What is the Profitability Index of a project that costs $39,000 today and is expected to generate annual cash inflows of $5,000 for the following 8 years. Assume the company's WACC is 9%. Round to two decimal places.

Your best friend wins the lottery and gives you a gift option.  You need to complete both problems to make your decision.

1. As one gift option, they offer to give you the interest only from a $1,000,000 investment with an interest rate of 8% that compounds annually.  How much interest do you receive in 5 years?

2. As another gift option, they offer to give you the interest only from $2,000,000 investment with an interest rate of 7% that compounds semi-annually.  How much interest do you receive in 2.5 years?

3. What is the future value of $13,000 at 10% compounded semi-annually over 10 years?

4. What is the future value of $13,000 at 10% interest compounded quarterly over 10 years?

#Question/ *Dividend policy relates to the management decision on how much of the company's earnings are to be paid out to shareholders as dividends vs retaining for reinvestment in new opportunities. in general, there are three schools of thought in regards to the relationship between dividend policy and stock value".

-Discuss the THREE (3) schools of thought highlighted in the above statement?

You are trying to calculate the WACC for two firms. Firm XiG is publicly traded and firm TanW is a private firm. You have collected all necessary information for your WACC calculation:

In terms of liabilities, XiG has account payables of $400Million and a bank loan of $200Million. XiG also has cash holding of $300Million. XiG is current trading at $520/share with 1 Million shares outstanding. XiG’s returns move one to one with the stock market returns.

XiG’s average tax rate is 30% and marginal tax rate of 35%. XiG is rated as Aa1 by Moody’s and similar Aa1 rating firms have cost of debt of 2%. Risk free rate is 1%, market risk premium is 5%.

TanW is in the same industry as XiG. After consulting with an industry expert, you are confident that TanW and XiG have roughly the same business risk. Currently, TanW has net debt to equity ratio of 2. TanW’s average tax rate is 30% and marginal tax rate of 35%. Its cost of debt is 3%.

Now you proceed to calculate the WACC for both firms.

What is the net debt, market value of equity and WACC for XiG?

#Question/ Average Team Bhd has the following market-value balance sheet. The stock currently sells for $30.00 a share and there are 1 million shares outstanding. The firm will either pay a $2.50 share dividend or repurchase a $2.5 million worth of stock. ignore taxes.

1- Compute the subsequent price per share, if the firm pays a dividend.

2- Compute the subsequent price per share, if the firm repurchases stock.

3- If the net income of the firm is $2 million a year, find the firms' earning per share if the firm pays a dividend.

4- Compute the earning per share if the firm repurchases stock.

5-Find the price-earnings ratio if the firm pays a dividend.

6-Compute the price-earnings ratio if the firm repurchases stock.

#Question

A) "Economists often refer to the stock market as an efficient market, By this they mean that the competition to find the misvalued stocks is intense, So, when new information comes out, investors rush to take advantage of it and therefore eliminate any profit opportunities."

#1A- Explain the term "Efficient market' and distinguish THREE (3) forms of the Efficient Market Hypotheses (EMH).

B) If the rate of return available on risk-free assets is 4% and you expect the rate of return of the market portfolio to be 14%.

#1B- What expected rate of return would you demand before you would be willing to invest in this mutual fund?

#2B- Is this fund attractive? Why?

#3B- How could you mix mutual fund with a risk-free position in Treasury bills to create a portfolio with the same managers but with a higher expected rate of return? what is the rate of the return of the portfolio?

St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. The new welder will cost $80,000 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $26,000 to $52,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 40%, and the project cost of capital is 14%. What is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest cent.

Your company doesn't face any taxes and has $258 million in assets, currently financed entirely with equity. Equity is worth $8.8 per share, and book value of equity is equal to market value of equity. Also, let's assume that the firm's expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:

State Pessimistic Optimistic

Probability of State .25 .75

Expect EBIT in State $18 million $58 million

The firm is considering switching to a 20-percent debt capital structure, and has determined that they would have to pay a 9 percent yield on perpetual debt in either event. What will be the level of expected EPS if they switch to the proposed capital structure? (Round your intermediate calculations and final answer to 2 decimal places except calculation of number of shares which should be rounded to nearest whole number.)

The balance sheet and income statement shown below are for Pettijohn Inc. Note that the firm has no amortization charges, it does not lease any assets, none of its debt must be retired during the next 5 years, and the notes payable will be rolled over.

           Required:

1. What is the firm's current ratio?
2. What is the firm's quick ratio?
3. What are the firm’s days sales outstanding? Assume a 360-day year for this calculation.
4. What is the firm's total assets turnover?
5. What is the firm's inventory turnover ratio?
6. What is the firm's ROA?
7. What is the firm's ROE?
8. What is the firm's net profit margin?
1. Analyze the company performance (min 250 words).

Please note for each answer formula and calculations should be included.

#Question 1A

Sweet Coco Corporation (SCC) is contemplating the acquisition of Salty Pretzels (SP). The Value of the two companies as separate entities is $20 million and $10 million, respectively. SCC estimates that by combing the two companies, it will generate additional revenue of $1 million and reduce operating costs of $500,000 per year in perpetuity. SCC is willing to pay $20 million in cash for Salty Pretzels. Assuming the opportunity cost of capital is 8%.

1) What is the Gain of the merge?

2)what is the cost of the cash offer?

3)What is the net present value (NPV) of the acquisition under the cash offer?

#Question 2A

Suppose that instead of making a cash offer, Sweet Coco Corporation considers offering Salty Pretzels' shareholders a 50% holding in Sweet Coco Corporation.

1) What is the value of the stock in the merged company held by the original Salty Pretzels shareholders?

2)What is the cost of the stock alternative?

3)What is the merger's net present value (NPV) under the stock offer?

#Question 3A

Currently, you are working as a finance manager in Sweet Coco Corporation, Which strategy will you recommend to the board of directors? Justify your suggestion.

Dewina Food Industries is considering the development of a new ketchup product. The ketchup will be sold in a variety of different colours and will be marketed to young children. In evaluating the proposed project, the company has collected the following information:

• The company estimates that the project will last for four years.
• The company will need to purchase new machinery that has an up-front cost of $30 million. At the end of the project, the company expect to sell off the machinery for $5 million.
• The machinery will be depreciated on a 4-year straight-line basis towards zero salvage value.
• Production on the new ketchup product will take place in a recently vacated facility that the company owns.
• The project will require a $6 million increase in inventory. The company expects that its accounts payable will rise by $1 million. After t = 0, there will be no changes in net operating working capital, until t = 4 when the project is completed, and the net operating working capital is completely recovered.
• The company estimates that sales of the new ketchup will be $20 million each of the next four years.
• The operating costs, excluding depreciation, are expected to be $10 million each year.
• The company’s tax rate is 28 percent.
• The project’s WACC is 10 percent.

Draw up the project analysis worksheet providing details of each of the three basic elements that must be considered in your evaluation and make recommendation based on the NPV and IRR criteria?  

Broussard Skateboard's sales are expected to increase by 25% from $8.8 million in 2019 to $11.00 million in 2020. Its assets totaled $2 million at the end of 2019.

Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2019, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 60%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as $1,200,000. Do not round intermediate calculations. Round your answer to the nearest dollar.

Suppose your firm is considering two mutually exclusive, required projects with the cash flows shown below. The required rate of return on projects of both of their risk class is 10 percent, and that the maximum allowable payback and discounted payback statistic for the projects are 2 and 3 years, respectively.

Project A Cashflow: Year 0: $-32,000.00 Year 1: $22,000.00 Year 2: $42,000.00 Year 3: $13,000.00

Project B Cashflow: Year 0: $-42,000.00 Year 1: $22,000.00 Year 2: $8,000.00 Year 3: $62,000.00

Use the payback decision rule to evaluate these projects; which one(s) should it be accepted or rejected?

• Total investment: 100K

• Invested 30K in stock A, with three past returns: 5%, 6%, and 7%.

• Invested the rest in stock B, with three past returns: 1%, 11%, and 21%.

• What is the coefficient of variation of each stock?