gates can do with his money in the following problems. a. I'll take Manhattan? Manhattan's native tribe sold Manhattan Island to Peter Minuit for $24 in 1626. Now, 387 years later in 2013, Bill Gates wants to buy the island from the "current natives." How much would Bill have to pay for Manhattan if the "current natives" want a 6% annual return on the original $24 purchase price? Could he afford it? (5 points) b. How much would Bill have to pay for Manhattan if the "current natives" want a 6% return compounded monthly on the original $24 purchase price? (5 points) c. Microsoft Seattle? Bill Gates decides to pass on Manhattan and instead plans to buy the city of Seattle, Washington, for $60 billion in 10 years. How much would Mr. Gates have to invest today at 10 percent compounded annually in order to purchase Seattle in 10 years? (5 points) d. Now assume Bill Gates wants to invest only about half his net worth today, $14 billion, in order to buy Seattle for $60 billion in 10 years. What annual rate of return would he have to earn in order to complete his purchase in 10 years? (5 points)

Question 3 (Time Value of Money) (20%) Pacific Marine Transport Corporation is considering the purchase of a new bulk carrier for $10 million. The forecasted revenues are $5.5 million a year and operating costs are $4 million. A major refit costing $2 million will be required after both the fifth and tenth years. After 15 years, the ship is expected to be sold for scrap at $1.5 million. a. What is the NPV if the opportunity cost of capital is 8%? (10 points) b. Should the company accept the purchase of the carrier? (10 points)

Question 4 (Risk and Return) (40%) Donna, a chartered financial analyst (CFA), is willing to invest in the Alternative Investments Market (AIM) in the United Kingdom. She collected the information on two different companies (provided below) from the London Stock Exchange. Alph Biotech Astratech Probability Return (%) Probability Return (%) Recession 20% 8 30% -4 Normal 50% 12 40% 9 Boom 30% 18 30% 16 a) Calculate the expected return and the standard deviation for each stock (10 points) b) Given the results obtained, which stock would you advise Donna invest in? (10 points) Given the holding-period returns shown below, compute the average returns and the standard deviations for the Zemin Corporation and for the market (10 points): Month Zenim Market 1 6% 4% 2 3% 2% 3 -1% 1% 4 -3% -2% 5 5% 2% 6 0% 2% If Zemin's beta is 1.54 and the risk-free rate is 4 percent, what would be an appropriate required return for an investor owning Zemin? (Note: Because the returns of Zemin Corporation are based on monthly data, you will need to annualize the returns to make them compatible with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) (5 points). How does Zemin's historical average return compare with the return you believe to be an appropriate, given the firm's systematic risk? (5 points