A firm utilizes a strategy of capital rationing, which is currently $375,000 and is considering the following two projects: Project A has a cost of $335,000 and the following cash flows: year 1 $140,000; year 2 $150,000; and year 3 $100,000. Project B has a cost of $365,000 and the following cash flows: year 1 $220,000; year 2 $110,000; and year 3 $150,000. Using a 6% cost of capital, what is the internal rate of return of project B?

a) List and describe 4 out-of-court settlement alternatives for financially distressed firms.

b) Define private placement and explain the advantages and disadvantages

(Show work, please!)

A business is evaluating two alternative, mutually exclusive methods for a deli bar to be added to their stores. It has developed the following estimated after- tax cost savings for each alternative method. The project discount, and reinvestment, rate is 11%.

a. Which method (staffed or self serve) would you recommend using an NPV approach?

b. Which method would you recommend using the MIRR #3 Approach?

c. Which method do you recommend? Explain fully.

Rockland Co is considering purchasing gear to increase its business. Given the information below, conduct the required capital budgeting analysis to offer a recommendation. Use five of the following seven methods. Please detail any assumptions made and show your calculations for your recommendation. Finally, calculate DeltaNPV/DeltaPrice.

• Net Present Value
• Internal Rate of Return
• Modified Internal Rate of Return
• Profitability Index
• Payback Period
• Discounted Payback Period
• Average Accounting Return

To purchase the equipment, Rockland Co. incurs the following costs:

Rockland Co wants to produce a unique widget with the following cost structure:

The company’s projections for sales are shown below:

The Pharoah Products Co. currently has debt with a market value of $200 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 $1,418.61 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $18 per share. The preferred shares pay an annual dividend of $1.20. Pharoah 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 6 percent per year forever. If Pharoah is subject to a 40 percent marginal tax rate, then what is the firm’s weighted average cost of capital?

Calculate the weights for debt, common equity, and preferred equity.

Calculate the cost of debt.

Calculate the cost of preferred equity.

Calculate the cost of common equity.

What is the firm’s weighted average cost of capital

2. Robert Campbell and Carol Morris are senior vice-presidents of the Mutual of Chicago Insurance Company. They are co-directors of the company’s pension fund management division, with Campbell having responsibility for fixed income securities (primarily bonds) and Morris being responsible for equity investments. A major new client, the California League of Cities, has requested that Mutual of Chicago present an investment seminar to the mayors of the represented cities. Campbell and Morris, who will make the actual presentation, have asked you to help them by answering the following questions. a. What is the value of a 1-year, $1,000 par value bond with a 8% annual coupon if its required rate of return is 12%? What is the value of a similar 10-year bond? b. What would be the value of the bond described in part (a) if, just after it had been issued, the expected inflation rate rose by three percentage points, causing investors to require a 15% return? Is the security now a discount bond or a premium bond? c. What would happen to the bond’s value if inflation fell, and rd declined to 8%? Would it now be a premium bond or a discount bond? d. What is the yield to maturity on a 10-year, 8% annual coupon, $1,000 par value bond that sells for $880.00? That sells for $1,130.50? What does the fact that a bond sells at a discount or at a premium tell you about the relation¬ship between rd and the bond’s coupon rate?What would happen to the value of the 10-year bond over time if the required rate of return remained at (i) 12% or (ii) remained at 8%?

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.18 million and create incremental cash flows of $820,227.00 each year for the next five years. The cost of capital is 11.69%. What is the net present value of the J-Mix 2000?

Answer format: Currency: Round to: 2 decimal places.

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.96 million and create incremental cash flows of $500,207.00 each year for the next five years. The cost of capital is 9.34%. What is the internal rate of return for the J-Mix 2000?

Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.98 million and create incremental cash flows of $640,301.00 each year for the next five years. The cost of capital is 9.10%. What is the profitability index for the J-Mix 2000?

Answer format: Number: Round to: 3 decimal places.

I would really appreciate the Help!! :) would be great if you could show the steps (not on excel) for better understanding! Thank You~

Ten Pins Manufacturing has 9.2 million shares of common stock outstanding. The current share price is $62, and the book value per share is $4. The company also has two bond issues outstanding. The first bond issue has a face value of $71.8 million and a coupon rate of 7.9 percent and sells for 107.4 percent of par. The second issue has a face value of $61.8 million and a coupon rate of 8.4 percent and sells for 110.7 percent of par. The first issue matures in 8 years, the second in 27 years.
The company’s stock has a beta of 1.2. The risk-free rate is 4 percent, and the market risk premium is 7.9 percent. Assume that the overall cost of debt is the weighted average implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 35 percent. What is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

What is WACC?

Problem 16-25 MM with Taxes Dickson, Inc., has a debt-equity ratio of 2.65. The firm’s weighted average cost of capital is 10 percent and its pretax cost of debt is 7 percent. The tax rate is 25 percent.

a. What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the company’s unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

c. What would the company’s weighted average cost of capital be if the company's debt-equity ratio were .45 and 1.65? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Suppose the inflation rate is expected to be 6.3% next year, 4.15% the following year, and 3.65% thereafter. Assume that the real risk-free rate, r*, will remain at 2.3% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds.

a.

Calculate the interest rate on 1-year Treasury securities. Round your answer to two decimal places.

Calculate the interest rate on 2-year Treasury securities. Round your answer to two decimal places.

Calculate the interest rate on 3-year Treasury securities. Round your answer to two decimal places.

Calculate the interest rate on 4-year Treasury securities. Round your answer to two decimal places.

Calculate the interest rate on 5-year Treasury securities. Round your answer to two decimal places.

Calculate the interest rate on 10-year Treasury securities. Round your answer to two decimal places.

Calculate the interest rate on 20-year Treasury securities. Round your answer to two decimal places.

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $910,000, and it would cost another $25,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $650,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $16,000. The sprayer would not change revenues, but it is expected to save the firm $357,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%.

(Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

1. What is the Year-0 net cash flow?
2. What are the net operating cash flows in Years 1, 2, and 3?

3. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)
4. If the project's cost of capital is 14%, what is the NPV of the project?

Should the machine be purchased?