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Get college assignment help at uniessay writers 4) Sun Lee’s is considering two mutually exclusive projects that have been assigned the same discount rate of 10.5 percent. Project A has an initial cost of $54,500, and should produce cash inflows of $16,400, $28,900, and $31,700 for Years 1 to 3, respectively Project B has an initial cost of $79,400, and should produce cash inflows of $0, $48,300, and $42.100, for Years 1 to 3, respectively. What is the incremental IRR? A) 13.89 percent B) 4.08 percent C) 7.83 percent D)-15.40percent E)-11.23 percent 5) Project X has an initial cost of $20,000 and a cash inflow of $25,000 in Year 3. Project Y costs $40,700 and has cash flows of $12,000, $25,000, and $10,000 in Years 1 to 3 respectively. The discount rate is 6 percent and the projects are mutually exclusive. Based on the individual project’s IRRs you should accept Project NPV you should accept Project 5% ;based on ; the final decision should be to accept Project A) Y; Y; Y D) Y X: Y B) X; X; X C) Y; X; X E) X; Y; Y 6) If Lew’s Steel Forms purchases $618,000 ofnew equipment, they can lower annual operating costs by $265,000. The equipment will be depreciated straight-line to a zero book value over its 3-year life. Ignore bomus depreciation. At the end of the three years, the equipment will be sold for an estimated $60,000. The equipment will require the company to hold an extra $23,000 of inventory over the 3-year period. What is the NPV if the discount rate is 14 percent and the tax rate is 21 percent? A) $3,106.54 B)-$7,014.54 C)-$12.593.78 D)-$2646.00 E) $6.884.40 7) Emie’s Electrical is evaluating a project which will increase annual sales by $50,000 and costs by $30,000. The project has an initial asset cost of $150,000 that will be depreciated straight-line bonus depreciation The applicable tax rate is 25 percent. What is the annual operating cash flow for this project? A) $15,500 to a zero book value over the 10-year life of the project. Ignore B) $18.750 C) $17,900 D) $19,250 E) $21,350

If Wild Widgets, Inc. company has a target debt-equity ratio of .80. The expected return on the market portfolio is 12 percent and Treasury bills currently yield 3.7 percent. The company has one bond issue outstanding that matures in 30 years, a par value of $2,000, and a coupon rate of 6.4 percent. The bond currently sells for $2,090. The corporate tax rate is 23 percent. all-equity company, it would have a beta of 1.15. The were an a. What is the company’s cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company’s weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of debt % a. Cost of equity b. % WACC % C.

North Pole Fishing Equipment Corporation and South Pole Fishing Equipment Corporation would have identical equity betas of 1.15 if both were all equity financed. The market value information for each company is shown here: North Pole South Pole Debt $3,000,000 $ 3,910,000 Equity $ 3,910,000 $3,000,000 The expected return on the market portfolio is 11.8 percent and the risk-free rate is 3.8 percent. Both companies are subject to a corporate tax rate of 25 percent. Assume the beta of debt is zero. a. What is the equity beta of each of each company? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) b. What is the required rate of return on equity for each company? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) North Pole a. South Pole b. North Pole South Pole %

a $45.04 million project in its power National Electric Company (NEC) is considering systems division. Tom Edison, the company’s chief financial officer, has evaluated the project and determined that the project’s unlevered cash flows will be $3.15 million per year in perpetuity. Mr. Edison has devised two possibilities for raising the initial investment: Issuing 10-year bonds or issuing common stock. The company’s pretax cost of debt is 6.4 percent and its cost of equity is 11.2 percent. The company’s target debt-to- value ratio is 75 percent. The project has the same risk as the company’s existing businesses and it will support the same amount of debt. The tax rate is 24 percent. Calculate the weighted average cost of capital. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Calculate the net present value of the project. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89) Weighted average cost of capital % Net present value

First and Ten Corporation’s stock returns have a covariance with the market portfolio of 0461. The standard deviation of the returns on the market portfolio is 20 percent and the expected market risk premium is 7.2 percent. The company has bonds outstanding with a total market value of $55.9 million and a yield to maturity of 6.1 percent. The company also has 5.1 million shares of common stock outstanding, each selling for $42 The company’s CEO considers the firm’s current debt-equity ratio optimal. The corporate tax rate is 24 percent and Treasury bills currently yield 3.5 percent. The company is considering the purchase of additional equipment that would cost $53.5 million. The expected unlevered cash flows from the equipment are $17.75 million per year for 5 years. Purchasing the equipment will not change the risk level of the firm. Calculate the NPV of the project. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g. 1,234,567.89) NPV

Fitzgerald Industries has a new project available that requires an initial investment of $4.8 million. The project will provide unlevered cash flows of $844,000 per year for the next 20 years. The company will finance the project with a debt-value ratio of .25. The company’s bonds have a YTM of 6.5 percent. The companies with operations comparable to this project have unlevered betas of 1.24, 1.17, 1.39, and 1.34. The risk-free rate is 3.9 percent and the market risk premium is 6.9 percent. The tax rate is 24 percent What is the NPV of this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g. 1,234,567.89) NPV

Problem 18-4 WACC If Wild Widgets, Inc., were an all-equity company, it would have a beta of 1.05. The company has a target debt-equity ratio of 70. The expected return on the market portfolio is 10 percent and Treasury bills currently yield 3.5 percent. The company has one bond issue outstanding that matures in 28 years, a par value of $2,000, and a coupon rate of 6.2 percent. The bond currently sells for $2,110. The corporate tax rate is 21 percent a. What is the company’s cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the company’s weighted average cost of capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g. 32.16.) a. Cost of debt b. Cost of equity % WACC % C.

$15.50 Target Share Price 10% Takeover Premium $6.50 Acquirer Share Price Target Shares Outstanding Acquirer Shares Outstanding 300 700 Given the data in the above table, calculate the share exchange ratio: 4.19 0.46 2.62 1.12

800,000 Acquirer Shares Outstanding 5,000 Target Shares Outstanding Acquirer Share Price Target Share Price $8.00 $16.00 25% Cash Consideration in percent 10% Takeover Premium Given the above data, what is the amount of stock consideration involved in the deal? (Rounding to the closest whole number) 66,000 5,280,000 1,760,000 22.000

Patients account receivable of $7,400,000 is shown as net of $1,300,000 allowance for bad debts. What percent of gross account receivable is the allowance for bad debts?

Get college assignment help at uniessay writers BUS350 Unit 1 Discussion 2- Table Industry Company Current Ratio 1,12 1.09 Quick Ratio 0.69 0.85 Inventory Turnover 6.11 8.38 Days Sales in Inventory 59.74 43.56

have completed so far. It does not indicate completion. Return to questio The MoMi Corporation’s cash flow from operations before interest and taxes was $3.1 million in the year just ended, and it expects tha this will grow by 5% per year forever. To make this happen, the firm will have to invest an amount equal to 19% of pretax cash flow each year. The tax rate is 21%. Depreciation was $370,000 in the year jus ended and is expected to grow at the same rate as the operating cash flow. The appropriate market capitalization rate for the unleveraged cash flow is 14% per year and the firm currently has debt of $4 million outstanding. Use the free cash flow approach to calculate the value of the firm and the firm’s equity. (Enter your answer in dollars not in millions.) Answer is complete but not entirely correct. 21,530 000 Value of the firm 17.530,000 Value of the firm s equity

Acquirer Shares Outstanding Target Shares Outstanding Acquirer Share Price Target Share Price 1,000,000 25,000 $5.00 $10.00 Stock Consideration $400,000 Cash Consideration $200,000 Share Issuance Discount 26 Tax Rate 25% Given the following data, calculate the pro forma number of shares outstanding (Rounding to the closest whole number) 991,813 917,712 1,081,633 1,261,613 0000

Last Chg Open High Sep 2012 795’015’47800 797’0 Dec 2012 783’4 12’2 772’4 785’6 Mar 2013 783’211’4772’4 784’4 May 2013 779’6 112 769’2 Jul 2013 773’4106763’2 774’0 Sep 2013 669’4-‘6670’0 673’0 Dec 2013 634’0 -1’0 | 633’0 | 637’0 Month Volume Low Open Int 369243 763’4 83008 755’6 179014 499807 24738 757’2 135778 780’4 755’0 8119 21882 749’0 12310 57618 660 0 1833 9120 625’0 54205 4510 Figure 2.11 Corn futures prices in the Chicago Board of Trade, July 17, 2012 Source: The Wall Street Journal Online, July 17, 2012.

QUESTION 5 The balance sheet for Apple Pie Corp. is shown here in market value terms. There are 4,000 shares of stock outstanding. Market Value Balance Sheet Equity $207,000 $23,000 Cash Fixed assets 184,000 $207,000 Total $207,000 Total The company has declared a dividend of $1.80 per share. The stock goes ex-dividend tomorrow. Ignore any tax effects. What will the price of the stock be tomorrow? 01.$71.80 O2.$18.90 3. $36.20 04.$49.95 5. $52.15

Which one of the following refers to the ability of shareholders to undo a firm’s dividen policy and create an alternative dividend policy by reinvesting dividends or selling shares of stock? 01.personalization O2.perfect foresight model 3.offsetting leverage 04.homemade dividend policy 5. recapitalization

A project has the following cash flows. What is the payback period? Cash Flow Year -$14,500 0 2,200 1 4,800 2 6,500 3 7,500 4 3.24 years 2.59 years 2.96 years 3.04 years 3.13 years

aptal budgeting and cash flow estimation Internal Rate of Return (IRR) Method continued Comparison of NPV and IRR Methods The IRR equation can e specified as: Consider the following two projects Project A Project B CE Year CF NPVCF, IRRY(1 IRRY (1 IRR) =0 -100 -100 10 NPV2 IRR) CE 70 1 50 60 2 >where 20 IRR the internal rate of return >The IRR is typically calculated using trial and error (which is the only way if future cash flows are uneven) > The cost of capital for both projects is 10 % per annum MIRR LA TROBE Capital budgeting and cash flow estimation LA TROBE UNIVERSITY cash flow estimation Capital budgeting a Comparison of NPV and IRR Methods continued NPV Profiles > It is also useful to look at an NPV profile, especially when comparing two projects, which is a plot of project NPVS at differer rates. The table below provides the NPVS for projects A and B for a range of different discount rates: > NPV calculations: inde diecount Project A: NPV-100 70/(1.10) 50/(1.10)2 20(1.10)2 = $19.98 Project B: NPV=-100 10/(1.10) 60/(1.10)2 80/L1.10)$18.79 Accept both projects A and B if they were independent as they both have positive NPVS Accept project A over project B.if they.are mutually exclusive, as project A has a higher NPV than project B IRR calculations using trial and – Project A: IRR 23.56% – Project B: IRR 18.13% Accept both projects if they are independent as the IRR > WACC (10% ) Accept project A over project B if they are mutually exclusive, WACC NPV for Project A NPV for Project B $40.00 $50,00 5 $29.29 $33.05 error: 10 $19.98 $18.79 15 $11.83 $6.67 20 $4.63 $3.70 as project A has 3.11 higher IRR FINANCIAL MANAGEMENT (FIN5FMA) SOLUTIONS FOR TUTORIAL 3 Question 1 A firm with a 14% WACC is evaluating two projects for this year’s capital budget. After- tax cash flows, including depreciation, are as follows: O DMILA Year 0 Year 5 Year 1 Year 4 Year 2 Year 3 Project A Project B $2,000 $5,600 -S6,000 -$18,000 $2,000 $5,600 $2,000 $5,600 $2,000 $5,600 $2,000 $5,600 a) Calculate NPV, IRR, MIRR, payback, and discounted payback for each project. SaMe Cashkow ann Project A NPV= -$6,000 ($2,000)(3.4331)= $866.20 IRR using a spreadsheet = 19:86% Modified IRR (MIRR) calculations: uthplicint Future value of cash flows re-invested at the WACC of 14%: Year 1 CF= $2,000 1.14)4 = $3,377.92 Year 2 CF= $2,000(1 .14)3 $2,963.09 599 20 42

QUESTION 9 A $0.60 quarterly cash payment paid by T.L. Jones

You own 1,000 shares of stock in Avondale Corporation. You will receive an 80-cent per share dividend in one year. In two years, Avondale will pay a liquidating dividend of $40 per share. The required return on Avondale stock is 14 percent. What will your dividend income be this year if you use homemade dividends to create two equal annual dividend payments? 1. $20,400 O2.$18,667 O3. $19,117 04.$15,980 5.$15,184

1) Jenni’s Diner has expected net annual cash flows of $16,200, $18,600, $19,100, and $19,500 for the next four years, respectively. At the end of the fourth year, the diner is expected to be worth $57,900 cash. What is the present value of the diner at a discount rate of 11.6 percent? A) $101,016.38 B) $98,411.20 C) $93,090.25 D) $87,492.16 E) $104,998.02 1 2) TH Maufacturers expects to generate cash flows of $129,600 for the next two years. At the end of the two years the business will be sold for an estimated $3.2 million. What is the value of this business at a discount rate of 14 percent? A) $2,704.655 B) $2,900,411 C) $2,675,703 D) $2,848,392 E) $2,284,644 2) 3) You are considering two independent projects that have differing requirements. Project A has a required return of 12 percent compared to Project B’s required retum of 13.5 percent. Project A costs $75,000 and has cash flows of $21,000, $49,000, and $12,000 for Years 1 to 3, respectively. Project B has an initial cost of $70,000 and cash flows of $15,000, $18,000, and $41,000 for Years 1 to 3, respectively. Based on the NPV, you 3) should: A) accept Project A and reject Project B B) accept both Project A and Project B. C) reject both Project A and Project B D) accept Project B and reject Project A E) accept whichever one you want but not both.

The post Question: 4) Sun Lee’s Is Considering Two Mutually Exclusive Projects That Have Been Assigned The Same Discount Rate Of 10.5 Percent. Project A Has An Initial Cost Of $54,500, And Should Produce Cash Inflows Of $16,400, $28,900, And $31,700 For Years 1 To 3, Respectively Project B Has An Initial Cost Of $79,400, And Should Produce Cash Inflows Of $0, $48,300, … appeared first on uniessay writers.

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November 3, 2019