Edsel Research Labs has $29.60 million in assets. Currently half of these assets are financed with long-term debt at 6 percent and half with common stock having a par value of $10. Ms. Edsel, the Vice President of Finance, wishes to analyze two refinancing plans, one with more debt (D) and one with more equity (E). The company earns a return on assets before interest and taxes of 6 percent. The tax rate is 35 percent.

Under Plan D, a $7.40 million long-term bond would be sold at an interest rate of 12 percent and 740,000 shares of stock would be purchased in the market at $10 per share and retired. Under Plan E, 740,000 shares of stock would be sold at $10 per share and the $7,400,000 in proceeds would be used to reduce long-term debt.

a-1. How would each of these plans affect earnings per share? Consider the current plan and the two new plans. (Round your answers to 2 decimal places.)
  

Earning per Shares

Current ______

Plan D _______

Plan E ________

  
a-2. Which plan(s) would produce the highest EPS? Note that due to tax loss carry-forwards and carry-backs, taxes can be a negative number.
  

• The Current Plan and Plan E

• Plan D

• Plan E

• Current Plan

  
b. Which plan would be most favorable if return on assets increased to 9 percent? Compare the current plan and the two new plans.
  

• Plan D

• Plan Current and D

• Plan E

• Current Plan and Plan D

  
c. Assuming return on assets is back to the original 6 percent, but the interest rate on new debt in Plan D is 8 percent, which of the three plans will produce the highest EPS?
  

• The Plan Current and E

• The plans Current and D

• Plan E

• Plan D

A project has an initial cost of $40,000, expected net cash inflows of $12,000 per year for 9 years, and a cost of capital of 11%. What is the project's payback period? Round your answer to two decimal places.

PLEASE SHOW ME A DETAILED EXPLANATION WITH EXCEL. THANKS!

Annuities: 4 questions

Q1: -PV: I save $200/year for 20 years at 5%. What is the present value of these savings?

Q2: -FV: I save $200/year for 20 years at 5%. How much will I have in 20 years?

Q3: -Payment: I want a $ 1 million in 25 years. I can earn 7% annually. How much do I need to save each month?

Q4: -Rate: I invest $250,000 and receive $20,000/year for next 20 years, what rate am I earning?

You want to quit your job and go back to school for a law degree 4 years from now, and you plan to save $2,100 per year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest. Under these assumptions, how much will you have 4 years from today?

We are evaluating a project that costs $1,180,000, has a life of 10 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 59,000 units per year. Price per unit is $45, variable cost per unit is $25, and fixed costs are $750,000 per year. The tax rate is 25 percent and we require a return of 14 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±15 percent.

Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

You are evaluating two different silicon wafer milling machines. The Techron I costs $261,000, has a 3-year life, and has pretax operating costs of $70,000 per year. The Techron II costs $455,000, has a 5-year life, and has pretax operating costs of $43,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $47,000. If your tax rate is 21 percent and your discount rate is 11 percent, compute the EAC for both machines. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Which machine do you prefer?

Techron II

Techron I

what are factors of Risk and Return.

   McGilla Golf is evaluating a new line of golf clubs. The clubs will sell for $1,060 per set and have a variable cost of $480 per set. The company has spent $172,500 for a marketing study that determined the company will sell 53,500 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,100 sets of its high-priced clubs. The high-priced clubs sell at $1,560 and have variable costs of $690. The company also will increase sales of its cheap clubs by 12,700 sets. The cheap clubs sell for $480 and have variable costs of $210 per set. The fixed costs each year will be $9,950,000. The company has also spent $1,325,000 on research and development for the new clubs. The plant and equipment required will cost $33,250,000 and will be depreciated on a straight-line basis to a zero salvage value. The new clubs also will require an increase in net working capital of $2,710,000 that will be returned at the end of the project. The tax rate is 23 percent and the cost of capital is 13 percent.

Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Explain in 250 words time value of money

An investor short sells 200 shares of a stock for $ 68.67 per share. The initial margin is 53 % ​, and the maintenance margin is 40 % . The price of the stock rises to $ 81.73 per share.

What is the​ margin, and will there be a margin​ call?

The margin in the account is ______ ​%. ​ (Round to the nearest​ percent.)

Because the current margin is (equal to, below or above) the maintenance​ margin, there (will or will not) be a margin call.  

(1)

equal to

below

above

(2) will not will

3. A family friend is planning her retirement from work in the U.S. She is 61 years old right now (time 0) and has the choice of taking her Social Security (a public pension program) in time 1, in time 5 or in time 9 according to the following schedule:

I. Early retirement (Age 62 exactly) $1,200 per month for life

II. Regular retirement (Age 66 exactly) $1,800 per month for life

III. Delayed retirement (Age 70 exactly) $2,500 per month for life

If her expected life expectancy is 88 years old (exactly), what are the present values of the choices? (Assume r = 4% (annual))

1. The annual membership fee at your health club is $750 a year and is expected to increase at 5% per year. A life membership is $7,500 and the discount rate is 12%. In order to justify taking out the life membership, what would be your minimum life expectancy?

2. You are considering buying a car worth $30,000. The dealer, who is anxious to sell the car, offers you an attractive financing package. You have to make a down-payment of $3,500, and pay the rest over 3 years with monthly payments. The dealer will charge you interest at a constant APR of 2%, which is lower than the market interest rate.

   1. (1) Whatisthemonthlypaymenttothedealer?

   2. (2) Thedealeroffersyouasecondoption:youpaycash,butgeta$2,500discount.Shouldyougofor

      the loan or should you pay cash? Assume that the market annual interest rate (APR) is at 5%.

   3. A foundation announces that it will be offering one CUHK (SZ) scholarship every year for an indefinite number of years. The first scholarship is to be offered exactly one year from now. When the scholarship is offered, the student will receive ¥100,000 annually for a period of four years, beginning from the date the scholarship is offered. This student is then expected to repay the principal amount received (¥400,000) in 10 equal annual installments, interest-free, starting two years after the last payment of the scholarship. This implies that the foundation is really giving an interest-free loan under the guise of a scholarship. The current interest is 6% and is expected to remain unchanged.

      1. (1) What is the PV of the first scholarship (the scholarship includes both money given out to and the

         repayments received from the student)?

      2. (2) The foundation invests a lump sum to fund all future scholarships. Determine the size of the

         investment today.

The U.S. government has decided to decrease the corporate tax rate from 35% to 20% (for the record, I originally wrote this problem long before this actually happened). You have been tasked with re-estimating the remaining PV of a project’s cash flows. The project will operate for the next 4 years before shutting down. It will produce yearly revenue of $40k with yearly operating costs of $20k. The project utilizes some heavy machinery which has a current book value of $80k and is being depreciated on a straight-line basis by $15k per year for the remainder of the project. (IMPORTANT: This does not mean that you purchase the machine today for $80k. You bought the machine in the past when you started the project). The machinery will have a resell value of $30k at the completion of the project. The firm’s discount rate is 10%.

1. Show how much each of the project’s OCFs will change on a timeline once the tax rate is decreased.
2. Compute the after-tax salvage both before and after the tax change.

Proposal X   Proposal Y

Required investment                                      $2,400,000        $3,000,000

Estimated life                                                   10 years              10 years

Estimated residual value                                  $200,000              $200,000

Estimated annual net cash flows                        $450,000             $580,000

Required rate of return                                       14%                      14%

Which proposal is the better investment.