A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:

1. Calculate NPV for each project. Do not round intermediate calculations. Round your answers to the nearest cent.

   Project M:    $  

   Project N:    $  

   Calculate IRR for each project. Do not round intermediate calculations. Round your answers to two decimal places.

   Project M:     %

   Project N:     %

   Calculate MIRR for each project. Do not round intermediate calculations. Round your answers to two decimal places.

   Project M:     %

   Project N:     %

   Calculate payback for each project. Do not round intermediate calculations. Round your answers to two decimal places.

   Project M:     years

   Project N:     years

   Calculate discounted payback for each project. Do not round intermediate calculations. Round your answers to two decimal places.

   Project M:     years

   Project N:     years

2. Assuming the projects are independent, which one(s) would you recommend?

   1. Only Project M would be accepted because NPV(M) > NPV(N).

   2. Only Project N would be accepted because NPV(N) > NPV(M).

   3. Both projects would be accepted since both of their NPV's are positive.

   4. Only Project M would be accepted because IRR(M) > IRR(N).

   5. Both projects would be rejected since both of their NPV's are negative.

3. If the projects are mutually exclusive, which would you recommend?

   1. If the projects are mutually exclusive, the project with the highest positive NPV is chosen.

   2. Accept Project N.If the projects are mutually exclusive, the project with the highest positive IRR is chosen.

   3. Accept Project M.If the projects are mutually exclusive, the project with the highest positive MIRR is chosen.

   4. Accept Project M.If the projects are mutually exclusive, the project with the shortest Payback Period is chosen.

   5. Accept Project M.If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project N.

4. Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?

   1. The conflict between NPV and IRR is due to the fact that the cash flows are in the form of an annuity.

   2. The conflict between NPV and IRR is due to the difference in the timing of the cash flows.

   3. There is no conflict between NPV and IRR.

   4. The conflict between NPV and IRR occurs due to the difference in the size of the projects.

   5. The conflict between NPV and IRR is due to the relatively high discount rate.

Compare the hypothetical long-term return on a traditional IRA vs. a Roth IRA. This will require you to make assumptions about changes in your tax bracket over the period you are saving. Create a scenario that you consider realistic.

You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington (HHW), which is planning its operation for the coming year. The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%, which the firm's investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions.

Which answer choice is correct?

You are given the following information about Stocks A and B:

Stock A has a beta of 1.5 and Stock B has a beta of 1.2.

1. What is the beta of a portfolio consisting of 60% of Stock A and 40% of Stock B?

2. What is the expected return of a portfolio consisting of 60% of Stock A and 40% of Stock B?

3. Which stock has a greater return variance?

You assume college students will mostly purchase cookies. You plan to sell individual cookies in store for $2 per cookie or $24 per dozen. It costs $2 to make a dozen cookies, and you figure college students will purchase 72 cookies per year each of their four years in school. To be conservative, you assume a 50% retention rate. You think you will spend $0.40 per student per year on retention costs.

For care packages, you plan to charge $30 per dozen cookies and figure parents will purchase 2 care packages per year (once each semester) over the four years the child is in school. You assume a 60% retention rate. Costs to make the cookies are the same as for the college market ($2 per dozen), but there is an additional $1 per dozen in packaging and delivery costs. You think you will spend $0.25 per parent per year on retention costs.

For cakes, you plan to initially offer just one-sized cake for $60. It costs $20 to make the cake. You think clients will be quite loyal and estimate an 80% retention rate with clients purchasing 1 cake in the first year and 3 cakes each subsequent year. You plan to spend $2 per client in retention costs and use a 4-year lifetime to maintain consistency with the other markets.

You plan to spend $100 in upfront marketing costs to acquire new customers. You figure this will come out to about $1 per student for the college market, $5 per client for the parent (care package) market, and $20 per client for the special occasion cake (local) market.

Given these numbers and assuming an 8% discount rate, what is the customer lifetime value of a customer in each target market? Round your answer to the nearest 100th (i.e., use 2 decimal places) and show your work.

Your company is looking at setting up a manufacturing plant overseas to manufacture driverless flying cars. The company bought some land in that that was just appraised for $3.8 million after tax. The proposed project will last five years. It is expected that you can sell the land at the end of 5 years for $4.1 million. The manufacturing plant will cost $34 million to build.

The following market data on your company are current.

Debt: 195,000 bonds with a coupon rate of 6.2 percent outstanding, 25 years to maturity, selling for 106 percent of par; the bonds make semiannual payments.

Common Stock:    8,100,000 shares outstanding, selling for $63 per share; the beta is 1.1.

7 percent expected market risk premium and 3.1 percent risk free rate.

Your underwriter tells you the floatation costs for common stock, preferred stock, and debt are 7%, 5%, and 3% respectively. The corporate tax rate is 21%. The project requires $1.5 million in initial net working capital which will no longer be required at the end of the project.

a)      This project is riskier than the typical project that your company normally undertakes. You have been told to adjust the risk factor by +2 percent. Calculate the appropriate discount rate to use when evaluating this project.

b)      Calculate the average cost of floatation.

c)       The manufacturing plant uses straight line depreciation to zero for the life of the project. At the end of the project (that is at the end of 5 years) the plant and equipment can be scrapped for $4.9 million. What is the after tax salvage value of this plant and equipment?

d)      The company will incur $6.9 million in annual fixed costs. The plan is to manufacture 121 driverless flying cars per year and sell them for $1,145,000 each; the variable costs are $950,000 per unit. What is the annual operating cash flow (OCF) per year for the project?

e)      What is the IRR and NPV of this project?

What kinds of securities are available in the capital markets? How are the worldwide security markets organized?

Suppose that you have a choice between two mutual funds, one a load fund with no annual 12b-1 fees, and the other a no-load fund with a maximum 12b-1 fee. How would the length of your expected holding period influence your choice between these two funds?

Outline the evolution and purpose of Capital Requirements through Basel 1, Basel 2 and Basel3

1)

A) You have $15,100 in a savings account that has been paying 5.2% interest, compounded weekly. If you made one deposit when you opened the account exactly 8 years ago and made no other deposits after that, how much did you initially deposit in the account? Assume 52 weeks per year.

B) Bank A offers an interest of 4% compounded daily, while bank B offers continuous compounding at 3.87% APR. If you deposit $6,292 with each bank, what will be the difference in the two bank account balances after 4 years? Enter your answer as a positive number.

• The firm is looking to expand its operations by 10% of the firm's net property, plant, and equipment. (Calculate this amount by taking 10% of the property, plant, and equipment figure that appears on the firm's balance sheet.)
• The estimated life of this new property, plant, and equipment will be 12 years. The salvage value of the equipment will be 5% of the property, plant and equipment's cost.
• The annual EBIT for this new project will be 18% of the project's cost.
• The company will use the straight-line method to depreciate this equipment. Also assume that there will be no increases in net working capital each year. Use 35% as the tax rate in this project.
• The hurdle rate for this project is 2.43
• Property, Plant & Equipment, net is 2,130,294 (in thousands)

• Your calculations for the amount of property, plant, and equipment and the annual depreciation for the project
• Your calculations that convert the project's EBIT to free cash flow for the 12 years of the project.
• The following capital budgeting results for the project
  • Net present value
  • Internal rate of return
  • Discounted payback period.
• Your discussion of the results that you calculated above, including a recommendation for acceptance or rejection of the project

What are the main advantages of being a member of the Federal Reserve System?