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Step by step without financial calculator functions:

Your firm has just issued a 20-year $1,000.00 par value, 10% annual coupon bond for a net price of $964.00. What is the yield to maturity? Don't use a financial calculator to determine your answer.

A) 10.60%

B) 11.10%

C) 10.44%

D) 10.16%

Project L requires an initial outlay at t = 0 of $55,000, its expected cash inflows are $11,000 per year for 9 years, and its WACC is 10%. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. $

Kahn Inc. has a target capital structure of 55% common equity and 45% debt to fund its $10 billion in operating assets. Furthermore, Kahn Inc. has a WACC of 15%, a before-tax cost of debt of 11%, and a tax rate of 25%. The company's retained earnings are adequate to provide the common equity portion of its capital budget. Its expected dividend next year (D1) is $2, and the current stock price is $32. What is the company's expected growth rate? Do not round intermediate calculations. Round your answer to two decimal places. % If the firm's net income is expected to be $1.0 billion, what portion of its net income is the firm expected to pay out as dividends? Do not round intermediate calculations. Round your answer to two decimal places. (Hint: Refer to Equation below.) Growth rate = (1 - Payout ratio)ROE %

1. Compare both projects using NPV if the cost of capital is 10%.
2. Compare each project using the IRR approach.
3. Now compare both projects using the equivalent annual annuity (EAA) method.
4. Compare each project using the replication approach.

Calculate the Macaulay duration of a 9%, $1,000 par bond that matures in three years if the bond's YTM is 12% and interest is paid semiannually. You may use Appendix C to answer the questions.

1. Calculate this bond's modified duration. Do not round intermediate calculations. Round your answer to two decimal places.

     years

2. Assuming the bond's YTM goes from 12% to 11.0%, calculate an estimate of the price change. Do not round intermediate calculations. Round your answer to three decimal places. Use a minus sign to enter negative value, if any.

     %

Capital Structure Analysis

Pettit Printing Company has a total market value of $100 million, consisting of 1 million shares selling for $50 per share and $50 million of 10% perpetual bonds now selling at par. The company's EBIT is $10.35 million, and its tax rate is 35%. Pettit can change its capital structure either by increasing its debt to 55% (based on market values) or decreasing it to 45%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 14% coupon. If it decides to decrease its leverage, it will call in its old bonds and replace them with new 8% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change.

The firm pays out all earnings as dividends; hence, its stock is a zero growth stock. Its current cost of equity, r_s, is 14%. If it increases leverage, r_s will be 16%. If it decreases leverage, r_s will be 13%.

Present situation (50% debt):
What is the firm's WACC? Round your answer to three decimal places.
     %
What is the total corporate value? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places.
$   million

55% debt:
What is the firm's WACC? Round your answer to two decimal places.
       %
What is the total corporate value? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places.
$   million

45% debt:
What is the firm's WACC? Round your answer to two decimal places.
       %
What is the total corporate value? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to three decimal places.
$   million

(a) Total investment risk can be broken down into two types of risk. What are these two types of risk and which should NOT affect expected return? (b) A firm has a beta of 1.2. The expected market return is 12% and the risk-free rate is 2%. What should be the firm’s equity cost of capital?

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,400 in the first year, with growth of 5 percent each year for the next five years. Production of these lamps will require $49,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $109,000 per year, variable production costs are $20 per unit, and the units are priced at $48 each. The equipment needed to begin production will cost $189,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 38 percent and the required rate of return is 20 percent. What is the NPV of this project?

1. Use the IRR approach to determine which project to choose.
2. Graph the NPV profiles for each project.
3. At what rate will the two projects have the same NPV?

Cash Budgeting

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently run out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,100 per month, and the rent is $2,700 per month. In addition, she must make a tax payment of $14,000 in December. The current cash on hand (on December 1) is $450, but Koehl has agreed to maintain an average bank balance of $4,000 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $120,000.

1. Prepare a cash budget for December, January, and February.

   I. Collections and Purchases:
   	December	January	February
   Sales	$	$	$
   Purchases	$	$	$
   Payments for purchases	$	$	$
   Salaries	$	$	$
   Rent	$	$	$
   Taxes	$	---	---
   Total payments	$	$	$
   Cash at start of forecast	$	---	---
   Net cash flow	$	$	$
   Cumulative NCF	$	$	$
   Target cash balance	$	$	$
   Surplus cash or loans needed	$	$	$

   
   
2. Suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)
   $

Company X wants to borrow $10,000,000 floating for 10 years & company Y wants to borrow $10,000,000 fixed for 10 years. The borrowing from the local bank for each firm are:

A swap bank proposes the following interest only swap: X will pay the swap bank annual payments on $10,000,000 with the coupon rate of LIBOR-0.2%; In exchange the swap bank will pay to company X interest payments on $10,000,000 at a fixed rate of 9.90%.: Y will pay the swap bank annual payments on $10,000,000 at a fixed rate of 10.30%. and the swap bank will pay Y annual payments on $10,000,000 with the coupon rate of LIBOR - 0.15%. Assume YTM is 4%, What is the swap bank NPV from this project?

Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $120 million and a YTM of 10 percent. The company’s market capitalization is $260 million, and the required return on equity is 15 percent. Joe’s currently has debt outstanding with a market value of $25.5 million. The EBIT for Joe’s next year is projected to be $17 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe’s has 2.15 million shares outstanding, and the tax rate for both companies is 35 percent.

a. What is the maximum share price that Happy Times should be willing to pay for Joe’s? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $

After examining your analysis, the CFO of Happy Times is uncomfortable using the perpetual growth rate in cash flows. Instead, she feels that the terminal value should be estimated using the EV/EBITDA multiple. The appropriate EV/EBITDA multiple is 8.

b. What is your new estimate of the maximum share price for the purchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Maximum share price $