Suppose your employer offers you a choice between a $\$ 5700$ bonus and $120$ shares of the company stock. Whichever one you choose will be awarded today. The stock is currently trading for $\$ 58$ per share.

a. Suppose that if you receive the stock bonus, you are free to trade it. Which form of the bonus should you choose? What is its value?

b. Suppose that if you receive the stock bonus, you are required to hold it for at least one year. What can you say about the value of the stock bonus now? What will your decision depend on?

Honda Motor Company is considering offering a $\$ 2500$ rebate on its minivan, lowering the vehicle's price from $\$ 21,000$ to $\$ 18,500$. The marketing group estimates that this rebate will increase sales over the next year from $31,000$ to $51,000$ vehicles. Suppose Honda's profit margin with the rebate is $\$ 6000$ per vehicle. If the change in sales is the only consequence of this decision, what are its benefits and costs? Is it a good idea?

Suppose the risk-free interest rate is $3.9 \%$.

a. Having $\$ 500$ today is equivalent to having what amount in one year?

b. Having $\$ 500$ in one year is equivalent to having what amount today?

c. Which would you prefer, $\$ 500$ today or $\$ 500$ in one year? Does your answer depend on when you need the money? Why or why not?

Consider a project that requires an initial investment of $\$ 102,000$ and will produce a single cash flow of $\$ 153,000$ in five years.

a. What is the NPV of this project if the five-year interest rate is $4.9 \%$ (EAR)?

b. What is the NPV of this project if the five-year interest rate is $9.8 \%$ (EAR)?

c. What is the highest five-year interest rate such that this project is still profitable?

Anle Corporation has a current price of $\$ 27$, is expected to pay a dividend of $\$ 2$ in one year, and its expected price right after paying that dividend is $\$ 28$.

a. What is Anle's expected dividend yield?

b. What is Anle's expected capital gain rate?

c. What is Anle's equity cost of capital?

In early $2012$, General Electric (GE) had a book value of equity of $\$ 109$ billion, $10.3$ billion shares outstanding, and a market price of $\$ 9.66$ per share. GE also had cash of $\$ 40$ billion, and total debt of $\$ 530$ billion. Three years later, in early $2015$, GE had a book value of equity of $\$ 112$ billion, $10.9$ billion shares outstanding with a market price of $\$ 16.59$ per share, cash of $\$ 85$ billion, and total debt of $\$ 417$ billion. Over this period, what was the change in GE's

a. market capitalization?

b. market-to-book ratio?

c. enterprise value?

Suppose that a company receives 60$\%$ of its orders over the Internet. Suppose that 30$\%$ of the orders received over the Internet are large orders, and 40$\%$ of the orders received by other means are large orders. Out of eight independently placed orders, what is the probability that two will be large orders received over the Internet, two will be small orders received over the Internet, two will be large orders not received over the Internet, and two will be small orders not received over the Internet?

Use the data from down below to determine the change, from $2012$ to $2015$, in GE's

a. book debt-equity ratio.

b. market debt-equity ratio.

In early $2012$ , General Electric (GE) had a book value of equity of $\$ 109$ billion, $10.3$ billion shares outstanding, and a market price of $\$ 9.66$ per share. GE also had cash of $\$ 40$ billion, and total debt of $\$ 530$ billion. Three years later, in early $2015$, GE had a book value of equity of $\$ 112$ billion, $10.9$ billion shares outstanding with a market price of $\$ 16.59$ per share, cash of $\$ 85$ billion, and total debt of $\$ 417$ billion.

Cellular Access, Inc. is a cellular telephone service provider that reported net income of $\$ 241$ million for the most recent fiscal year. The firm had depreciation expenses of $\$ 128$ million, capital expenditures of $\$ 159$ million, and no interest expenses. Working capital increased by $\$ 10$ million. Calculate the free cash flow for Cellular Access for the most recent fiscal year.

Your brother wants to borrow $\$ 10,750$ from you. He has offered to pay you back $\$ 12,750$ in a year. If the cost of capital of this investment opportunity is $12 \%$, what is its NPV? Should you undertake the investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.

Suppose the following orders are received by an exchange for Cisco stock:

• Limit Order: Buy $200$ shares at $\$ 25$

• Limit Order: Sell $200$ shares at $\$ 26$

• Limit Order: Sell $100$ shares at $\$ 25.50$

• Limit Order: Buy $100$ shares at $\$ 25.25$

a. What are the best bid and ask prices for Cisco stock?

b. What is the current bid-ask spread for Cisco stock?

c. Suppose a market order arrives to buy $200$ shares of Cisco. What average price will the buyer pay?

d. After the market order in ( c ) clears, what are the new best bid and ask prices, and what is the new bid-ask spread for Cisco?

Access the Yahoo! (ticker: YHOO) 10-K report for the year ended December 31, 2015, filed on February 29, 2016, at SEC.gov. 1. What amount of goodwill is reported on Yahoo!’s balance sheet? What percentage of total assets does its goodwill represent? Is goodwill a major asset for Yahoo!? Explain. 2. Locate Note 5 to its financial statements. Identify the change in goodwill from December 31, 2014, to December 31, 2015. Comment on the change in goodwill over this period. 3. Locate Note 6 to its financial statements. What are the three categories of intangible assets that Yahoo! reports at December 31, 2015? What proportion of total assets do the intangibles represent? 4. What does Yahoo! indicate is the life of “Tradenames, trademarks, and domain names” according to its Note 6?

You are an international shrimp trader. A food producer in the Czech Republic offers to pay you $2.2$ million Czech koruna today in exchange for a year's supply of frozen shrimp. Your Thai supplier will provide you with the same supply for $3.6$ million Thai baht today. If the current competitive market exchange rates are $24.60$ koruna per dollar and $34.99$ baht per dollar, what is the value of this deal?

Consider a retailing firm with a net profit margin of $3.1 \%$, a total asset turnover of $1.85$, total assets of $\$ 44.4$ million, and a book value of equity of $\$ 18.2$ million.

a. What is the firm's current ROE?

b. If the firm increased its net profit margin to $3.6 \%$, what would be its ROE?

c. If, in addition, the firm increased its revenues by $23 \%$ (while maintaining this higher profit margin and without changing its assets or liabilities), what would its ROE be?