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Get college assignment help at uniessay writers Calculating Payback An investment project provides cash inflows of $765 per year for eight years. If the initial cost is $2,400, the project payback period is ____years. If the initial cost is $3,600, the project payback period is ______years. If the initial cost is $6,500, the project payback period is _____years.

Dye Industries currently uses no debt, but its new CFO is considering changing the capital structure to 40.0% debt by issuing bonds and using the proceeds to repurchase and retire some common stock at book value. Given the data shown below, by how much would this recapitalization change the firm’s cost of equity, i.e., what is rL – rU? Risk-free rate, rRF_____________6.00% Tax rate, T___________________40% Market risk premium, RPM______4.00% Current debt ratio_____________0% Current beta, bU______________1.15 Target debt ratio______________40%

4-9. A 10-year 12 percent semiannual coupon bond, with a par value of $1,000, may be called in 4 years at a call price of $1,060. The bond sells for $1,100. (Assume that the bond has just been issued.)

P5–1 Rate of return Douglas Keel, a financial analyst for Orange Industries, wishes to estimate the rate of return for two similar-risk investments, X and Y. Douglas’s research indicates that the immediate past returns will serve as reasonable estimates of future returns. A year earlier, investment X had a market value of $20,000; investment Y had a market value of $55,000. During the year, investment X generated cash flow of $1,500 and investment Y generated cash flow of $6,800. The current market values of investments X and Y are $21,000 and $55,000, respectively. a. Calculate the expected rate of return on investments X and Y using the most recent year’s data. b. Assuming that the two investments are equally risky, which one should Douglas recommend? Why?

While sales are often correlated to the regional or national economy, it is not necessary to incorporate macroeconomic forecasts into the model. I believe this is false.

A 6-year Circular File bond pays interest of $88 annually and sells for $940. If Circular File wants to issue a new 6-year bond at face value, what coupon rate must the bond offer?

I need help with a,b

assume the firm receives an additional $1 million of interest income from some bonds it owns. what is the tax on this interest income?

Using pro-forma income statements to estimate earnings per share over using regression analysis has several advantages except which one of the following? a. The analyst is able to study profitability and the effects of taxes on profit margins b. Interest expense, and debt and equity financing can be factored into the analysis c. Hidden problems in stable growth firms would be brought out d. Effects of the business cycle on profit margins can be included in the forecast

One question that arose during the meeting was about how the firm’s profitability in their toothpaste division would be impacted by the expansion. The Board asked you to assess the profit potential using marginal analysis. It is assumed that the toothpaste market is perfectly competitive and the current price of a case of toothpaste is $42.00. CPI has estimated its marginal cost function to bas follows: MC=.006Q. 1.The Board would like to know how many cases of toothpaste should be produced in order to maximize profits. 2.What would happen if CPI decided to raise prices unilaterally in this toothpaste market? 3.What would happen to the profit maximizing level of output if the market price suddenly rose to $54 per case? Explain why the output level changes. 4.Could CPI benefit by advertising in this perfectly competitive market? 5.If CPI was somehow able to monopolize the market what would happen to the price of toothpaste, would it rise or fall? What would happen to the profits CPI makes via their toothpaste division?

Get college assignment help at uniessay writers What coupon rate should AirJet Best Parts set on its new bonds to sell them at par value?

THE DECISION TO LEASE OR BUY AT WARF COMPUTERS Warf Computers has decided to proceed with the manufacture and distribution of the virtual keyboard (VK) the company has developed. To undertake this venture, the company needs to obtain equipment for the production of the microphone for the keyboard. Because of the required sensitivity of the microphone and its small size, the company needs specialized equipment for production. Nick War, the company president, has found a vendor for the equipment. Clapton Acoustical Equpment has offered to sell Warf Computers the necessary equipment at a price of $2.5 million. Because of the rapid development of new technology, the equipment falls in the three year MACRS depreciation class. At the end of four years, the market value of the equipment is expected to be $ 300,000. Alternatively, the company can lease the equipment from Hendrix Leasing. The lease contract calls for four annual payments of $650,000 due at the beginning of the year. Additionally, Warf Computers must make a security deposit of $150,000 that will be returned when the lease expires. Warf Computers can issue bonds with a yield of 11 percent, and the company has a marginal tax rate of 35 percent. 1. Should Warf buy or lease the equipment? 2. Nick mention to James Hendrix, the president of Hendrix Leasing, that although the company will need the equipment for four years, he would like a lease contract for two years instead. At the end of the two years, the lease could be renewed. Nick would also like to eliminate the security deposit, but he would be willing to increase the lease payments to $1,150,000 for each of the two years. When the lease is renewed in two years, Hendrix would consider the increased lease payments in the first two years when calculating the terms of the renewal. The equipment is expected to have a market value of $ 1 million in two years. What is the NAL of the lease contract under these terms? Why might Nick prefer this lease? What are the potential ethical issues concerning the new lease terms? 3. In the leasing discussion, James inform Nick that the contract could include a purchase option for the equipment at the end of the lease. Hendrix Leasing offers three purchase options: a. An option to purchase the equipment at the fair market value. b. An option to purchase the equipment at a fixed price. The price will be negotiated before the lease is signed. c. An option to purchase the equipment at a price of $125,000. How would the inclusion of a purchase option affect the value of the lease? 4. James also informs Nick that the lease contract can include a cancellation option. The cancellation option would allow Warf Computers to cancel the lease on any anniversary date of the contract. In order to cancel the lease, Warf Computers would be required to give 30 days’ notice prior to the anniversary date. How would the inclusion of a cancellation option affect the value of the lease?

The expected return on a portfolio: I. can never exceed the expected return of the best performing security in the portfolio. II. must be equal to or greater than the expected return of the worst performing security in the portfolio. III. is independent of the unsystematic risks of the individual securities held in the portfolio. IV. is independent of the allocation of the portfolio amongst individual securities. A. I and III only B. II and IV only C. I and II only D. I, II, and III only E. I, II, III, and IV

. Jenningston Mills has a market value equal to its book value. Currently, the firm has excess cash of $1,200, other assets of $5,800, and equity valued at $3,750. The firm has 250 shares of stock outstanding and net income of $420. What will the new earnings per share be if the firm uses 25 percent of its excess cash to complete a stock repurchase? A. $1.83 B. $1.89 C. $1.96 D. $2.00 E. $2.08

You just returned from some extensive traveling throughout the Americas. You started your trip with $20,000 in your pocket. You spent 3.4 million pesos while in Chile and 16,500 bolivares in Venezuela. Then on the way home, you spent 47,500 pesos in Mexico. How many dollars did you have left by the time you returned to the U.S. given the following exchange rates? (Note: Multiple symbols are used to designate various currencies. For example, the U.S. dollar is notated as “$” or as “USD”.) A. 1,113 USD B. 3,535 USD C. 4,117 USD D. 4,244 USD E. 7,408 USD

Your friend Jackson is asking to borrow today with a promise to repay $6,665 in four years. If you could earn 7.45 percent annually on any investment you make today, how much will you be willing to lend Jackson today? (Round to the nearest dollar.) $5,000 $4,035 $4,500 $5,150

Jack Robbins is saving for a new car. He needs to have $21,000 for the car in three years. How much will he have to invest today in an account paying 8 percent annually to achieve his target? (Round to the nearest dollar.) $22,680 $26,454 $16,671 $19,444

1. Consider the following projects: Visit us at www.mhhe.com/bma8e Cash Flows ($) Project C0 C1 C2 C3 C4 C5 A 1,000 1,000 0 0 0 0 B 2,000 1,000 1,000 4,000 1,000 1,000 C 3,000 1,000 1,000 0 1,000 1,000 a. If the opportunity cost of capital is 10 percent, which projects have a positive NPV? b. Calculate the payback period for each project. c. Which project(s) would a firm using the payback rule accept if the cutoff period is three years?

QP9-24 Expansion Decisions Applied Nanotech is thinking about introducing a new surface cleaning machine. The marketing department has come up with the estimate that Applied Nanotech can sell 10 units per year at $500,000 net cash flow per unit for the next five years. The engineering department has come up with the estimate that developing the machine will take a $7 million initial investment. The finance department has estimated that a 23 percent discount rate should be used. Requirement 1: What is the base case NPV? (Negative amount should be indicated by a minus sign. Do not include the dollar sign ($). Round your answer to the nearest whole dollar amount. (e.g., 32)) Base case NPV $____________ Requirement 2: If unsuccessful, after the first year the project can be dismantled and will have an aftertax salvage value of $5 million. Also, after the first year, expected cash flows will be revised up to 20 units per year or to 0 units, with equal probability. What is the revised NPV? (Do not include the dollar sign ($). Round your answer to the nearest whole dollar amount. (e.g., 32)) Revised NPV $ ____________

QP9-18 Abandonment We are examining a new project. We expect to sell 8,700 units per year at $73 net cash flow apiece for the next 8 years. In other words, the annual operating cash flow is projected to be $73 × 8,700 = $635,100. The relevant discount rate is 12 percent, and the initial investment required is $2,200,000. Suppose you think it is likely that expected sales will be revised upwards to 9,700 units if the first year is a success and revised downwards to 2,000 units if the first year is not a success. The project can be abandoned for $1,710,000. (Do not include the dollar sign ($). Round your answers to 2 decimal places. (e.g., 32.16)) Requirement 1: If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. NPV $ ____________ Requirement 2: What is the value of the option to abandon? Option value $____________

The Three Rules of Time Travel 3. Calculate the future value of $2000 in a. Five years at an interest rate of 5% per year. b. Ten years at an interest rate of 5% per year. c. Five years at an interest rate of 10% per year. d. Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)? 4. What is the present value of $10,000 received a. Twelve years from today when the interest rate is 4% per year? b. Twenty years from today when the interest rate is 8% per year? c. Six years from today when the interest rate is 2% per year? 9. You are thinking of retiring. Your retirement plan will pay you either $250,000 immediately on retirement or $350,000 five years after the date of your retirement. Which alternative should you choose if the interest rate is a. 0% per year? b. 8% per year? c. 20% per year? 14. You have been offered a unique investment opportunity. If you invest $10,000 today, you will receive $500 one year from now, $1500 two years from now, and $10,000 ten years from now. a. What is the NPV of the opportunity if the interest rate is 6% per year? Should you take the opportunity? b. What is the NPV of the opportunity if the interest rate is 2% per year? Should you take it not? 19. What is the present value of $1000 paid at the end of each of the next 100 years if the interest rate is 7% per year?

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November 3, 2019