You have just turned twenty-six years of age and feel it is necessary to upgrade your qualifications. After some consideration, you feel that undertaking full-time study for an MPA degree at the Fletcher School is one alternative. For the two years of full-time study, tuition and living expenses will be $55,000 per year. In addition, you will have to give up your current job with a salary of $75,000 per year. Assume all cash flows occur at the end of the year. Assume a real interest rate of 3% per year, ignoring taxes. Also assume that the salary increase is a fixed real amount that starts after you complete your degree (at the end of the year following graduation) and lasts until retirement at age sixty-five. In order to justify the investment, by how much does your salary have to increase as a result of getting the MPA degree?
In: Finance
The Gulf Power Company currently is an all-equity firm. The value of Gulf Power's equity is $12,000,000 and there are 600,000 shares outstanding. The expected annual EBIT of Gulf Power is $2,400,000. Those earnings are also expected to remain constant into the foreseeable future. Gulf Power is in the 40-percent tax bracket. The Gulf Power Company plans to announce that it will issue $3,000,000 of perpetual bonds and uses the proceeds to repurchase common stock. The bonds will have a 5-percent coupon rate. After the sale of the bonds, Gulf Power will maintain the new capital structure indefinitely. The MM theory applies.
1.What is the firm's cost of capital before the capital restructuring?
2. After the sale of the bonds, Gulf Power will maintain the new capital structure indefinitely. The MM theory applies. What is the number of shares repurchased?
3.After the sale of the bonds, Gulf Power will maintain the new capital structure indefinitely. The MM theory applies. What is the firm's cost of capital after the capital restructuring?
4.After the sale of the bonds, Gulf Power will maintain the new capital structure indefinitely. The MM theory applies. What is Gulf Power's cost of equity after the capital restructuring?
5.After the sale of the bonds, Gulf Power will maintain the new capital structure indefinitely. The MM theory applies. What is the firm's net income (NI) after the capital restructuring?
In: Finance
Managers at Acme Doohickey Co. are considering two projects.
The machines have identical capacity and produce the same doohickey. The company only has floor space in its machinists’ shop for one machine.
Assume that the appropriate discount rate in 8%, compounded annually. Identify which project, if either, managers should accept, and explain why.
Table: Expected Cash Flows for Projects A and B
|
Year |
A revenue |
A costs |
A NCF |
B revenue |
B costs |
B NCF |
|
0 |
($35,000) |
($30,000) |
||||
|
1 |
$25,000 |
($10,000) |
$25,000 |
($7,000) |
||
|
2 |
$25,000 |
($10,000) |
$25,000 |
($8,000) |
||
|
3 |
$25,000 |
($10,000) |
Note: the table lists net revenue and net cost for each project and each year. But the table is incomplete; you will need to calculate the Net Cash Flows.
Group of answer choices
Reject both projects. When both of the project lifetimes are correctly extended to 6 years, the NPV for each project is negative.
A) Accept Project A. Its NPV > 0. Also, when both of the project lifetimes are correctly extended to 6 years, the Project A NPV = $9,373 which is greater than the Project B NPV = $t,662.
B) Accept Project A. Its NPV > 0. Also, when both of the project lifetimes are correctly extended to 6 years, the Project A NPV = $6,559 which is greater than the Project B NPV = $3,218.
C) Accept Project B. Its NPV > 0. In addition, its cost in each year is less than the corresponding cost for Project A.
D) Accept Project A. Its NPV > 0. Also, when both of the project lifetimes are correctly extended to 6 years, the Project A NPV = $3,656 which is greater than the Project B NPV = $1,241.
In: Finance
Chilly Moose Fruit Producer has a total asset turnover ratio of 6.00x, net annual sales of $25 million, and operating expenses of $11 million (including depreciation and amortization). On its balance sheet and income statement, respectively, it reported total debt of $2.50 million on which it pays a 7% interest rate.
To analyze a company’s financial leverage situation, you need to measure the firm’s debt management ratios. Based on the preceding information, what are the values for Chilly Moose Fruit’s debt management ratios?
|
Ratio |
Value |
|---|---|
| Debt ratio | |
| Times-interest-earned ratio |
Influenced by a firm’s ability to make interest payments and pay back its debt, if all else is equal, creditors would prefer to give loans to companies with times-interest-earned ratios (TIE).
In: Finance
You are buying a house and the mortgage company offers to let you pay a "point" 1.0% of the total amount of the loan) to reduce your APR from 5.88% to 5.63% on your $419,000, 30-year mortgage with monthly payments. If you plan to be in the house for at least five years, should you do it? (Note: Be careful not to round any intermediate steps less than six decimal places.)
The monthly mortgage payment at 5.88% APR is $_ ?
In: Finance
15) What does being a manager offer to an employee? 15)
|
16) Arthur, a production manager, knows that some of his employees are upset with a new corporate policy that eliminates a tuition reimbursement program. As a result, some of these employees are reducing their productivity. To eliminate this behavior, Sal should A) carefully select workers according to their abilities and give workers training.
|
16) |
|
17) Blue Brothers' cleaning products and equipment are sold to consumers and commercial cleaning companies in Clean Supply's janitorial supply and equipment store. Blue Brothers' relies heavily on Clean Supply to help sell its goods and services to customers. Clean Supply is a(n) ________ of Blue Brothers' products.
|
17) |
|
18) Deondre, who owns an investment firm with customers worldwide, has witnessed how dangerous global economic interdependency can be. During a lunch meeting, he mentioned to a customer, "In my opinion, ________ have been two negative effects of global economic interdependency for the United States."
American imports |
18) |
|
19) The management of Computer Rescues, Inc. finalized the company's action plan for |
19) |
increasing its market share over the next few years. The management then set up a 12- month plan that defines how the organization will conduct its business based on the action plan, including clear sales targets for each week. The second plan is an example of a(n) ________ plan.
In: Finance
Geometric Gradient Problem:
The Saudis produce 3.65 Billion barrels of oil a year. Let’s ignore climate change and drone stuff and say that production will increase at 2% per year due to demand from Asia. Also, the current price of $65/barrel is expected to increase by 4 percent a year for 20 years. What is the present worth of the anticipated 20 years revenue stream assuming the interest rate is 8%.
In: Finance
3) Thomson Co. had $150,000 and $310,000 in cash on the balance sheet at the end of 2XX0 and 2XX1, respectively. Its cash flow from operating activities totaled $2.5mi and its cash flow from long-term investment activities totaled $2mi. The firm issued $500,000 in L-T debt and paid $50,000 dividends. How much common stock did the firm repurchase?
4) During 2XX1, Western Corp issued $3mi in common stocks and purchased $5mi fixed assets. Its cash flow from operating activities totaled $6mi. Its notes payable decreased by $1mi. The firm had $500,000 cash on its balance sheet at the end of 2XX0. Calculate the amount of cash at the end of 2XX1.
In: Finance
Best Foods Corp. expects earnings and dividends to grow at a rate of 25% for the next 4 years. After that period, the growth rate in earnings and dividends will fall to zero, i.e., g = 0. The company's last dividend, D0, was $1.25, its beta is 1.20, the market risk premium is 5.50%, and the risk-free rate is 3.00%. What is the current price of the common stock?
In: Finance
After making 19 payments on a 60-month, $10000 car loan with APR of 4%, what is the outstanding balance on the loan? Round to the penny.
In: Finance
4.13
Complete the balance sheet and sales information using the
following financial data:
Total assets turnover: 1.2×
Days sales outstanding: 73.0 daysa
Inventory turnover ratio: 5×
Fixed assets turnover: 2.5×
Current ratio: 2.0×
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales =
25%
aCalculation is based on a 365-day year.
Do not round intermediate calculations. Round your answers to the nearest dollar.
| Balance Sheet | ||||
| Cash | $ | Current liabilities | $ | |
| Accounts receivable | Long-term debt | 42,000 | ||
| Inventories | Common stock | |||
| Fixed assets | Retained earnings | 63,000 | ||
| Total assets | $210,000 | Total liabilities and equity | $ | |
| Sales | $ | Cost of goods sold | $ | |
In: Finance
You have decided to refinance your mortgage. You plan to borrow whatever is outstanding on your current mortgage. The current monthly payment is $ 2,356 and you have made every payment on time. The original term of the mortgage was 30 years, and the mortgage is exactly four years and eight months old. You have just made your monthly payment. The mortgage interest rate is 7.500% (APR). How much do you owe on the mortgage today?
In: Finance
An ABC Company has a total capital of $51,000,000 and expects to earn 6% on its capital of 5%. However, due to economic instability and additional competition from oversee companies; the cost of capital is increased to 8%.
a. Calculate the ABC company’s economic value added?
b. For positive EVA, What is the earning of ABC?
In: Finance
4.9
| eBook Problem Walk-Through
Broward Manufacturing recently reported the following information:
Broward's tax rate is 25%. Broward finances with only debt and common equity, so it has no preferred stock. 40% of its total invested capital is debt, and 60% of its total invested capital is common equity. Calculate its basic earning power (BEP), its return on equity (ROE), and its return on invested capital (ROIC). Do not round intermediate calculations. Round your answers to two decimal places. BEP: % ROE: % ROIC: % |
In: Finance
A business will take out a 10-year loan of $150,000. The interest rate is 10% per year and the loan calls for a $15,000 reduction in principal each year. What is the total payment in year 3?
Please show work by using appropriate formulas. Thank you.
In: Finance