DataPoint Engineering is considering the purchase of a new piece of equipment for $280,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $180,000 in nondepreciable working capital. $45,000 of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12–11, Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Year | Amount | ||||
| 1 | $ | 197,000 | |||
| 2 | 168,000 | ||||
| 3 | 138,000 | ||||
| 4 | 123,000 | ||||
| 5 | 99,000 | ||||
| 6 | 89,000 | ||||
The tax rate is 25 percent. The cost of capital must be computed
based on the following:
| Cost (aftertax) |
Weights | ||||||||
| Debt | Kd | 6.30 | % | 30 | % | ||||
| Preferred stock | Kp | 10.40 | 10 | ||||||
| Common equity (retained earnings) | Ke | 15.00 | 60 | ||||||
a. Determine the annual depreciation schedule.
(Do not round intermediate calculations.
Round your depreciation base and annual depreciation answers to the
nearest whole dollar. Round your percentage depreciation answers to
3 decimal places.)
b. Determine the annual cash flow for each year.
Be sure to include the recovered working capital in Year 6.
(Do not round intermediate calculations
and round your answers to 2 decimal places.)
c. Determine the weighted average cost of capital.
(Do not round intermediate calculations.
Enter your answer as a percent rounded to 2
decimal places.)
d-1. Determine the net present value. (Use
the WACC from part c rounded to 2 decimal places as a percent as
the cost of capital (e.g., 12.34%). Do not round any other
intermediate calculations. Round your answer to 2 decimal
places.)
d-2. Should DataPoint purchase the new
equipment?
In: Finance
The Dilana Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 1.5 percent per period. The firm has current sales of 3,500 units per month at a price of $71 per unit. The new policy is expected to increase sales to 3,550 units at a price of $71 per unit. The cost per unit is constant at $38. What is the incremental cash inflow of the new policy?
In: Finance
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NEW PROJECT ANALYSIS You must evaluate a proposal to buy a new milling machine. The base price is $195,000, and shipping and installation costs would add another $13,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $87,750. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $6,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $50,000 per year. The marginal tax rate is 35%, and the WACC is 10%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine. How should the $5,000 spent last year be handled? A. Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. B. The cost of research is an incremental cash flow and should be included in the analysis. C. Only the tax effect of the research expenses should be included in the analysis. D. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay. E. Last year's expenditure is considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis. What is the initial investment outlay for the machine for
capital budgeting purposes, that is, what is the Year 0 project
cash flow? Round your answer to the nearest cent. What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Do not round your intermediate calculations. Year 1 $ Year 2 $ Year 3 $ Should the machine be purchased? |
In: Finance
YOU are the financial officer at an Austrian company that wants to BUY USD 1.000.000 of solar equipment from a U.S. producer. You need to pay for the equipment in 90 days.
You have the following information available:
Spot rate $1.125 / € 90-Day forward rate $1.09 (actual spot rate expected based on historical distribution: $1.05 - $1.12)
Interest rates: US $ 4% EUR 2%
FX options available:
Contract size $125.000
CALLS : June (3 months ahead), strike price $1.10/€, Premium € 2000 per contract
PUTS : June (3 months ahead), strike price $1.00/€
Premium €1000 per contract
Futures contracts available:
Contract size $250.000
June contract, FX rate $1.11
Margin to maintain 10%
Describe your foreign exchange exposure
Describe how you would use the following instruments to hedge, i.e. how would each instrument work? (more important to describe than to calculate): Forward Contract , Options Contract
Would you recommend that the company hedge this transaction? Which instrument (any of the instruments, not just the two above) would you recommend?
In: Finance
our company is considering a machine that will cost $ 6,582 at Time 0 and which can be sold after 3 years for $ 231 . To operate the machine, $ 418 must be invested at Time 0 in inventories; these funds will be recovered when the machine is retired at the end of Year 3. The machine will produce sales revenues of $ 981 /year for 3 years; variable operating costs (excluding depreciation) will be 56 percent of sales. Operating cash inflows will begin 1 year from today (at Time 1). The machine is in the 3-year MACRS class. The MACRS class has depreciation of 33% in year 1, 45% in year 2, 15% in year 3, and 7% in year 4. The company has a 30 percent tax rate, enough taxable income from other assets to enable it to get a tax refund from this project if the project's income is negative, and a 10 percent cost of capital. Inflation is zero. What are the terminal cash flows associated with ending this project?
Note, I want only the Year 3 terminal cash flows, not the year 3 operating cash flows. Show your answer to the nearest $.01 Do not use the $ symbol in your answer.
In: Finance
pension fund manager is considering three mutual funds. The
first is a stock fund, the second is a long-term government and
corporate bond fund, and the third is a T-bill money market fund
that yields a sure rate of 5.4%. The probability distributions of
the risky funds are:
| Expected Return | Standard Deviation | |
| Stock fund (S) | 15% | 44% |
| Bond fund (B) | 8% | 38% |
The correlation between the fund returns is 0.0684.
What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.)
In: Finance
Due to Coronavirus describe the financial impact of this Pandemic on the health care setting and how the Healths Care administrator will manage the budget with this new inquired.
In: Finance
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ROA (Return on assets) is a rate that measures the net income compared to the total assets. In other words, it shows how much the company is generating for each dollar invested. It is helpful to compare the results of the companies in the market. A company can be very lucrative, but not efficient. It can demand too much investment to obtain that profit.
The ROE (Return on equity) is very similar to ROA, but it includes the debt of the company. It is calculated by dividing the Net Income by the Stakeholder's equity. Since the stakeholder's equity is the total assets minus the debt of the company, this index shows the return compared to the own capital of the company
In: Finance
Stocks A and B have the following historical returns:
| Year | Stock A's returns | Stock B's returns |
|---|---|---|
| 2003 | −19.00% | −15.50% |
| 2004 | 34.00% | 23.80% |
| 2005 | 16.00% | 29.50% |
| 2006 | −0.50% | −6.60% |
| 2007 | 28.00% | 27.30% |
(a) Calculate the average rate of return and standard deviation of returns (as percents) for each stock during the 5-year period. (Round your standard deviations to two decimal places.)
stock A average rate of return %
standard deviation %
stock B average rate of return %
standard deviation %
(b) Assume that someone held a portfolio consisting of 50% of stock A and 50% of stock B and that the average annual realized returns and past volatility of each stock are unbiased estimators of their expected returns and future volatility. What is the portfolio's expected return and the volatility of next year's returns (as percents)? The correlation between the returns of the two stock is 90.83%. (Round your answers to two decimal places.)
expected return %
volatility %
In: Finance
At an output level of 18,500 units, you have calculated that the degree of operating leverage is 2.10. The operating cash flow is $44,000 in this case. Ignore the effect of taxes.
a. What are fixed costs? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
b. What will the operating cash flow be if output rises to 19,500 units? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
c. What will the operating cash flow be if output falls to 17,500 units? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
In: Finance
You have $5,995.14 in a brokerage account, and you plan to deposit an additional $6,000 at the end of every future year until your account totals $280,000. You expect to earn 13% annually on the account. How many years will it take to reach your goal? Round your answer to two decimal places at the end of the calculations.
___ years
In: Finance
3. You would like to retire at the end of 40 years with an annual pension of $1 million per year for 30 years.
a) How much would you have to deposit every year for the next 40 years to meet your goal? Assume you invest in the stock market at an average return of 12 percent per year (for the entire 70 years).
b) Suppose your annual deposits calculated in part (a) actually earned only 6 percent per year for 40 years, how much would you be able to withdraw every year for 30 years following retirement? Assume the 6 percent return is earned over the entire 70 years.
In: Finance
A binomial tree with one-month time steps is used to value an index option. The interest rate is 3% per annum and the dividend yield is 1% per annum. The volatility of the index is 16%. What is the probability of an up movement?
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0.4704 |
||
|
0.5065 |
||
|
0.5592 |
||
|
0.5833 |
In: Finance
xkl plans a new project that will generate 187000 of continious cash flow each year for 8 years and additionally 108000 at the end of the project . if the continiously compounded rate of interest is 4 % estimate the pressent value of the cash flows
answer is 1,358,677.35
but details on how i get there please no excel
In: Finance
Today’s price of Delta is $150 per share. You are neither bullish nor bearish about Delta, but you believe that the share price will not move by a lot in the near future. To implement your view, you decide to sell a straddle with one month until maturity. An option dealer provides you quotes on one-month Delta options. For a call option with a strike of $150, the dealer quotes you a price of $4.32. For a put option with a strike of $150, the dealer quotes you a price of $4.32. The c.c. risk-free rate is zero. What is the profit to the short straddle if Delta trades at $200 per share in one month?
There are 2 breakevens, what is the high and what is the low? (There should be two answers, one for high and one for low)
In: Finance