Explain each of the major financing mechanisms found in financial systems. (typed)
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leverage relates to the amount of fixed costs the company has; when might the company be better off with high fixed costs? When would they be better of with variable costs?
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Brian Cliff is evaluating two mutually exclusive projects
(expected cash flows shown below). The firm's cost of
capital is 12.25
percent.
Year
Project
A
Project B
0
(600)
(600)
1
200
400
2
310
260
3
400
100
NPV?
_____
_____
IRR?
_____
_____
Calculate the NPVs and IRRs for Projects A and B.
Project A's NPV is $107.02, and Project B's NPV is $33.40.
Project A's NPV is greater than Project B's NPV by 76.04.
Project A's NPV is greater than Project B's NPV by 72.43.
Project A's IRR is 21.27 percent, and Project B's IRR is 18.70 percent.
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The following table lists balance of payment current accounts for Country A. Current Accounts 1. Exports of goods, services, and income $172,578 2. Goods, adjusted, excluding military $96,743 3. Services 48,889 4. Income receipts on U.S. assets abroad 33,921 5. Imports of goods, services, and income −152,536 6. Goods, adjusted, excluding military −85,707 7. Services −33,289 8. Income payments on foreign assets in the United States −36,740 9. Unilateral transfers, net −9,581
a. | What is Country A’s total current accounts? |
Total current accounts | $ |
b. | What is Country A’s balance on goods? |
Balance on goods | $ |
c. | What is Country A’s balance on services? |
Balance on services | $ |
d. | What is Country A’s balance on investment income? (Negative amount should be indicated by a minus sign.) |
Balance on investment income | $ |
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Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2018, is shown here (millions of dollars):
Cash | $ 3.5 | Accounts payable | $ 9.0 | |
Receivables | 26.0 | Notes payable | 18.0 | |
Inventories | 58.0 | Line of credit | 0 | |
Total current assets | $ 87.5 | Accruals | 8.5 | |
Net fixed assets | 35.0 | Total current liabilities | $ 35.5 | |
Mortgage loan | 6.0 | |||
Common stock | 15.0 | |||
Retained earnings | 66.0 | |||
Total assets | $122.5 | Total liabilities and equity | $122.5 |
Sales for 2018 were $275 million and net income for the year was $8.25 million, so the firm's profit margin was 3.0%. Upton paid dividends of $3.3 million to common stockholders, so its payout ratio was 40%. Its tax rate was 40%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2019. Do not round intermediate calculations.
Upton Computers Pro Forma Balance Sheet December 31, 2019 (Millions of Dollars) |
||
Cash | $ | |
Receivables | $ | |
Inventories | $ | |
Total current assets | $ | |
Net fixed assets | $ | |
Total assets | $ | |
Accounts payable | $ | |
Notes payable | $ | |
Line of credit | $ | |
Accruals | $ | |
Total current liabilities | $ | |
Mortgage loan | $ | |
Common stock | $ | |
Retained earnings | $ | |
Total liabilities and equity | $ |
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Construct a portfolio from the following assets:
- SPY (SPDR S&P 500 ETF Trust)
- BND (Vanguard Total Bond Market ETF)
- IYR (iShares US Real Estate ETF)
- SHV (iShares Short Treasury Bond ETF)
- DBC (Invesco DB Commodity Tracking)
With an investment period of 01/01/2014 to 01/01/2019, the goal is to achieve a target return of 4% with minimum volatility. Estimate expected returns and volatility from the 5-year time series. Assume a portfolio of $100 million, allocating no less than $10 million and no more than $50 million to each asset. You should compute the five weights for the five asset classes, as well as the expected return and volatility of the portfolio (annualized).
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Exercise 21-2 Preparing flexible budgets LO P1
Tempo Company's fixed budget (based on sales of 14,000 units)
for the first quarter of calendar year 2017 reveals the
following.
Fixed Budget | ||||||||
Sales (14,000 units) | $ | 2,856,000 | ||||||
Cost of goods sold | ||||||||
Direct materials | $ | 350,000 | ||||||
Direct labor | 616,000 | |||||||
Production supplies | 364,000 | |||||||
Plant manager salary | 150,000 | 1,480,000 | ||||||
Gross profit | 1,376,000 | |||||||
Selling expenses | ||||||||
Sales commissions | 112,000 | |||||||
Packaging | 210,000 | |||||||
Advertising | 100,000 | 422,000 | ||||||
Administrative expenses | ||||||||
Administrative salaries | 200,000 | |||||||
Depreciation—office equip. | 170,000 | |||||||
Insurance | 140,000 | |||||||
Office rent | 150,000 | 660,000 | ||||||
Income from operations | $ | 294,000 | ||||||
Complete the following flexible budgets for sales volumes of
12,000, 14,000, and 16,000 units. (Round cost per unit to 2
decimal places.)
Tempo Company
Flexible Budgets
For Quarter Ended March 31, 2017
-----FlexIble Budget----- -------Flexible Budget at------
Variable Amount per Unit Total Fixe Cost 12,000 units 14,000 units 16,000 units
1)
2) Variable Costs:
3)
4)
5)
7)
8)
9)
10)
11) Fixed Costs
12)
13)
14)
15)
16)
17)
18)
19)
20)
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2. You estimate that by the time you retire in 35 years, you will have accumulated savings of $3.8 million.
a. If the interest rate is 10.0% and you live 15 years after retirement, what annual level of expenditure will those savings support?
b. Unfortunately, inflation will eat into the value of your retirement income. Assume a 4% inflation rate and work out a spending program for your $3.8 million in retirement savings that will allow you to increase your expenditure in line with inflation. What will be your expenditure amount in real terms for each year of your retirement?
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Describe and discuss the importance of profitability, solvency and liquidity for the financial analysis of a business.
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Provide measurements indicators for profitability, solvency and liquidity as important financial analysis a business focused on.
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On June 22, Ali joined a gulf club. His bank will
automatically deduct BD 150 from his checking
account at the end of each month, and deposit it into his gulf club
account, where it will earn
3% annual interest. The account comes to term on October 18. Find
the following:
a. Find the future value of Ali’s gulf club account. ( 3 Marks
)
b. Find Ali’s total contribution to the account. (1 Mark)
c. Find the total interest earned on the account. (1 Mark)
3. How long will it take BD 7000 to accumulate to BD 18,000 if the
interest is at 5% compounded
semi- annually?
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Show all calculation please.
4) Crackle and Pop Telephone Company is considering an upgrade to their current call-waiting equipment. Their existing hardware was purchased 3 years ago for $150,000, has been depreciated straight line over a 5-year useful life (so, two years of depreciable life are remaining), and has an estimated current market value of $70,000. Bob Crackle (owner of the firm) estimates that the current equipment could probably last 5 more years (from today) at which time its market value will equal $0. A replacement piece of equipment costs $300,000, and can be depreciated straight line over 3 years. This new equipment will last 5 years, at which time its market (scrap) value will equal $10,000. Due to enhanced features, acquiring this new equipment would lead to a $10,000 revenue increase in the first year (t=1). These revenues would grow by $4,000 per year for the subsequent four years (t = 2, 3, 4, 5). (So, revenues will be $10,000, $14,000, 18,000….. higher.) In addition, due to its higher quality construction, it would lead to a decrease in operating expenses of $7,000 per year at times t =1,2,3,4, and 5. (So, expenses are lower by $7,000, $7,000, $7,000….) Due to the increase in revenues, accounts receivable will likely rise. Mr. Crackle estimate that AR will go from the exiting level of $12,000 to $18,000 at time 1, $20,000 at times 2, 3, and 4, and back to $12,000 at time 5. If the required return for this type of project is 12% and the tax rate is 40%, should the replacement piece of equipment be acquired? Be sure to provide quantitative justification for your answe
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On June 22, Ali joined a gulf club. His bank will
automatically deduct BD 150 from his checking
account at the end of each month, and deposit it into his gulf club
account, where it will earn
3% annual interest. The account comes to term on October 18. Find
the following:
a. Find the future value of Ali’s gulf club account. ( 3 Marks
)
b. Find Ali’s total contribution to the account. (1 Mark)
c. Find the total interest earned on the account. (1 Mark)
3. How long will it take BD 7000 to accumulate to BD 18,000 if the
interest is at 5% compounded
semi- annually?
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