Use the following information to develop a spreadsheet model that will calculate the free cash flows and the value of the equity for the company. Cost of capital 12% Most recent year’s sales $1000 Nonoperating assets $100 Interest-bearing debt $250 Operating profit margin 12% Working capital/sales 35% Fixed assets/sales 20% Noninterest-bearing Current liabilities/sales 10% Tax rate 40% Forecasted sales growth Years 1␣2 12% Years 3␣5 8% 6␣N 4%

The bonds issued by Jensen & Son have a 6.4% coupon rate, payable quarterly. The bonds, which mature in 18 years, have a $10,000 par value and they currently sell for $13,242.55 per bond. What is the yield to maturity of these bonds?

A project is expected to generate cash flow from assets equal to $250,000 at the end of the year. The cash flows are expected to grow at 4% for the next 20 years. At the end of the 20 years, the project will no longer be viable, but the company will be able to sell off related equipment at an after tax salvage value of $1,000,000. The cost of capital for this project is 8%.

The company is considering selling off this project. If the debt associated with this project is $2,000,000, what is the equity value of the project?

You have just taken a job at a manufacturing company and have discovered that they use one predetermined overhead rate to apply manufacturing overhead costs. You would like to introduce them to activity based costing and explain to them why this costing method can be used and why it is helpful.

Compose a short email - 2 to 3 short paragraphs because the president it too busy to read anything longer than that - proposing an activity based costing system and what that might mean for product costs and management decisions. You could give a brief example if you feel that is necessary for your explanation to the president.

You have just taken a job at a manufacturing company and have discovered that they use absorption costing to analyze product costs and subsequent cost-volume-profit decisions. You would like to introduce them to variable costing and explain to them why this costing method can be used and why it is helpful.

Purchasing Power Parity A computer costs $460 in the United States. The same model costs 725 euros in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar? Do not round intermediate calculations. Round your answer to two decimal places.

An analyst determines that three stocks have the following characteristics: Stock Beta, Forecast return X 1.0 10% Y 1.6 16 % Z 2.0 14 % If the risk-free rate is 4% and the expected return on the market is 10%, which stock is: Overvalued? ....... Undervalued?...... Properly valued? ....... (Show your work)

Please answer it correctly. Here is a short problems. Please solve all problems correctly. Make sure the answers are correct. I would really appreciate your effort. Thanks.

1). The Oriole Products Co. currently has debt with a market value of $275 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,429.26 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $14 per share. The preferred shares pay an annual dividend of $1.20. Oriole also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 4 percent per year forever. If Oriole is subject to a 40 percent marginal tax rate, then what is the firm’s weighted average cost of capital?

Excel Template
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Calculate the weights for debt, common equity, and preferred equity. (Round intermediate calculations and final answers to 4 decimal places, e.g. 1.2514.)

Debt _________?

Preferred Equity ________?

Common Equity ________?

Calculate the cost of debt. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

Cost of debt _______%

Calculate the cost of preferred equity. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

Cost of preferred equity _________%

Calculate the cost of common equity. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 0 decimal places, e.g. 15%.)

Cost of common equity_________%

What is the firm’s weighted average cost of capital? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

WACC______%

Distinguish between the spot and forward markets, for foreign currencies. Why is it necessary to have two markets rather than one?-

What are the principal factors affecting the value of any particular foreign currency in the international exchange markets?-

Exactly what is meant by the phrase INTEREST RATE PARITY?

Who are the market participants in the foreign exchange markets?-

Retlaw Corporation (RC) manufactures time series photographic equipment. It is currently at its target debt/equity ratio of 0.74. It’s considering building a new $48 million manufacturing facility. This new plant is expected to generate after-tax cash flows of $8.4 million in perpetuity. The company raises all equity from outside financing. There are three financing options: 1. A new issue of common stock: The flotation costs of the new common stock would be 7 percent of the amount raised. The required return on the company’s new equity is 14 percent. 2. A new issue of 20-year bonds: The flotation costs of the new bonds would be 4 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 8.0 percent, they will sell at par. 3. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, it has no flotation costs, and the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of 0.135. (Assume there is no difference between the pre-tax and after-tax accounts payable cost.) What is the NPV of the new plant? Assume that RC has a 45 percent tax rate

Mass Waste Disposal Inc. is considering the construction of a facility at a cost of $20 million. The project will produce positive cash flows of $7 million per year for the next 4 years but the 5th and final year will have a net negative cash flow of $5 million. If the reinvestment rate is 10% and the cost of capital is 9%, the MIRR of this project is ________ and the project should be ________. (accepted/rejected) Show all work and explain for credit.

After completing its capital spending for the year, Carlson Manufacturing has $2,300 extra cash. Carlson’s managers must choose between investing the cash in Treasury bonds that yield 3 percent or paying the cash out to investors who would invest in the bonds themselves. a. If the corporate tax rate is 23 percent, what personal tax rate would make the investors equally willing to receive the dividend or to let Carlson invest the money? Suppose the only investment choice is a preferred stock that yields 7 percent. The corporate dividend exclusion of 50 percent applies. What personal tax rate will make the stockholders indifferent to the outcome of Carlson’s dividend decision?