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Get college assignment help at uniessay writers A $6M investment is considered by an electric bike manufacturing company to add a new production line for its new product, electric skateboards. The company has commissioned an exploratory study of where to place the new production line and which type of equipment to use. There are three types of machines to choose from for the company to install on the new assembly line. The machines have zero salvage value at the end of 10-year planning horizon. The company must select at least two alternatives from (i) Loan, (ii) Common Stocks, (ii) Preferred Stocks, and (iv) Retained Earnings to obtain the required amount of capital for the investment. Each of these capital sources could provide $3M to support the project. The company is anticipating rapid product penetration and aggressive growth after addition of the new production line. The major question for this case study is to find out if the project is economically justified Part I:Cash Flow Construction Please follow this step to create the cash flow of the project and obtain its economic worth. Step 1: Choose the Capital Sources and Calculate WACC Based on the instruction provided to you, choose the appropriate options to form the capital for the investment, and the calculate WACC. Capital Sources Description Options Interest Rate = 8 %, Compounded Semi Annually Payback Method: Plan 3 Dividend $7, Price $100, Brokerage Fee = $1 Dividend = $5, Price = $100, Growth Rate = 4% 1 Loan Preferred Stock 2 3 Common Stock Retained Earning 4 Step 2: Calculate MARR Set MARR equal to rounded WACC (Round up WACC) 3% for your further analysis. Step 3: Choose the type of Machine and Calculate Before Tax Cash Flow (BTCF) Choose one type of Machine from the following table and calculate the BTCF Options 3 1 2 No. of Machines 20 20 20 $200,000 $100 $170 $250,000 $120 $190 $300,000 $150 $210 First Cost Operating Cost/Hr. Revenue/Hr. Hr./Year 1700 Hrs. 1800 Hrs. 1500 Hrs. Useful Life 10 Years 10 Years 10 Years 7 Years Depreciation (MACRS) 5 Years 7 Years Step 4: Economic worth calculation Find (i) PW, (ii) DPBP, (ii) IRR based on BTCF. Step 5: Tax rate Choose one set of the tax rates from the following table and find the overall tax rate for your project Options Federal Tax Rate State Tax Rate 8% 20% 1 7% 2 21% 3 9% 19% Step 6: After tax calculation construct the After-Tax Cash Flow (ATCF) and then calculate the corresponding (i) PW, (ii) AW, and (ii) IRR for the ATCF. Step 7: Choose Inflation and calculate ATCF Choose the appropriate value for the Inflation rate from the following table and calculate (i) PW, (ii) ERR and (iii) IRR based on ATCF. Options Inflation Rate 1 4% 5% 3 6%

8) The initial cost of one customized machine is $675,000 with an annual operating cost of $14,800, and a life of 4 years. The machine will be worthless and replaced at the end of its life. What is the equivalent annual cost of this machine if the required rate of retum is 14.5 percent and we ignore taxes? A) $249,797.41 B) $251,610.29 C) $240,008.02 D) $247,647.78 E) $248,841.99 8) 9) ABC Co. has compiled these estimates for a new 1-year project: Sales of 1,650 units, 5 percent; sales price of $17 a unit, 1 percent; variable costs per unit of $7.49,3 percent, fixed bases its sensitivity analysis on the expected sensitivity analysis and taxes? costs of $3,800, 1 percent, and depreciation of $2,200. The company case scenario. If the company conducts a at a sales price of $16.25, what will be the eamings before interest A) $8,709 C) $8.265 B) $8,510 D) $8.530 E) $8,454 10) A new project has estimated annual sales of 12,000 units, 10) unit of $11.24, 2 percent; annual fixed costs of $38,290, 2 percent; and a sales price of $19.65 per unit, 4 percent. The annual depreciation is $21,400 and the tax rate is 21 percent. What are the annual earmings before interest and taxes under the optimistic 3 percent; variable costs per scenario? A) $54.048.91 B) $61.940.08 C) $52,694.40 D) $64,854.40 E) $57,516.89 11) The Meldruum Co. expects to sell 3,000 units, ± 15 percent, of a new product The 11) variable cost per unit is $8, 5 percent, and the annual fixed costs are $12,500, 5 percent. The annual depreciation expense is $4,000 and the sale price is $18 a unit, 2 percent. The project requires $24,000 of fixed assets which will be worthless when the project ends in six years. Also required is $6,500 of net working capital for the life of the project. The tax rate is 21 percent and the required rate of retum is 12 percent. What is the net present value of the pessimistic scenario? A) $12,979.40 B) $10.146.18 C) $8.308.15 D) $13.810.29 E) $14,008.16

12) Albert’s recently paid its annual dividend of $1.98 per share. At that time, the firm announced that all future dividends will be increased by 2.2 percent annually. What is the firm’s cost of equity if the stock is curently selling for $28.40 a share? A) 11.32 percent В) 9.33 реrcent C) 11.08 percent D) 10.06 percent E) 10.47 percent 12) 13) 13) The cost of equity for RJ Corporation is 8.4 percent and the debt-equity ratio is .6. The expected retum on the market is 10.4 percent and the risk-free rate is 3.8 percent. Using the common assumption for the debt beta, what is the asset beta? A) 62 B).70 C).59 D) 44 E) .67 selling at their par value of yielding a pretax 8.6 percent. The 14) Jack’s Construction Co. has 80 bonds outstanding that are $1.000 each. Bonds with similar characteristics are 14) firm also has 4,000 shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The U.S. T-bill is yielding 4 percent, the market risk premium is 8 percent, and the fim’s tax rate is 21 percent. What is the fim’s weighted average cost of capital assuming its eamings are sufficient to classify all interest as a tax-deductible expense? A) 10.80 percent В) 10.10 регсent C) 10.65 percent D) 11.40 percent E) 11.39 percent 15) Sound Systems has 200 shares of common stock outstanding at a market price of $37 share. The firm recently paid an annual dividend in the amount of $1.20 per share and 15) a has a dividend growth rate of 4 percent. The firm also has 5 bonds outstanding with a face value of $1,000 per bond that are selling at 99 percent of par. The bonds have a coupon rate of 6 percent and a yield to maturity of 6.7 percent. All interest is tax deductible. If the tax rate is 21 percent, what is the weighted average cost of capital? А) 6.87 реrcent B) 7.08 percent C) 5.93 percent D) 6.54 percent E) 6.37 percent

16) Hu’s has 25,000 shares of common stock outstanding with a beta of 1.4, a market price of $32 a share, and a dividend yield of 5.7 percent. Dividends increase by 4.2 percent annually. The firm also has $450,000 of debt outstanding that is selling at 102 percent of par that has a yield to maturity of 6.8 percent. The tax rate is 21 percent and all interest is tax deductible. The firm is considering a project that has the same risk level as the firm’s current operations, an initial cost of $328,000 and cash inflows of $52,500 $155,000, and $225,000 for Years 1 to 3, respectively. What is the NPV of the project? A) $36,511 16) E) $31.492 C) $28,515 B) $30,157 D) $27,006 17) 17) ABC is considering acquiring XYZ and has compiled this information on XYZ Year 1 2 3 $ 392,000 $ 318.000 $364,000 ЕBIT Capital spending Increases in net working capital Depreciation 46,500 28.000 36,200 5,500 6.500 1200 34,000 32,100 28,700 The applicable tax rate is 21 percent and the terminal value of XYz as of Year 3 is $2.5 million. What is the NPV of this acquisition if the discount rate is 7.1 percent and the acquisition cost is $2.25 million? A) $509.482 B) $506,048 C) $538.316 D) $499,003 E) $496.399 18) 18) For the curent year, Peter’s Boats has sales of $760,000 and a profit margin of 5 percent. The annual depreciation expense is $80,000. What is the amount of the annual operating cash flow if the company has no long-term debt? A) $34,000 B) $86,400 C) $123,900 D) $120,400 E) $118,000

Problem 2-21 marks Dapper Dawg In dustres nce Sheet ($ 000’s) Dapper Dawg Industries Income Statement ($000’s) Forecast Forec 2016 2017 SSCTS 2016 2017 018 Sales Revenues Cost of Goods Sold 3,432, 5,834,4 7.035.600 Current Assets 2,864,000.0 4,980,000.0 5,800,000.0 7,282 20,000 14000 Cash 9 000 Contribution Margin 568.000.0 854,400.0 1,235.600.0 Short-te m Investmen ts 71,632 Operating Expe nse s 340,000,0 720,000,0 612,9600 ciation Interert 1,287,360 1,716, 480 176.000.0 80.0000 715.200 Inventory Total Current Assets 62.500.0 1,124,000 1,946,802 2,680, 112 Earnings B4 Taxes 146,600.0 158,560.0 422,6400 Plant

1. Consider a world in which there are only two periods: period 0 and period 1 and three possible states of the world in period 1 (a good weather state, a fair weather state, and a bad weather state). Also, apples are the only product produced in this world, and they cannot be stored from one period to the next. The following abbreviations will be used: PA apple in the present period (i.e., present apple), GA = good weather apple in the next period, FA next period Suppose that an produces 160 GA, 100 FA, and 50 BA. The bond pays 40 GA, 40 FA and 40 BA. The stock pays 120 GA, 60 FA and 10 BA. The price of the bond is 36 PA, and the price of the stock is 44 PA. În addition, security C, D, and E are traded for 62 PA, 22 PA, and 20 PA respectively. Security C pays 140 GA, 80 FA, and 30 BA. Security D pays 60 GA 30 FA, and 5 BA. Security E pays 80 GA, 20 FA, and0 BA fair weather apple in the next period, BA = bad weather apple in the apple tree firm offers for sale a bond and stock. The apple tree 1.1) Find the arbitrage-free price of the atomic securities 1.2) Calculate the arbitrage-free price of an apple tree. Verify it equals the price implied by the firm’s securities. 1.3) Calculate the discount factor and explain its economic interpretation. How is it related to the risk-free interest rate?

Suppose ABCD’s stock price is currently $50. In the next six months, it will either fall to $40 or rise 8 to $60. What is the current value of a six-month call option with an exercise price of $50? The six- month risk-free interest rate is 2% (periodic rate). A. $5.39 B. $15.00 C. $8.25 D. $8.09

3. Consider European stock options with an exercise price of $40 that expire in 3 months Assume the underlyingstock pays no dividends, is trading at $40, and has a volatility of 20% per annum, and that the risk-free rate is 3% per annum. Currently the call price is $1.74 and the put price is $1.30. Construct an arbitrage portfolio and show how much profit can be made.

5. Consider purchasing a $50,000 SUV that you expect to last for 10 years. The IRS uses a 6 years straight-line schedule on cars. You company can finance this car. Your company can produce sales of $100,000 per year with it. Maintenance costs will be $5,000 per year. The income tax rate is 30% per annum. The company dividend is $6 this year and expected to grow at 3% per year. Currently the stock price is $50. Calculate NPV of this car.

You are given the following Information for Watson Power Co. Assume the company’s tax rate Is 30 percent. 6,000 6.1 percent coupon bonds outstanding, $1,000 par value, 15 years to maturity, selling for 104 percent of par; the bonds make semiannual payments. Debt: Common 330,000 shares outstanding, selling for $51 per share, the beta Is 1.07 stock: Preferred 11,000 shares of 4 percent preferred stock outstanding, currently selling for $71 per share. stock: Market 6 percent market risk premlum and 4.1 percent risk-free rate. What is the company’s WACC? (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC Quad Enterprises Is considering a new three-year expanslon project that requires an Initial fixed asset Investment of $285 million. The fixed asset falls Into the three-year MACRS class. The project is estimated to generate $2130,000 In annual sales, with costs of $815,000. The project requires an initial Investment In net working capital of $350,000, and the fixed asset will have a market value of $235,000 at the end of the project. If the tax rate Is 34 percent, what Is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (MACRS schedule) (Enter your answers In dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be Indicated by a minus sign. Do not round Intermedlate calculations and round your final answers to 2 decimal places, e.g, 32.16.) Years Cash Flow Year O Year 1 Year 2 $ Year 3 $ If the required return is 11 percent, what Is the project’s NPV? (Enter your answer In dollars, not milllions of dollars, e.g. 1,234,567. Do not round Intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) NPV

Get college assignment help at uniessay writers A $6M investment is considered by an electric bike manufacturing company to add a new production line for its new product, electric skateboards. The company has commissioned an exploratory study of where to place the new production line and which type of equipment to use. There are three types of machines to choose from for the company to install on the new assembly line. The machines have zero salvage value at the end of 10-year planning horizon. The company must select at least two alternatives from (i) Loan, (ii) Common Stocks, (ii) Preferred Stocks, and (iv) Retained Earnings to obtain the required amount of capital for the investment. Each of these capital sources could provide $3M to support the project. The company is anticipating rapid product penetration and aggressive growth after addition of the new production line. The major question for this case study is to find out if the project is economically justified Part I:Cash Flow Construction Please follow this step to create the cash flow of the project and obtain its economic worth. Step 1: Choose the Capital Sources and Calculate WACC Based on the instruction provided to you, choose the appropriate options to form the capital for the investment, and the calculate WACC. Capital Sources Description Options Interest Rate = 8 %, Compounded Semi Annually Payback Method: Plan 3 Dividend $7, Price $100, Brokerage Fee = $1 Dividend = $5, Price = $100, Growth Rate = 4% 1 Loan Preferred Stock 2 3 Common Stock Retained Earning 4 Step 2: Calculate MARR Set MARR equal to rounded WACC (Round up WACC) 3% for your further analysis. Step 3: Choose the type of Machine and Calculate Before Tax Cash Flow (BTCF) Choose one type of Machine from the following table and calculate the BTCF Options 3 1 2 No. of Machines 20 20 20 $200,000 $100 $170 $250,000 $120 $190 $300,000 $150 $210 First Cost Operating Cost/Hr. Revenue/Hr. Hr./Year 1700 Hrs. 1800 Hrs. 1500 Hrs. Useful Life 10 Years 10 Years 10 Years 7 Years Depreciation (MACRS) 5 Years 7 Years Step 4: Economic worth calculation Find (i) PW, (ii) DPBP, (ii) IRR based on BTCF. Step 5: Tax rate Choose one set of the tax rates from the following table and find the overall tax rate for your project Options Federal Tax Rate State Tax Rate 8% 20% 1 7% 2 21% 3 9% 19% Step 6: After tax calculation construct the After-Tax Cash Flow (ATCF) and then calculate the corresponding (i) PW, (ii) AW, and (ii) IRR for the ATCF. Step 7: Choose Inflation and calculate ATCF Choose the appropriate value for the Inflation rate from the following table and calculate (i) PW, (ii) ERR and (iii) IRR based on ATCF. Options Inflation Rate 1 4% 5% 3 6%

7) Galt Industries has 50 million shares outstanding and a market capitalization of $1.25 billion. It also has $750 million in debt outstanding. Galt Industries has decided to delever the firm by issuing new equity and completely repaying all the outstanding debt. Assume perfect capital markets. Suppose you are a shareholder in Galt industries holding 600 shares, and you disagree with this decision to delever the firm. You can undo the effect of this decision by A) Borrowing $6000 and buying 240 shares of stock B) Selling 240 shares of stock and lending $6000 C) Borrowing $9000 and buying 360 shares of stock D) Selling 360 shares of stock and lending $9000

Question I (65% ) The most recent financial statements for Milford Corporation follow. Salos for 2019 are projected to increase by 15 percent. Assets, costs, and current liabilities are proportional to sales. Long-term debt and equity are not. The company maintains a constant dividend payout ratio. The firm is operating at full capacity and no new debt or equity is issued. 2018 Income Statement Balance Sheet as at 31 December 2018 Sales €7,900 Current assets 3,900 Current liabilities €2,100 Costs 5,500 Fixed assets 8,600 Long-term debt 3,700 Taxable income €2,400 6,700 Equity Taxes (25%) 600 12,500 Total assets 12,500 Total liabilities

MUtern Exercise 1 London Spot FOREX: GBP/EUR 1.1550-1.1560 GBP/USD- 1.5433-1.5437 A French exporting company wants to convert 100.000 USD into the domestic currency, what exchange rate is needed?

grade EXAM QUESTIONS: The most recent financial statements for Milford Corporation follow. Sales for 2019 are projected to increase by 15 percent. Assets, costs, and current liabilities are Question I (65% ) and equity are not. The company maintains a constant dividend payout ratio. The firm is operating at full capacity and no new debt or proportional to sales. Long-term debt equity is issued. Balance Sheet as at 31 December 2018 2018 Income Statement €7,900 Sales € 2,100 €3,900 Current liabilities Current assets 5,500 Costs 3,700 8,600 Long-term debt Fixed assets Taxable income 2,400 Equity 6,700 Taxes (25%) 600 Total assets 12,500 Total liabilities

Question II (35% ) Here are some important figures from the budget of Scarlet Inc., for the second quarter of 2019 April May June Credit sales 336,900 €314,500 378,400 Credit purchases 134,100 152,400 180,300 Cash disbursements Wages, taxes, and expenses 48,910 62,300 67,600 Interest 11,320 11,320 11,320 Equipment purchases 79,900 122,000 0 Additional information: The company predicts that 5 percent of its credit sales will never be collected, 35 percent of its sales will be collected in the month of the sale, and the remaining 60 percent will be collected in the following month. Credit purchases will be paid in the month following the purchase. In March 2019, credit sales were 211,500 and credit purchases were 145,200. Cash balance at 1 April 2019 is €121,000. Instructions: (1) Using all the above information, complete the following cash budget. (25% ) June Маy April Beginning cash balance Cash receipts Cash collections from credit sales Total cash available Cash disbursements Purchases Wages, taxes, and expenses Interest Equipment purchases Total cash disbursements Ending cash balance (2) Explain the role of cash budget. (10%)

15) John Galt is a mutual fund manager at Atlas Asset Management. He can generate an alpha of 2% a year up to $500 million of invested capital. After that amount, his skills are spread too thin, so he cannot add value and his alpha is zero for all investments over $500 million. Atlas Asset Management charges a fee of 0.80% on the total amount of money under management. Assume that there are always investors looking for positive alpha investments and no investor would invest in a fund with a negative alpha. Assume that the fund is in equilibrium, meaning that no investor either takes out money or wishes to invest new money into the fund. The alpha that investors in Galt’s fund expect to receive is closest to A) -.80% B) 0.0% C) 0.80% D) 1.8%

Dinklage Corp. has 5 millon shares of common stock outstanding. The current share price Is $77, and the book value per share Is $8. The company also has two bond Issues outstanding. The first bond Issue has a face value of $60 million, a coupon rate of 6 percent, and sells for 97 percent of par. The second Issue has a face value of $30 million, a coupon rate of 7 percent, and sells for 105 percent of par. The first Issue matures In 21 years, the second in 4 years. Suppose the most recent dividend was $4.90 and the dividend growth rate is 6 percent Assume that the overall cost of debt is the welghted average of that implied by the two outstanding debt issues. Both bonds make semlannual payments. The tax rate is 40 percent. What is the company’s WACC? (Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal pleces, e.g.. 32.16.) WACC

2. hoping for when you: Draw a payoff diagram for the following portfolio and briefly describe what you are Simultaneously buy one call with an exercise price of $100, sell two calls with an exercise price of $110, and buy one call with an exercise price of $120. The buyer of this portfolio profits if the stock price doesn’t move very much, and hence, this is a bet on low variability.

8 You happen to notice an arbitrage opportunity. The current stock price of Intrawest is $22 per share and the one-year risk-free interest rate is 10%. A one year put on Intrawest with a strike price of $20 sells for $6, while the identical call sells for $9. Explain what you must do to exploit this arbitrage opportunity.

(3) Calculate the amount of external financing needed to support the 15 percent growth rate in sales. (5%) (4) Calculate the internal growth rate. (10 % ) (5) Calculate the sustainable growth rate. (10 % ) (6) Discuss the role of financial planning. (10 % ) Busin Scho eu June May April Beginning cash balance Cash receipts: Cash collections from credit sales Total cash available Cash disbursements: Purchases Wages, taxes, and expenses Interest Equipment purchases Total cash disbursements Ending cash balance (2) Explain the role of cash budget. (10%) (3) Calculate the amount of external financing needed to support the 15 percent growth rate in sales. (5%) (4) Calculate the internal growth rate. (10 % ) (5) Calculate the sustainable growth rate. (10 % ) (6) Discuss the role of financial planning. (10 % )

The post Question: For Step 1 Use Option 1, PayBack Plan Method Option 2 For Step 3 Use Option 2 For Step 5 Use Option 2 For Step 7 Use Option 1 Please Use Excel And Demonstrate The Excel Formulas For The Same. appeared first on uniessay writers.

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November 3, 2019