Options in Corporate Financing

Company B is a small, publicly traded technology company.  Company B is close to completing development of a new software/hardware product for schools that uses voice recognition to quickly translate a lecture into written notes that are projected onto a screen and automatically sent to students as PDF documents.  The lecturer can then annotate the notes with a drawing pad linked to the computer projection system.  These annotations are included in the PDF that is distributed after the lecture is complete.  

      The company needs about $30 million to complete development and begin production and marketing of this product.  The company is profitable with one other product that generates about $1,200,000 in cash flow annually.  For many reasons the company has been very secretive about its new product so its stock price is quite low, being based on the modest cash flows of its existing product.  Company officials and outside consultants agree that it is too early to reveal the new product’s details given what they know of competing products.

      The company has hired an investment banker to help it determine how to raise the $30 million.  The banker immediately recommends convertible bonds.  Current interest rates on bonds or notes for companies of this type are in the range of 8% to 10%, but convertible debt would probably have a coupon rate of 3% to 5% depending on the conversion price.  The higher the conversion price the higher the coupon rate.  

The banker says that convertible bonds are a win-win for the company in this situation.  The company can keep their product secret but issue stock at a higher price (the conversion price) than the current stock price.  In the meantime, the interest rate on the debt will be about 4% or 5%, which the company should be able to support from its cash flow.  The banker explains that if for some reason the product is not a success, and there is no conversion to stock, the company has issued debt at a very low rate. Probably 5% below the rate on non-convertible debt.  Win-win!

The company’s tax rate is about 28%.

1. Can the company afford the interest on $30 million of convertible debt?
2. Is the banker correct about this being a win-win situation for the company?  Is there a different perspective that company managers need to understand before making this decision?  Explain.
3. If convertible debt has a lower coupon rate because the conversion option has value.  Why don’t all companies issue convertible debt and save on interest costs?

advantage and disadvantage of having or investing in online stock market. please cite an example

Holmes Manufacturing is considering a new machine that costs $270,000 and would reduce pretax manufacturing costs by $90,000 annually. The new machine will be fully depreciated at the time of purchase. Management thinks the machine would have a value of $23,000 at the end of its 5-year operating life. Net operating working capital would increase by $25,000 initially, but it would be recovered at the end of the project's 5-year life. Holmes's marginal tax rate is 25%, and an 11% WACC is appropriate for the project.

1. Calculate the project's NPV. Negative value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to the nearest cent.
   $  
   
   Calculate the project's IRR. Do not round intermediate calculations. Round your answer to two decimal places.
     %
   
   Calculate the project's MIRR. Do not round intermediate calculations. Round your answer to two decimal places.
     %
   
   Calculate the project's payback. Do not round intermediate calculations. Round your answer to two decimal places.
     years
2. 
   
3. Assume management is unsure about the $90,000 cost savings-this figure could deviate by as much as plus or minus 20%. What would the NPV be under each of these situations? Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest cent.
   20% savings increase: $  
   20% savings decrease: $  
   
4. Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the net operating working capital (NOWC) requirement. She asks you to use the following probabilities and values in the scenario analysis:

   Scenario	Probability	Cost Savings	Salvage Value	NOWC
   Worst case	0.35	$72,000	$18,000	$30,000
   Base case	0.35	$90,000	$23,000	$25,000
   Best case	0.30	$108,000	$28,000	$20,000

   
   Calculate the project's expected NPV, its standard deviation, and its coefficient of variation. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer for expected NPV and for standard deviation to the nearest cent and for coefficient of variation to two decimal places.
   

   E(NPV):	$
   σNPV:	$
   CV:

   
   Would you recommend that the project be accepted?
   -Select-YesNo

Describe one cybersecurity attack that has occurred in the past 6 months, and based on your understanding of this week’s readings, explain what vulnerabilities within the organization may have contributed to the breach.

You are a MNC looking at buying a company in England. You have determined that the free cash flow is $150 Million growing at 9% each year. How much would you pay for this company? You will have to use the Capital Asset Pricing Model (CAPM), determine the Weighted Average Cost of Capital (WACC) and then discount the free cash flows that you will determine after applying the growth For the MNC:

For England:

•The Tax rate is determined by research.

•The cost of debt is 14%

•Risk free rate determined by research on your country.

When using CAPM the 10 year treasury is preferred

•Market return is determined by research. A good proxy for your country should be the average market return of an index in your country similar to the S&P 500 over the last 20 years.

•The Beta 1.3 •50% debt 50% equity

•Perpetual growth 2.5%

To calculate the cost of equity Rf + B * (MR – Rf), CAPM The WACC= E/V*Ce + D/V *Cd*(1-T)

The value of your company is the sum of all the cash flows plus the terminal value discounted by the WACC.

The Perpetuity Growth approach assumes that free cash flow will continue to grow at a constant rate into perpetuity.

The Terminal Value can be estimated using the formula below.

TV=FCF (final forecast year) * (1 +g) WACC-g PV0= FCF1 +FCF2 +FCF3 +FCF4 +FCF5 +TV (1+WACC)1 (1+WACC)2 (1+WACC)3 (1+WACC)4 (1+WACC)5 (1+WACC)5

ii)        If the exchange rate of dollar stays fixed, how would this change affect us domestic product and income? What effect would this change in Fiscal Policy have on dollar?

Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $4 million, $7 million, $11 million, and $16 million. After the fourth year, free cash flow is projected to grow at a constant 7%. Brandtly's WACC is 16%, the market value of its debt and preferred stock totals $52 million, the firm has $16 million in non-operating assets, and it has 25 million shares of common stock outstanding.

1. What is the present value of the free cash flows projected during the next 4 years? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.
   $   24534308.15
2. What is the firm's horizon, or continuing, value? Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.$   190222222
3. What is the market value of the company's operations? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000. $   129592348.1
4. What is the firm's total market value today? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000. $ ?  
5. What is an estimate of Brandtly's price per share? Do not round intermediate calculations. Round your answer to the nearest cent. $ ?

Please use excel and show the excel formulas in detail.

Alice wants to deposit $35,000 now $45,000 at the end of 6 years at a bank that pays 10% interest compounded semiannually. She wants to withdraw an amount every year for the first 6 years and to withdraw exactly $1000 more for the following four years. What is the maximum amount she could withdraw in year 1?

in what ways do non bank financial intermediaries (NBFIs) constitutes clog on the effectiveness of monetary policy?

When doing short-term financial projections, is it reasonable to forecast the Total Assets as depending on sales forecasts?

Explain your answer.

2. Complete problems: NPV, IRR, MIRR, Profitability Index, Payback, Discounted Payback
   
   A project has an initial cost of $60,000, expected net cash inflows of $10,000 per year for 8 years, and a cost of capital of 12%. Show your work.

• What is the project’s NPV? (Hint: Begin by constructing a timeline).
• What is the project’s IRR?
• What is the project’s MIRR?
• What is the project’s PI?
• What is the project’s payback period?
• What is the project’s discounted payback period?

13，Distinguish between the concepts of the maturity-risk premium and the liquidity-risk premium.

14，Identify three prominent theories that attempt to explain the term structure of interest rates.

3. Your division is considering two investment projects, each of which requires an up-front expenditure of 20 million. You estimate that the investment will produce the following net cash flows:

Year          Project A                       Project B

1 $5,000,000 $20,000,000

2                10,000,000                    10,000,000

3 20,000,000                    6,000,000

• What are the two project’s net present values, assuming the cost of capital is 5%? 10%? 15%?
• What are the two projects’ IRRs at these same costs of capital?

Show your work.

How was ANZ Bank impacted by the regulations after the global financial crisis (GFC)?

Please explain and analyse in details, thanks.