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Get college assignment help at uniessay writers You have been offered a job with an unusual bonus structure. If you stay with the company,you will get an extra $20,000 every five years, starting five years from now. What is the present value of this bonus if you plan to work for the company for 20 years and the annual discount rate is 6%?

Wk10 Q11Finding the WACC Titan Mining Corporation has 9 million shares of common stock outstanding, 250,000 shares of 6 percent preferred stock outstanding, and 105,000 7.5 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $34 per share and has a beta of 1.25, the preferred stock currently sells for $91 per share, and the bonds have 15 years to maturity and sell for 93 percent of par. The market risk premium is 8.5 percent, T-bills are yielding 5 percent, and Titan Mining’s tax rate is 35 percent. Required: (a) The firm’s market value capital structure is as follows: D/V is___, E/V is____, and P/V ____ is. (Round your answers to 4 decimal places. (e.g., 32.1616)) (b) If Titan Mining is evaluating a new investment project that has the same risk as the firm’s typical project, the firm should use a rate of ___percent to discount the project’s cash flows

Chapter 5 Calculating IRR 6. Compute the internal rate of return for the cash flows of the following projects. Cash Flows Year Project A Project B 0 -3,500 -2,300 1 1,800 900 2 2,400 1,600 3 1,900 1,400 8. Calculating Profitability Index; Suppose the following two independent investment opportunities are available to Green plain, Inc. The appropriate discount rate is 10 percent. Year Project Alpha Project Beta 0 -1,500 -2,500 1 800 500 2 900 1,900 3 700 2,100 a. Compute the profitability index for each of the two projects. b. Which project(s) should Green plain accept based on the profitability index rule? 11. NPV versus IRR Consider the following cash flow on two mutually exclusive projects for the Bahamas Recreation Corporation (BRC). Both projects require an annual return of 14 percent. Year Deepwater Fishing New Submarine Ride 0 -750,000 -2,100,000 1 310,000 1,200,000 2 430,000 760,000 3 330,000 850,000 As a financial analyst for BRC, you are asked the following questions: a. If your decision rule is accept the project with the greater IRR, which project should you choose? b. Because you are fully aware of the IRR rule’s scale problem, you calculate the incremental IRR for the cash flows. Based on your computation, which project should you choose? c. To be prudent you compute the NPV for both projects. Which project should you choose? Is it consistent with the incremental IRR rule? 21. Payback and NPV An investment under consideration has a payback of sex years and a cost of $574,000. If the required return is 12 percent, what is the worst-case NPV? Explain. Assume cash flows are conventional 25. NPV and IRR Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows: Year Cash flows 0 -750,000 1 205,000 2 265,000 3 346,000 4 220,000 All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent. If Anderson uses an 11 percent required return on this project, what are the NPV and IRR of the project? Is the IRR you calculated the MIRR of the project? Why or why not? Chapter 6 3. Calculating Project NPV Down Under Boomerang, Inc. is considering a new three year expansion project that requires an initial fixed asset investment of $2.4 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $2,050,000 in annual sales, which costs of $950,000. The tax rate is 35 percent and the required return is 12 percent. What is the project’s NPV? 4. Calculating Project Cash Flow from Assets. In the previous problem, suppose the project requires an initial investment in net working capital of $285,000 and the fixed asset will have a market value of $225,000 at end of the project. What is the project’s year 0 net cash flow? Year 1? Year 2? Year 3? What is the new NPV? 14. Comparing Mutually Exclusive Projects Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,400,000 and will last for sex years. Variable costs are 35 percent sales, and fixed costs are $180,000 per year. Machine B costs $5,400,000 and will last for nine years. The sales for each machine will be $10.5 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis. If the company plans to replace the machine when it wears out on perpetual basis, which machine should you choose? 21. Calculating NPV and IRR for a Replacement. A firm is considering an investment in a new machine with a price of $12 million to replace its existing machine. The current machine has a book value of $4 million and a market value of $3 million. The new machine is expected to have a four-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine it expects to save $4.5 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $ 250,000 in net working capital. The required return on the investment is 10 percent, and the tax rate is 39 percent. What are the NPV and IRR of the decision to replace the old machine? 34. Benson Enterprises is evaluating alternative uses for a three-story manufacturing and warehousing building that it has purchased for $850,000. The company can continue to rent the building to the present occupants for $36,000 per year. The present occupants have indicated an interest in staying in the building for at least another 15 years. Alternatively, the company could modify the existing structure to use for its own manufacturing and warehousing needs. Benson’s production engineer feels the building could be adapted to handle one of two new product lines. The cost and revenue data for the two product alternatives are as follows. Product A Product B Initial cash outlay for building modifications 45,000 65,000 Initial cash outlay for equipment 165,000 205,000 Annual pretax cash revenues (generated for 15 yrs) 135,000 165,000 Annual pretax expenditures (generated for 15yrs) 60,000 75,000 The building will be used for only 15 years for either product A or product B. After 15 years the building will be too small for efficient production of either product line. At that time, Benson plans to rent the building to firms similar to the current occupants. To rent the building again, Benson will need to restore the building to its present layout. The estimated cash cost of restoring the building if product A has been undertaken is $29,000. If product B has been manufactured, the cash cost will be $35,000. These cash costs can be deducted for tax purposes in the year the expenditures occur. Benson will depreciate the original building shell (purchased for $850,000) over a 30-year life to zero, regardless of which alternative it chooses. The building modifications and equipment purchases for either product are estimated to have a 15-year life. They will be depreciated by the straight-line method. The firm’s tax rate is 34 percent, and its required rate of return on such investments is 12 percent. For simplicity, assume all cash flows occur at the end of the year. The initial outlays for modifications and equipment will occur today (year 0), and the restoration outlays will occur at the end of year 15. Benson has other profitable ongoing operations that are sufficient to cover any losses. Which use of the building would you recommend to management?

2. (TCO 2) Using the table “Computer Sales Time Series”, calculate the forecast for computer sales (in thousands) for Week 13 using a six day moving average. Computer Sales Time Series Week Sales (in thousands) 1 2 2 4 3 5 4 3 5 6 6 7 7 5 8 8 9 4 10 2 11 3 12 5 (Points: 4) 3.50 4.50 5.00 5.50

Define risk as it is used in a capital budgeting analysis context.

MINI CASE The balance sheet that follows indicates the capital structure for Nealon Inc. Flotation costs are (a) 15 percent of market value for a new bond issue, and (b) $2.01 per share for preferred stock. The dividends for common stock were $2.50 last year and are projected to have an annual growth rate of 6 percent. The firm is in a 34 percent tax bracket. What is the weighted average cost of capital if the firm’s finances are in the following proportions? TYPE OF FINANCING % of Future Financing Bonds (8%, $1,000 par, 16-yr Maturity) 38% Preferred Stock (5,000 shares outstanding, $50 par, $1.50 dividend) 15% Common Equity 47% —————————————————- Total 100% a.) Market prices are $1,035 for bonds, $19 for preferred stock, and $35 for common stock. There will be sufficient internal common equity funding (i.e., retained earnings) available such that the firm does not plan to issue new common stock. Calculate the firm’s weighted average cost of capital. b.) In part (a) we assumed that Nealon would have sufficient retained earnings such that it would not need to sell additional common stock to finance its new investments. Consider the situation now, when Nealon’s retained earnings anticipated for the coming year are expected to fall short of the equity requirement of 47 percent of new capital raised. Consequently, the firm foresees the possibility that new common shares will have to be issued. To facilitate the sale of shares, Nealon’s investment banker has advised management that they should expect a price discount of approximately 7 percent, or $2.45 per share. Under these terms, the new shares should provide net proceeds of about $32.55. What is Nealon’s cost of equity capital when new shares are sold, and what is the weighted average cost of the added funds involved in the issuance of new shares? Please show your work in the formulas on an excel spreadsheet.

Why is maximization of the current value per share a more appropriate financial **management** goal than profit maximization? (Points: 3) Because by maximizing the current stock value you also maximize the company’s profit for the year. Because this criterion is non-ambiguous. Because financial managers always act in the **best** interest of shareholders. B and C 2. (TCO 1) Market values reflect which of the following: (Points: 3) The amount someone is willing to pay today for an asset. The value of the asset based on generally-accepted accounting principles. The asset’s historical cost. A and B only 3. For this question, use the information for Sports Baseballs, Inc. Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of $2.7 million during the last year. Expenses were as follows: Cost of goods sold…………………………. $1.2 million Administrative expenses…………………… $250,000 Marketing and selling expenses…………… $175,000 Depreciation…………………………………. $500,000 Interest expense……………………………. $200,000 Dividends paid………………………………. $150,000 (TCO 1) Suppose that Sports Baseball has 30,000 shares of stock. What is the dividends per share figure? (Points: 3) 5.0 8.75 5.25 8.50 4. For this question, use the information for Sports Baseballs, Inc. Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of $2.7 million during the last year. Expenses were as follows: Cost of goods sold…………………………. $1.2 million Administrative expenses…………………… $250,000 Marketing and selling expenses…………… $175,000 Depreciation…………………………………. $500,000 Interest expense……………………………. $200,000 Dividends paid………………………………. $150,000 (TCO 1) Assuming a tax rate of 30%, what is the EBIT and taxable income for the year? (Points: 3) $1,000,000 and $800,000 respectively $575,000 and $375,000 respectively $565,000 and $365,000 respectively $425,000 and $225,000 respectively None of the above 5. For this question, use the information for Sports Baseballs, Inc. Sports Baseballs, Inc. is a corporation that manufacturers and sells baseballs across several states in the Southeast. It had sales of $2.7 million during the last year. Expenses were as follows: Cost of goods sold…………………………. $1.2 million Administrative expenses…………………… $250,000 Marketing and selling expenses…………… $175,000 Depreciation…………………………………. $500,000 Interest expense……………………………. $200,000 Dividends paid………………………………. $150,000 (TCO 1) Select all items that will be included in Sports Baseballs, Inc. Balance Sheet. For this exercise you will be choosing more than one option for your answer: (Points: 3) Accounts receivable Cost of goods sold Net **working** **capital** Interest expense Taxes Current assets Notes payable Cash on hand Consulting revenues 6. (TCO 1) Which one of the following **activities** **best** **exemplify** **working** **capital** **management**. For this exercise you will be choosing more than one option for your answer: (Points: 6) Identify three good investment opportunities for the firm. Obtain a short-term loan to purchase materials. Assess the level of inventory to be kept on hand. Sale long-term bonds to raise funds for a new machine. Determine the return of a potential project. Calculate the cash flows for a project. Manage payments to suppliers. 7. (TCO 1) Match the following terms with the examples as appropriate: (Points: 4) Matching: Answer Potential Matches: : Insider trading 1: McDonald’s work to redesign packaging items with recyclable materials. 2: Microsoft’s monopolistic behavior. 3: Martha Stewart’s sale of ImClone stock as result of information provided by the company’s CEO before an announcement was made public that significantly decrease ImClone’s stock price. 4: Parmalat’s deliberate fraudulent accounting practices. 5: established an oversight board responsible for improving auditing standards within companies. : Social responsibility : Sarbanes-Oxley Act : Fraud : Antitrust case 8. (TCO 1) Which incentives do managers have to act in the stockholder’s interest? Name two and explain each in one or two sentences. (Points: 5)

5. Suppose that you are the manager and the sole owner of a highly leveraged company. All the debt will mature in one year. If at that time the value of the company is greater than the face value of the debt, you will pay o¤ the debt. If the value of the company is less than the face value of the debt, you will declare bankruptcy and the debtholders will own the company. (a) Express your position as an option on the value of the company (b) Express the position of the debtholders in terms of options on the value of the company

nominal rate of interest on six-month, risk-free U.S. securities is 6%. In the spot market, $1 U.S. = 104.84 Japanese yen. In the six-month forward market, $1 U.S. = 104.84

the ogden corporation makes an investment of 25000,which yields the following cash inflows: year project 1 5000 2 5000 3 8000 4 9000 5 10000 a. what is the net present value with a 9% discount rate? b.what is the internal rate of return? c. what is the pl index d.would you make the same decision in parts a ,b and c?

Get college assignment help at uniessay writers acort induatries owns assets that willhave an 80% probability of having a market value of $50 million in one year. There is a 20% chance that the assests will be worth only 20 million the current risk free rate is 5% and Acort’s assests have a host of capital of 10%

the management of Kunkel company is considering the purchase of a $40,000 machine that would reduce operating costs by $7,000 per year. at the end of hte machine’s eight year useful life, it will have a zero scrap value. the company’s required rate of return is 12%. determine the net present value of the investment of the machine.

You have been offered a job with an unusual bonus structure. If you stay with the company,you will get an extra $20,000 every five years, starting five years from now. What is the present value of this bonus if you plan to work for the company for 20 years and the annual discount rate is 6%?

The price of a stock is $40: Diagram and explain effects of call options and put options The price of a stock is $40. The price of a one year European put option on the stock with a strike price of $30 is quotes as $7 and the price of a one year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an investor shorts 100 call options. Draw a diagram illustrating how the investor’s profit or loss varies with stock price over the next year. How does your answer change if the investor buys 200 call options?

The Housekeeping Service department of Ruger Clinic, a multispecialty practice in Toledo, Ohio, had $100,000 in direct costs in 2007. These costs must be allocated to Ruger’s three revenue-producing patient services departments using the direct method. Two cost drivers are under consideration: patient services revenue and hours of housekeeping services used. The patient services departments generated $5 million in total revenues in 2007, and to support these clinical activities, they used 5,000 hours of housekeeping services. 1. What is the value of the cost pool? 2. What is the allocation rate if: a. Patient services revenue is used as the cost driver? b. Hours of housekeeping services is used as the cost driver? 3. What is a cost-volume-profit (CVP) analysis and why is it useful to health services managers? 4. Compare and contrast the following three methods of developing capitation rates: fee-for-service approach; cost approach; and demographic approach. 5. What are the advantages and disadvantages of conventional budgeting versus zero-based budgeting?

Can you open the attached excel file? If not see question below and return in excel format. Float and Weighted Average Delay Your neibour goes to the post office once a month and picks up two checks, one for $17,000 and one for $6,000. The larger check takes four days to clear after it is deposited; the smaller one takes five days. a) What is the total float for the month? b) What is the average daily foat? c) What are the averege daily receipts and weighted average delay?

Stock A has a beta of 1.4 and a required return of 18.5%. The market return is 15%. What will be the required return on stock B, which has a beta of 1.9?

A project is expected to create operating cash flows of $23,000 a year for three years. The initial cost of the fixed assets is $47,000. These assets will be worthless at the end of the project. An additional $2,000 of net working capital will be required throughout the life of the project. What is the project’s net present value if the required rate of return is 12 percent?

An issue of preferred stock is paying an annual dividend of $5. The growth rate for the firm’s common stock is 14%. What is the prefrred stock price if the required rate of return is 11%. a. $45.45 b. $41.67 c. $35.71 d. none of these

A mutual funds had average daily assets of $3.0 billion in 2003. The fund sold $600 million worth of stock and purchased $700 million worth of stock during the year. The funds turnover ratio is ___.

Suppose you bought a 7 percent coupon bond one year ago for $1,040. The bond sells for $1,070 today. Required: (a) Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? (Do not include the dollar sign ($).) Total dollar return $ (b) What was your total nominal rate of return on this investment over the past year? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16)) Nominal rate of return percent (c) If the inflation rate last year was 4 percent, what was your total real rate of return on this investment? (Do not include the percent sign (%). Round your answer to 2 decimal places. (e.g., 32.16)) Real rate of return percent

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November 3, 2019