Get college assignment help at uniessay writers If you can buy a car today for $ 5,000; and it is worth $10,000 in extra income next year to you because it enable you to get a job as traveling anvil seller, should you take out a loan from Eddy the Loan Shark at a 90% interest rate if no one else will give you a loan? Will you be better or worse off as result of taking out this loan? Can you make a case for legalizing loan-sharking? ( préstamo usurero). 7.
Bonds with a call provision sell at lower market yields than comparable noncallable bonds. True False
When looking at the graph of the Security Market Line, what is the interpretation of where the line crosses the return axis (y-axis)? The Security Market Line crosses the return axis at the expected rate of return for the market. The Security Market Line crosses the return axis at the risk-free rate of return. The Security Market Line crosses the return axis at the expected rate of return for the stock in question. The Security Market Line crosses the return axis at the market risk premium.
Bunyan Lumber LLC: Calculate when the company should harvest the timber Bunyan Lumber, LLC, harvests timber and delivers logs to timber mills for sale. The company was founded 70 years ago by Pete Bunyan. The current CEO is Paula Bunyan, the granddaughter of the founder. The company is currently evaluating a 5,000 acre forest it owns in Oregon. Paula has asked Steve Boles, the company’s finance officer, to evaluate the project. Paula’s concern is when the company should harvest the timber. Lumber is sold by the company for its “pond value”. Pond value is the amount a mill will pay for a log delivered to the mill location. The price paid for logs delivered to a mill is quoted in dollars per thousands of board feet (MBF), and the price depends on the grade of the logs. The forest Bunyan Lumber is evaluating was planted by the company 20 years ago and is made up entirely of Douglas fir trees. The table below shows the current price per MBF for the three grades of timber the company feels will come from the stand: Timber Grade Price Per MBF 1P $660 2P 630 3P 620 Steve believes that the pond value of lumber will increase at the inflation rate. The company is planning to thin the forest today, and it expects to realize a positive cash flow of $1,000 per acre from thinning. The thinning is done to increase the growth rate of the remaining trees, and it is always done 20 years following a planting. The major decision the company faces is when to log the forest. When the company logs the forest, it will immediately replant saplings, which will allow for a future harvest. The longer the forest is allowed to grow, the larger the harvest becomes per acre. Additionally, an older forest has a higher grade of timber. Steve has compiled the following table with the expected harvest per acre in thousands of board feet, along with the breakdown of the timber grade: Years from today Harvest (MBF) Timber Grade to begin harvest per acre 1P 2P 3P Years from today Harvest per Acre 1P 2P 3P 20 14.1 16% 36% 48% 25 16.4 20 40 40 30 17.3 22 43 35 35 18.1 24 45 31 The company expects to lose 5% of the timber it cuts due to defects and breakage. The forest will be clear-cut when the company harvests the timber. This method of harvesting allows for faster growth of replanted trees. All of the harvesting, processing, replanting, and transportation are to be handled by subcontractors hired by Bunyan Lumber. The cost of the logging is expected to be $140 per MBF. A road system has to be constructed and is expected to cost $50 per MBF on average The forest will be clear-cut when the company harvests the timber. This method of harvesting allows for faster growth of replanted trees. All of the harvesting, processing, replanting, and transportation are to be handled by subcontractors hired by Bunyan Lumber. The cost of the logging is expected to be $140 per MBF. A road system has to be constructed and is expected to cost $50 per MBF on average. Sales preparation and administrative costs, excluding office overhead costs, are expected to be $18 per MBF. As soon as the harvesting is complete, the company will reforest the land. Reforesting costs include the following: Per Acre Cost Excavator piling $150 Broadcast burning 300 Site preparation 145 Planting costs 225 All costs are expected to increase at the inflation rate. Assume all cash flows occur at the year of harvest. For example, if the company begins harvesting the timber 20 years from today, the cash flow from the harvest will be received 20 years from today. When the company logs the land, it will immediately replant the land with new saplings. The return is 10% and the inflation rate is expected to be 3.7% per year. Bunyan Lumber has a 35% tax rate. Clear cutting is a controversial method of forest management. To obtain the necessary permits, Bunyan Lumber has agreed to contribute to a conservation fund every time it harvests the lumber. If the company harvested the forest today, the required contribution would be 250,000 The company has agreed that the required contribution will grow by 3.2% per year. When should the company harvest the forest?
i do nt hav d money, i wld try n figure it ou my self, thnks 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?
Ch. 17-Part A: Investment in Bond All A’s Company (a Sept. 30th year-end company) purchased a debenture issued by High Rate, Inc. on 4/1/CY (CY = current year). Relevant data to these bonds were as follows: Requirement: Prepare all (properly formatted) journal entries necessary to correctly account for All A’s investment in High Rate’s debentures. Ch. 23-Part A: Statement of Cash Flows Preparation The net changes in the balance sheet accounts of Eusey, Inc. for the year 2011 are shown below: Account Debit Credit Cash $ 265,600 Accounts receivable $ 64,000 Allowance for doubtful accounts 14,000 Inventory 287,200 Prepaid expenses 40,000 Long-term investments 144,000 Land 300,000 Buildings 600,000 Machinery 100,000 Office equipment 28,000 Accumulated depreciation: Buildings 24,000 Machinery 20,000 Office equipment 12,000 Accounts payable 233,200 Accrued liabilities 72,000 Dividends payable 128,000 Bonds payable 940,000 Preferred stock ($50 par) 60,000 Common stock ($10 par) 156,000 Additional paid-in capital—common 247,200 Retained earnings 60,800 $1,898,000 $1,898,000 Additional information: 1. Unaudited Income Statement Data for Year Ended December 31, 2011 Income before extraordinary items $420,000 Extraordinary losses: Condemnation of land $132,000 Loss from redemption of preferred stock 20,000 (152,000) Net income $268,000 2. Cash dividends of $128,000 were declared December 15, 2011, payable January 15, 2012. A 5% stock dividend was issued March 31, 2011, when the market value was $22.00 per share. 3. The long-term investments were sold at a $4,000 loss. 4. A building and land which cost $480,000 and had a book value of $300,000 were sold for $400,000. The cost of the land, included in the cost and book value above, was $20,000. 5. The following entry was made to record an exchange of an old machine for a new one: Machinery 160,000 Accumulated Depreciation—Machinery 40,000 Machinery 60,000 Bonds Payable 140,000 6. A fully depreciated copier machine which cost $28,000 was written off. 7. Preferred stock of $60,000 par value was redeemed for $80,000; the loss was charged against earnings. 8. The company issued 12,000 shares of its common stock on June 15, 2011 for $27 a share. A $2 per share broker underwriting fee was recognized as part of Professional Fees Expense in the operating section of the income statement. There were 87,600 shares outstanding on December 31, 2011. 9. Bonds were issued at 104 on December 31, 2011. The premium was credited to Interest Revenue. 10. Land that was condemned had a book value of $240,000. Requirements: 1. Prepare a properly formatted and complete statement of cash flows using the indirect method. Ignore tax effects. Ch. 23-Part B: ASC Research Indicate how each of the cash flows from items a-e below should be classified in the statement of cash flows making sure to include a properly formatted ASC citation for the area you used in the development of your response. a. Available for Sale Securities b. Trading Securities c. Held-to-Maturity Securities d. Equity Securities accounted for under the Equity Method i. Acquisition
4.1 Southern California Publishing Company is trying to decide whether or not to revise its popular textbook, Financial Psychoanalysis Made Simple. They have estimated that the revision will cost $40,000. Cash flows from increased sales will be $10,000 the first year. These cash flows will increase by seven percent per year. The book will go out of print five years from now. Assume that the initial cost is paid now and revenues are received at the end of each year. If the company requires a 10 percent return for such an investment, should it undertake the revision?
7. The Ewing Distribution Company is planning a $100 million expansion of its chain of discount service stations to several neighboring states. This expansion will be financed, in part, with debt issued with a coupon interest rate of 6.8 percent. The bonds have a 10-year maturity and a $1,000 face value, and they will be sold to net Ewing $990 per bond. Ewing’s marginal tax rate is 40 percent. Preferred stock will cost Ewing 7.5 percent after taxes. Ewing’s common stock pays a dividend of $2 per share. The current market price per share is $35. Ewing’s dividends are expected to increase at an annual rate of 5 percent for the foreseeable future. Ewing expects to generate sufficient retained earnings to meet the common equity portion of the funding needed for the expansion. Ewing’s target capital structure is as follows: Debt 5 20% Preferred stock 5 5% Common equity 5 75% Calculate the weighted cost of capital that is appropriate to use in evaluating this expansion program.
1. Aziz Industries has sales of $100,000 and accounts receivable of $11,500, and it gives its customers 30 days to pay. The industry average DSO is 27 days, based on a 365-day year. If the company changes its credit and collection policy sufficiently to cause its DSO to fall to the industry average, and if it earns 8.0% on any cash freed-up by this change, how would that affect its net income, assuming other things are held constant?
Get college assignment help at uniessay writers This solution is comprised of a detailed explanation to answer how much would Bill need to have on deposit at retirement to annually withdraw $35,000 over the 15 years if the retirement fund earns 11 percent.
Phillips has predicted a sales increase of 15 percent. It has predicted that every item on the balance sheet will increase by 15 percent as well.
4. Ezback, Inc. is trying to establish itself as the best alternative to zip drive and computer backup devices. The first step is to establish competitive pricing. Ezback will generate two possible cash flow streams, depending on price. Cash Flow Price/drive Year 1 Year 2 $250 $230,000 $400,000 $350 $300,000 $340,000 a.) If Ezback’s cost of capital is 11%, which price has a higher NPV if the current project costs $500,000? b.) Due to lower short-term cash flows the company will be required to increase its weighting in debt if the price is $250. The result is an increased cost of capital of 14% under the $250 price. How will your decision change? c.) Ezback’s CFO would like to price the drives at $250 because the extra debt would have a tax shield of $50,000. Marketing thinks that an increase in debt would concern potential customers about the firm’s long-term viability. Thus, they state there was a 20% chance the drive could only sell for $150. If we assume that cash flows are directly proportional to prices, what impact does this decision have on our decision? d.) Ignoring the tax shield, what is the total cost of financial distress, considering both increased cost of funds and possible lower prices, under the $250 price? e.) Factoring in the benefit of the debt tax shield, what is the net cost of financial distress? f.) Ezback has the option to reduce the quality of its drives. In doing so, it can reduce its price without resorting to debt. The problem is a reduction in year 2 cash flows by $35,000. Should Ezback elect a lower quality drive or increased financial distress (factoring in the benefit of the debt tax shield)? g.) The union representing Ezback employees would like a wage increase which would cause annual cash flows to drop $5,000. Which strategy would Ezback management employ to strengthen its bargaining position, lower quality drive or increased financial distress (factoring the benefit of the debt tax shield)?
Red Court, Inc., has $900,000 in current assets, $350,000 of which are considered permanent current assets. In addition, the firm has $600,000 invested in fixed assets. a. Red Court wishes to finance all fixed assets and half of its permanent current assets with long-term financing costing 10 percent. Short-term financing currently costs 5 percent. Red Court’s earnings before interest and taxes are $200,000. Determine Red Court’s earnings after taxes under this financing plan. The tax rate is 30 percent. b. As an alternative, Red Court might wish to finance all fixed assets and permanent current assets plus half of its temporary current assets with long-term financing. The same interest rates apply as in part a. Earnings before interest and taxes will be $200,000. What will be Red Court’s earnings after taxes? The tax rate is 30 percent. C. What are some of the risks and cost considerations associated with each of these alternative financing strategies?
The firm’s required return on assets is 11 percent and its cost of equity is 14.7 percent. What is the pre-tax cost of debt based on M
You invest $600 in security A with a beta of 1.5 and $400 in security B with a beta of .90. The beta of this portfolio is?
debreu beverages has an optimal capital structure that is 50 percent common equity, 40 percent debt, and 10 percent preferred stock. debreu’s pretax cost of equity is 12 percent. Its pretax cost of preferred equity is 7 percent. If the corporate tax rate is 35 percent, what is the weighted average cost of capital?
Morgan Entertainment has a levered beta of 1.20. The firm’s capital structure consists of 40% debt and 60% equity and it has a corporate tax rate of 40%. What is Morgan’s unlevered beta?
____ 8. Cosmic Communications Inc. is planning two new issues of 25-year bonds. Bond Par will be sold at its $1,000 par value, and it will have a 10% semiannual coupon. Bond OID will be an Original Issue Discount bond, and it will also have a 25-year maturity and a $1,000 par value, but its semiannual coupon will be only 6.25%. If both bonds are to provide investors with the same effective yield, how many of the OID bonds must Cosmic issue to raise $3,000,000? Disregard flotation costs, and round your final answer up to a whole number of bonds. a. 4,228 b. 4,337 c. 4,448 d. 4,562 e. 4,676
A long-term debt issue in the amount of $200 million calls for mandatory redemption payments of $30 million each at the end of years 7, 8, and 9 and repayment of the remaining balance (called the balloon) at the end of year 10. Calculate the issue’s average life.
consider a bond with a 7% annual coupon and a face value of $1000;years to maturity 3 and a yeild to maturity 5
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