Hi, I have a question for this problem

You have been offered four different financing schemes for a $30,000 car. Which one should you choose?

The answer choices are, can you please let me know what the right answer is and how to do it. Thank you.

Hankins Corporation has 7.8 million shares of common stock outstanding, 290,000 shares of 4.3 percent preferred stock outstanding, par value of $100; and 175,000 bonds with a semiannual coupon rate of 5.9 percent outstanding, par value $2,000 each. The common stock currently sells for $59 per share and has a beta of 1.05, the preferred stock has a par value of $100 and currently sells for $97 per share, and the bonds have 16 years to maturity and sell for 103 percent of par. The market risk premium is 6.8 percent, T-bills are yielding 3.5 percent, and the company’s tax rate is 22 percent. a. What is the firm’s market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? (Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

What are two assumptions when one applies the constant growth model to analyze stock price?

Obs: Please be detailed.

Hook Industries is considering the replacement of one of its old metal stamping machines. Three alternative replacement machines are under consideration. The relevant cash flows associated with each are shown in the following​ table:

Initial investment   $84,600   $59,700   $129,900
Year          
1   $17,900   $12,500   $50,000
2   $17,900   $14,500   $30,100
3   $17,900   $15,500   $20,500
4   $17,900   $18,200   $20,500
5   $17,900   $19,800   $19,900
6   $17,900   $24,800   $29,600
7   $17,900   $0   $39,500
8   $17,900   $0   $49,900

a.  Calculate the net present value ​(NPV​) of EACH press.

b.  Using​ NPV, evaluate the acceptability of EACH press.

c.  Rank the presses from best to worst using NPV.

d.  Calculate the profitability index​ (PI) for EACH press.

e.  Rank the presses from best to worst using PI.

The​ firm's cost of capital is 12​%.

6. Solving for the WACC

The WACC is used as the discount rate to evaluate various capital budgeting projects. However, it is important to realize that the WACC is an appropriate discount rate only for a project of average risk.

Analyze the cost of capital situations of the following company cases, and answer the specific questions that finance professionals need to address.

Consider the case of Turnbull Co.

Turnbull Co. has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. It has a before-tax cost of debt of 11.1%, and its cost of preferred stock is 12.2%.

If Turnbull can raise all of its equity capital from retained earnings, its cost of common equity will be 14.7%. However, if it is necessary to raise new common equity, it will carry a cost of 16.8%.

If its current tax rate is 25%, how much higher will Turnbull’s weighted average cost of capital (WACC) be if it has to raise additional common equity capital by issuing new common stock instead of raising the funds through retained earnings? (Note: Round your intermediate calculations to two decimal places.)

1.07%

1.28%

1.39%

0.91%

Turnbull Co. is considering a project that requires an initial investment of $570,000. The firm will raise the $570,000 in capital by issuing $230,000 of debt at a before-tax cost of 9.6%, $20,000 of preferred stock at a cost of 10.7%, and $320,000 of equity at a cost of 13.5%. The firm faces a tax rate of 25%. What will be the WACC for this project? _______ (Note: Round your intermediate calculations to three decimal places.)

Consider the case of Kuhn Co.

Kuhn Co. is considering a new project that will require an initial investment of $4 million. It has a target capital structure of 45% debt, 4% preferred stock, and 51% common equity. Kuhn has noncallable bonds outstanding that mature in 15 years with a face value of $1,000, an annual coupon rate of 11%, and a market price of $1555.38. The yield on the company’s current bonds is a good approximation of the yield on any new bonds that it issues. The company can sell shares of preferred stock that pay an annual dividend of $9 at a price of $92.25 per share.

Kuhn does not have any retained earnings available to finance this project, so the firm will have to issue new common stock to help fund it. Its common stock is currently selling for $33.35 per share, and it is expected to pay a dividend of $2.78 at the end of next year. Flotation costs will represent 8% of the funds raised by issuing new common stock. The company is projected to grow at a constant rate of 8.7%, and they face a tax rate of 25%. What will be the WACC for this project? ________(Note: Round your intermediate calculations to two decimal places.)

Suppose you observe a European call option that is priced at less than the value Max[0, S0 - K(1+r)-T].

What type of transaction should I execute to achieve the maximum benefit? How would I create a payoff table showing the outcomes of expiration?

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $875 per set and have a variable cost of $415 per set. The company has spent $160,000 for a marketing study that determined the company will sell 76,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,400 sets per year of its high-priced clubs. The high-priced clubs sell at $1,305 and have variable costs of $625. The company will also increase sales of its cheap clubs by 10,400 sets per year. The cheap clubs sell for $324 and have variable costs of $129 per set. The fixed costs each year will be $13,950,000. The company has also spent $1,100,000 on research and development for the new clubs. The plant and equipment required will cost $39,300,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,425,000 that will be returned at the end of the project. The tax rate is 21 percent, and the cost of capital is 11 percent. Calculate the payback period, the NPV, and the IRR. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Enter your IRR answer as a percent.)

Hankins Corporation has 6.5 million shares of common stock outstanding, 230,000 shares of 3.8 percent preferred stock outstanding, par value of $100; and 115,000 bonds with a semiannual coupon rate of 5.5 percent outstanding, par value $1,000 each. The common stock currently sells for $71 per share and has a beta of 1.05, the preferred stock has a par value of $100 and currently sells for $85 per share, and the bonds have 19 years to maturity and sell for 109 percent of par. The market risk premium is 7.3 percent, T-bills are yielding 3.3 percent, and the company’s tax rate is 25 percent. a. What is the firm’s market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .1616.) b. If the company is evaluating a new investment project that has the same risk as the firm’s typical project, what rate should the firm use to discount the project’s cash flows? (Do not round intermediate calculations enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Crane Corp. management is evaluating two mutually exclusive projects. The cost of capital is 15 percent. Costs and cash flows for each project are given in the following table. Year Project 1 Project 2 0 -$1,148,892 -$1,158,340 1 244,000 337,000 2 334,000 337,000 3 414,000 337,000 4 507,000 337,000 5 717,000 337,000 Calculate NPV and IRR of two projects. (Enter negative amounts using negative sign, e.g. -45.25. Do not round discount factors. Round other intermediate calculations and final answer to 0 decimal places, e.g. 1,525. Round IRR answers to 2 decimal places, e.g. 15.25 or 12.25%.)

NPV of project 1 is $_____

NPV of project 2 is $_____

IRR of project 1 is _____%

IRR of project 2 is _____%

You were recently hired as Management Director of the new I Can Business Incorporated (ICBI). You have been asked to establish policies and systems for the business. The first one you choose to work on is a financial reporting system.

a 4–5-page memo that you will deliver to the ICBI Board of Directors. You will describe what a financial reporting system is and explain how the management team at ICBI should use an activity-based budget instead of an operating budget. Be sure to explain the similarities and the differences of the two. Finally, give examples of budget guidelines for ICBI. You must answer the following:

• Describe the meaning and the components of a financial reporting system.
• Explain the budget process.
• Describe a budget contingency plan.

Costs can be categorized in various ways, including the following:

• Fixed versus variable costs
• Relevant versus irrelevant costs
• Direct versus indirect

Discuss the following in your main Discussion Board post:

• Why is it important for a company to know the categorization of each cost?  
• Provide an example of each of the cost categorizations above.
• Why is it important to compare actual cost and budgeted cost?

NOK Plastics is considering the acquisition of a new plastic injection-molding machine to make a line of plastic fittings. The cost of the machine and dies is $125,000. Shipping and installation is another $8,000. NOK estimates it will need a $10,000 investment in net working capital initially, which will be recovered at the end of the life of the equipment. Sales of the new plastic fittings are expected to be $350,000 annually. Cost of goods sold are expected to be 50% of sales. Additional operating expenses are projected to be $115,000 per year over the machine’s expected 5-year useful life.  The machine will depreciated using a 5-year MACRS class life.  The equipment will be sold at the end of its useful life (5 years) for $35,000. The tax rate is 25% and the relevant discount rate is 15%. Calculate the net present value (NPV), internal rate of return (IRR), payback period (PB), and profitability index (PI) and state whether the project should be accepted.

You are analyzing the after-tax cost of debt for a firm. You know that the firm’s 12-year maturity, 18.00 percent semiannual coupon bonds are selling at a price of $1,551.95. These bonds are the only debt outstanding for the firm.

What is the current YTM of the bonds? (Round final answer to 2 decimal places, e.g. 15.25%.)

What is the after-tax cost of debt for this firm if it has a marginal tax rate of 34 percent? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

What is the current YTM of the bonds and after-tax cost of debt for this firm if the bonds are selling at par? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answers to 2 decimal places, e.g. 15.25%.)