The purchase price is $2,000,000

There are 30 units and the market rent is $850/month

Market rents are expected to increase 4% per year

Vacancy and collection loss is 10%

Real Estate Taxes are expected to be $20,000 in year 1 and increase 5% per year

Insurance is expected to be $10,000 in year 1 and increase 7% per year

Utilities are expected to be 9% of EGI each year

Repairs and Maintenance costs are expected to be 7% of EGI each year

Grounds and Security costs are expected to by 6% of EGI each year

The market value of the investment is expected to increase 6% each year

Selling expenses will be 5%

The holding period is 5 years

80% of the purchase price can be borrowed on a 30-year, monthly payment mortgage

The annual interest rate on the loan will be 8%.

Loan origination fees will be 1% of the loan amount (paid in the year the loan is taken out - Year 0)

There are no prepayment penalties if you pay the loan early.

Tenant Improvements are expected to be $3,000/year

Leasing Commissions are expected to be $1,000/year

A roof repair totaling $15,000 will be completed in year 3

The required rate of return for the investor is 12%.  

Assume taxes are 30% of BTCF.

Assignment:

Fill out the income statement.

Calculate the monthly mortgage payment to find debt service.

What is the IRR and NPV of the property? (CF0 = equity investment + loan origination fees)

Calculate the ratios for one or five years as indicated on the worksheet

To find the mortgage balance, principal and interest payments:

Enter key strokes to find payment on the loan

FCOJ, Inc., a prominent consumer products firm, is debating whether or not to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 13,000 shares outstanding and the price per share is $43. EBIT is expected to remain at $72,800 per year forever. The interest rate on new debt is 6.5 percent, and there are no taxes. a. Melanie, a shareholder of the firm, owns 200 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What will Melanie’s cash flow be under the proposed capital structure of the firm? Assume she keeps all 200 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) c. Assume that Melanie unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $2,850,000 this year. Depreciation, the increase in net working capital, and capital spending were $225,000, $90,000, and $415,000, respectively. You expect that over the next five years, EBIT will grow at 16 percent per year, depreciation and capital spending will grow at 21 percent per year, and NWC will grow at 11 percent per year. The company has $15,100,000 in debt and 345,000 shares outstanding. You believe that sales in five years will be $22,600,000 and the price-sales ratio will be 2.4. The company’s WACC is 8.5 percent and the tax rate is 21 percent. What is the price per share of the company's stock?

You bought one of Great White Shark Repellant Co.’s 11 percent coupon bonds one year ago for $780. These bonds make annual payments and mature 5 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 13 percent. If the inflation rate was 3.3 percent over the past year, what was your total real return on investment?

Parramore Corp has $12 million of sales, $3 million of inventories, $2.5 million of receivables, and $1 million of payables. Its cost of goods sold is 85% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
   days
2. If Parramore could lower its inventories and receivables by 10% each and increase its payables by 10%, 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
3. How much cash would be freed up, if Parramore could lower its inventories and receivables by 10% each and increase its payables by 10%, all without affecting sales or cost of goods sold? Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000. Do not round intermediate calculations. Round your answer to the nearest dollar.
   $  
4. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 10% each and increase its payables by 10%, all without affecting sales or cost of goods sold? Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000. Do not round intermediate calculations. Round your answer to the nearest dollar.
   $  

Meacham Corp. wants to raise financing to purchase a competitor. It can issue 12 year bonds with a 9% annual coupon for $1090 and will incur debt flotation costs of $15 per bond.

The company can sell additional equity shares to the public for $30 per share and estimates its equity flotation costs will be $3 per share. Meacham paid a $4 per share dividend yesterday and expects is dividends to grow 7% annually. The company is targeting a capital structure of 40% debt and 60% common equity and has a 35% marginal tax rate.

Calculate the company's WACC.

Prokter and Gramble​ (PKGR) has historically maintained a​ debt-equity ratio of approximately 0.17. Its current stock price is $ 46 per​ share, with 2.4 billion shares outstanding. The firm enjoys very stable demand for its​ products, and consequently it has a low equity beta of 0.425 and can borrow at 4.5​%, just 20 basis points over the​ risk-free rate of 4.3​%. The expected return of the market is 9.8​%, and​ PKGR's tax rate is 30​%.

a. This​ year, PKGR is expected to have free cash flows of ​$6.3 billion. What constant expected growth rate of free cash flow is consistent with its current stock​ price?

b. PKGR believes it can increase debt without any serious risk of distress or other costs. With a higher​ debt-equity ratio of 0.425​, it believes its borrowing costs will rise only slightly to 4.8​%. If PKGR announces that it will raise its​ debt-equity ratio to 0.425 through a leveraged​ recap, determine the increase or decrease in the stock price that would result from the anticipated tax savings.

You are graduating from college at the end of this semester and after reading the The Business of Life box in this​ chapter, you have decided to invest ​$5,600 at the end of each year into a Roth IRA for the next 41 years. If you earn 10 percent compounded annually on your​ investment, how much will you have when you retire in 41 ​years? How much will you have if you wait 10 years before beginning to save and only make 31 payments into your retirement​ account?

Mirabile Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the company's three activity cost pools--Processing, Supervising, and Other. The costs in those activity cost pools appear below:

Processing costs are assigned to products using machine-hours (MHs) and Supervising costs are assigned to products using the number of batches. The costs in the Other activity cost pool are not assigned to products. Activity data appear below:

Finally, sales and direct cost data are combined with Processing and Supervising costs to determine product margins.

What is the product margin for Product M5 under activity-based costing?

Suppose​ Alcatel-Lucent has an equity cost of capital of 10.6 %​, market capitalization of $ 11.20 ​billion, and an enterprise value of $ 14 billion. Assume​ Alcatel-Lucent's debt cost of capital is 6.6 %​, its marginal tax rate is 35 %​, the WACC is 9.34 %​, and it maintains a constant​ debt-equity ratio. The firm has a project with average risk. Expected free cash​ flow, debt​ capacity, and interest payments are shown in the​ table:

a. What is the free cash flow to equity for this​ project?

b. What is its NPV computed using the FTE​ method? How does it compare with the NPV based on the WACC​ method?

Solar Engines manufactures solar engines for tractor-trailers. Given the fuel savings available, new orders for 140 units have been made by customers requesting credit. The variable cost is $9,800 per unit, and the credit price is $12,000 each. Credit is extended for one period. The required return is 1.9 percent per period. If Solar Engines extends credit, it expects that 15 percent of the customers will be repeat customers and place the same order every period forever and the remaining customers will be one-time orders. Calculate the NPV of the decision to grant credit. (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV $

Assume that the data are representative of the future so that the returns obtained on firm A and the S&P 500 are the same as their expected returns. Complete the following questions:

a. The S&P 500 is a measure of the market. The market is average (by definition), so what is its beta?

b. The risk-free assets has no risk (by definition), so what is its beta?

c. Firm A, the S&P 500, and the risk-free asset should all be on the SML. The expected return for the risk-free asset can be calculated using the Forecast function. The X is risk-free beta, the known Ys are the returns on firm A and the S&P 500, and the known Xs are the betas for the same two.

d. Calculate the market risk premium.

e. From the results of (c) and (d) give the equation of the SML.

f. Use the SML from d to calculate the expected return on asset B in the return column in the first row for firm B.

g. Firm A the S&P 500, and the risk-free asset should all be on the SML. The return for firm B can also be calculated using the Forecast function. The X is firm B's beta, the known Ys are the returns on firm A, the S&P 500, and the risk-free asset, and the known Xs are the betas for the same three. Put the Forecast calculation in the return column in the second row for firm B. Is the result the same as (e).

MIRR

A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:

The projects are equally risky, and their WACC is 10%. What is the MIRR of the project that maximizes shareholder value? Round your answer to two decimal places. Do not round your intermediate calculations.

1. Many of the concepts you have studied in finance rely implicitly on efficient markets, i.e., capital budgeting, the relationship between risk and return, asset allocation and even the rule that managers should try maximize shareholder wealth. However, there is a great deal of evidence over the last 30 years that markets may not be efficient and thus these concepts may not hold empirically. Take one idea from what you learned in behavioral finance use it to explain why markets may not be efficient.