Assignment 2: quantitative exercises and final project 3: government

Assignment 2: Quantitative Exercises and Final Project 3:
Government Securities

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Part One: Quantitative Exercises 

 

Barbow Enterprises, Inc., is considering an expansion in their operations.
One of the first items they want to examine is their cost of capital. According
to the accounting department, the following items and their respective costs
have been identified:

 

  • The cost of Common Equity: 15%
  • The before tax cost of debt: 12%
  • No Preferred stock

 

They have also calculated the marginal tax rate to be 40% and the stock sells
at its book value.

 

Barbow Enterprises Inc.

 

Balance Sheet

 

Assets

 

 

 

 

 

Liabilities and Owners’
Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$240

 

 

 

Long Term Debt

 

 

 

$2,304

 

Accounts Receivable

 

480

 

 

 

Equity

 

 

 

3,456

 

Inventories

 

720

 

 

 

 

 

 

 

 

 

Net P&E

 

4,320

 

 

 

 

 

 

 

 

 

  Total Assets

 

$5,760

 

 

 

Total Liabilities and owners’ Equity

 

 

 

$5,760

 

Required:

 

Calculate Barbow’s after-tax weighted average cost of capital, using the data
in the balance sheet above.

 

Deliverable:

 

By Saturday, March 16, 2013, submit the
completed assignment to the W4: Assignment 2 Dropbox. Use a
Microsoft Excel spreadsheet that illustrates your calculations. You may use the
formulas embedded in Microsoft Excel and/or a financial calculator for these
calculations.

 

Name your document SU_FIN2030_W4_A2_part1_LastName_FirstInitial.

 

Part Two:  Final Project 3: Government
Securities

 

In this part of your Final Project, you will research and analyze current
information (that is, within the past two months) on government securities.

 

Step 1: Go to a financial Web site to do your research. The
following are three suggested sites, but you may use others. Be sure to cite
your sources!

 

  • finance.yahoo.com
  • http://www.google.com/finance
  • moneycentral.msn.com

 

Step 2: Research current information (within the last two
months) on the yields and maturity for:

 

  1. U.S. treasuries
  2. Municipal bonds
  3. Corporate bonds

 

Required:

 

  • Discuss what the pure expectations theory would imply about the yield curve.
  • Compare and contrast the yields and maturities for each of the securities.
  • Discuss which you would hold and why relative to interest rate risk.