define zero-base budgeting and define target-base budgeting. Compare and contrast the two

JS company is considering an investment that requires an outlay of $100,000 today. Cash inflow from the investment are expected to be $10,000 for year 1-3, and $30,000 for year 4, 5, 6, 7, and 8. You require a 20% rate of return on this type of investment. Answer the following questions:

1. First draw the timeline and specify the cash outflow and inflow for each period.
2. Calculate the net present value.
3. Calculate the internal rate of return of this investment.
4. Calculate the payback periods
5. Shall the investment be undertaken?

Please report the answer in the following multiple choices.

Mortgage Analysis

You are planning to purchase a house that costs $4 80,000. You plan to put 20% down and borrow the remainder. Based on your credit score, you believe that you will pay 3.25% on a 30-year mortgage.

1. Use function “PMT” to calculate your mortgage payment.
2. Use function “PV” to calculate the loan amount given a payment of $1550 per month. What is the most that you can borrow?
3. Use function “RATE” to calculate the interest rate given a payment of $1550 and a loan amount of $384,000.
4. For each scenario, calculate the total interest that you will have paid once the mortgage is paid off. (There is not a function for this, enter the formula into the cell.)
5. For each scenario, calculate the total cost of the home purchase. (Down payment plus principle (loan amount) plus interest.)
6. Assume that you plan to pay an extra $300 per month on top of your mortgage payment, calculate how long it will take you to pay off the loan given the higher payment. (Use the data from #1). Calculate how much interest you will pay in total? Compare this to the value that you calculated for #1.

You want to determine whether you should only 10% down on your house. Because you are only putting 10% down, lenders require that you purchase private mortgage insurance (PMI). Assume that PMI is 1% of the mortgage amount. Assume that you will pay PMI for 8 years in total (the assumption is that you will have 20% equity at that time so PMI will no longer be needed).

7. Calculate your total monthly payment (mortgage payment plus PMI).
8. Calculate the total cost of financing your home purchase (interest plus PMI). (remember that you only pay PMI for 8 years)
9. Calculate the total cost of the home purchase. (Down payment plus principle (loan amount) plus interest plus PMI.)
10. Compare this to the costs associated with a 20% down payment (use data from #1).

Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the NPV of the PJX5?

a. The PJX5 will cost $1.58 million fully installed and has a 10 year life. It will be depreciated to a book value of $220,628.00 and sold for that amount in year 10.

b. The Engineering Department spent $14,803.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $20,051.00.

d. The PJX5 will reduce operating costs by $307,163.00 per year.

e. CSD’s marginal tax rate is 36.00%.

f. CSD is 58.00% equity-financed.

g. CSD’s 19.00-year, semi-annual pay, 5.41% coupon bond sells for $979.00.

h. CSD’s stock currently has a market value of $21.91 and Mr. Bensen believes the market estimates that dividends will grow at 2.33% forever. Next year’s dividend is projected to be $1.68.

AFN EQUATION

Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $4 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 5%, and the forecasted retention ratio is 35%. Use the AFN equation to forecast the additional funds Carlsbad will need for the coming year. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.

1. Assume that par value of the bond is $1,000. What were the last prices of the bonds in $$$ (listed in the Price column)? Show your work.
2. Assume that par value of the bond is $1,000. Calculate the annual coupon interest payments. Show your work.
3. Assume that par value of the bond is $1,000. Calculate the current yield of the bonds. Show your work.
4. Write an analysis of the bonds. In your analysis you should answer the following questions. Please explain your answer to each question.
   1. How much is the YTM listed in quotations is for the bonds? Explain the meaning of YTM?
   2. If you are going to buy a bond issued by V, which bond would you choose? Why?
   3. Are these bonds callable? If the bonds that you chose are callable (non-callable), will it change your decision to buy them?

The following spot and forward rates for the euro ($/euro) were reported:

a-1. Was the euro selling at a discount or premium in the forward market at 30 days.

• Premium

• Discount

a-2. Was the euro selling at a discount or premium in the forward market at 90 days.

• Discount

• Premium

a-3. Was the euro selling at a discount or premium in the forward market at 180 days.

• Discount

• Premium

b. What was the 30-day forward premium (or discount)? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

30-day forward premium/discount            %

c. What was the 180-day forward premium (or discount)? (Do not round intermediate calculations. Round the final answer to 2 decimal places. Negative answer should be indicated by a minus sign.)

180-day forward premium/discount            %

d. Suppose you executed a 90-day forward contract to exchange 210,000 euros into Canadian dollars. How many dollars would you get 90 days hence?

Dollars for euros francs            $

e. Assume a French bank entered into a 180-day forward contract with TD Bank to buy $210,000. How many euros will the French bank deliver in six months to get the Canadian dollars? (Do not round intermediate calculations. Round the final answer to the nearest whole dollar.)

Euros francs for dollars          €

Even if project X has a higher IRR than project Y, project Y may have a higher net present value than project X. True or False?

Parramore Corp has $19 million of sales, $2 million of inventories, $4 million of receivables, and $3 million of payables. Its cost of goods sold is 70% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
     days
2. 
   
3. If Parramore could lower its inventories and receivables by 11% each and increase its payables by 11%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.
     days
4. 
   
5. How much cash would be freed up, if Parramore could lower its inventories and receivables by 11% each and increase its payables by 11%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $
6. 
   
7. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 11% each and increase its payables by 11%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $

CURRENT ASSETS INVESTMENT POLICY

Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $3 million as a result of an asset expansion presently being undertaken. Fixed assets total $2 million, and the firm plans to maintain a 55% debt-to-assets ratio. Rentz's interest rate is currently 10% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 12% of total sales, and the federal-plus-state tax rate is 40%.

1. What is the expected return on equity under each current assets level? Round your answers to two decimal places.
   

   Restricted policy		%
   Moderate policy		%
   Relaxed policy		%

2. 
   
3. In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption?
   1. Yes, sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs.
   2. Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm.
   3. Yes, the current asset policies followed by the firm mainly influence the level of fixed assets.
   4. No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales.
   5. Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales.
   
   -Select-IIIIIIIVVItem 4
4. 
   
5. How would the firm's risk be affected by the different policies?
   
   The input in the box below will not be graded, but may be reviewed and considered by your instructor.
   

AFN EQUATION

Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $3 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 7%.

1. Assume that the company pays no dividends.
   Under these assumptions, what would be the additional funds needed for the coming year? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.
   $
2. 
   
3. Why is this AFN different from the one when the company pays dividends?
   
   1. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of additional funds needed.
   2. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of assets needed.
   3. Under this scenario the company would have a higher level of spontaneous liabilities, which would reduce the amount of additional funds needed.
   4. Under this scenario the company would have a lower level of retained earnings, which would increase the amount of additional funds needed.
   5. Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed.