The Department of Corrections (DOC) needs to replace two of its prison transport buses. There are two companies that have a track record of making reliable vehicles, and both make a bus that meets the needs of the department. The DOC pays an 8% interest rate on money it borrows. The bus from Company A has a purchase price of $105,000 and a 10-year service life expectancy, and it averages $2,000 per year in maintenance costs. The bus from Company B has a purchase price of $110,000 and a 10-year service life expectancy, and it averages $1,500 per year in maintenance costs. Which bus should the Department of Corrections select?

The CFO of the supermarket chain Aldi is examining an investment in a new delivery service for internet orders. The initial investment of the project consists of a cash outflow of €700,000 for the following items: a) distribution fleet, b) computer servers, c) delivery packages, and d) other fixed assets. These assets will be fully depreciated for tax purposes over a 5-year period, which is the lifetime of the project, using the straight-line depreciation method. At the end of this project, the distribution fleet and computer servers can be sold for €60,000.

The revenue of the new service will be equal, for the first year, to 15% of the current total sales of the traditional service, which are €7.5 million. For the following years, the revenues of the new service will be 20%, 25%, 30%, and 35% respectively of the initial traditional sales. This new service for internet ordering is a premium service. Therefore, the prices of the home delivery goods will be 5% higher than the current supermarket prices.

It should be taken into account that the cost of goods sold represents 70% of the supermarket sales price. Aldi expects to spend each year 7% of the sales of the new service for advertising. The company already has the available warehouse capacity needed for this service. The service will occupy 10% of the warehouse. The warehouse is rented at an annual cost of €300,000. The wages for the project workers will be €150,000 per year, however, 20% of them are workers transferred from other Aldi businesses (the company has a lifetime job policy). The distribution costs (fuel, etc.) are 3% of sales of the new service.

The introduction of the new internet ordering service will have as a consequence the reduction of the traditional sales of the supermarket business. Sales in the traditional supermarket business are expected to decrease from €7.5 million a year to €7.4 million a year for the next five years.

Accounts payable are equal to 4% of cost of goods sold, inventory corresponds to 8% of cost of goods sold, and accounts receivables are 10% of sales. At the end of the internet sales project, all remaining net working capital would be liquidated, and the cash recovered. Aldi has profits from its current business, pays taxes of 25% and has a cost of capital equal to 10%

. You are required to:

a. Calculate the project’s profit after tax throughout its five-year cycle

b. What is the change in Net Working Capital for each year?

c. Calculate the project’s Net Cash Flows for each year

d. Evaluate the project according to its NPV, IRR, Profitability Index, and Payback Period

question/ A mutual fund manager expects her portfolio to earn a rate of return of 11% this year. The beta of her portfolio is 0.9.

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%.

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

#2A- Is this fund attractive? Why?

#3A- 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?

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.

Current Ratio = 1.33

Quick Ratio = 0.61

Days sales outstanding (DSO) = 59.14 days

Asset Turnover - 1.40

Inventory Turnover Ratio = 4.09

Return on Asset(ROA)= 2.70%

Return on Equity(ROE)= 9%

Net Profit Margin= 1.93%

Question: A). Using the following data, analyse the company's performance based on the ratio, explain what each ratio figure means in terms of the performance. (50-100 word on each ratio)

B). analyze the company overall performance (summary of A)

Explain the difference between (a) public offerings and private placements, (b) primary markets and secondary markets, (c) the money market and the capital market, and (d) organized security exchanges and over-the-counter markets.

a) You are the owner of a firm that currently generates revenues of £1 million per year. Next year, revenues will either decrease by 8% with 60% probability or increase by 10% with 40% probability and then stay at that level for as long as you run the business. You own the firm outright. Also, you have annual costs of £700,000. If you decide to shut down the firm the cost is zero. In that case, you can always sell the firm for £600,000. What is the business worth today if the cost of capital is 12%? [15 marks]

b) Zweite Pharma is a fast-growing company. The company forecasts that in the next three years its growth rates will be 30%, 28% and 24% respectively. After three years, the company expects a more stable growth of 8% that will last forever. Last week it declared a dividend of £1.67. The required rate of return is 14%.

i) Compute the dividends for the next three years and find their present value.

ii) Calculate the price of the shares at the end of year 3 when the firm settles to a constant growth.

iii) What is the current price of the shares?

assume you sell short 100 shares of common stock at 50 per share, with initial margin at 50%, at what price you will receive a margin call from your broker ( assuming maintenance margin of 30%)

answers- 42.26, 57.69, 62.00, 24.44

What is your rate of return in previous problem if you purchase the stock at $40 per share?

answers- 40%, 60%, 25%, 18%

Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $22971 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital o

I am having a difficult time understanding this can someone show me how to calculate the MACRS. and can show me how to do this on an excel spreadsheet. thank you.Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $22971 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $308. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of-year NWC requirements are included below (hint: these NWC capital requirements DO NOT represent the change in NWC for the period). The $0 requirement for NWC at the end of year 4 means that all NWC is recovered by the end of the project. The corporate tax rate is 35% and the required return on the project is 12%.

What is the project’s NPV?

Critically analyze the merits and demerits of the Capital Asset Pricing Model (CAPM) and discuss its value in practice.

a) Describe the main categories of financial ratios and discuss how financial ratios can facilitate the financial analysis. [10 marks]

b) Discuss the effect of FIFO (First In First Out) and LIFO (Last In First Out) methods on the balance sheet and income statement during periods of inflation.

c) Describe what are the common-size financial statements and explain why corporations use them.

d) Under what circumstances can a firm increase its share price by cutting its dividend and increasing its investment?

e) How does the growth rate used in the total payout model differ from the growth rate used in the dividend-discount model?

f) State the efficient market hypothesis. What are the implications of the efficient market hypothesis for corporate managers?

g) Explain what is a firm’s weighted average cost of capital (WACC). Explain why it is often used as a discount rate to evaluate projects.

h) What inputs do we need to estimate a firm’s equity cost of capital using the Capital Asset Pricing Model (CAPM)?

i) Explain in detail why projects within the same firm may have different costs of capital.

Arnold Inc. is considering a proposal to manufacture high-end protein bars used as food supplements by body builders. The project requires use of an existing warehouse, which the firm acquired three years ago for £1 million and which it currently rents out for £120,000 per year. Rental rates are not expected to change in the near future. In addition to using the warehouse, the project requires an up-front investment into machines and other equipment of £1.4m. This investment can be fully depreciated straight-line over the next 10 years for tax purposes. However, Arnold Inc. expects to terminate the project at the end of eight years and to sell the machines and equipment for £500,000. Finally, the project requires an initial investment into net working capital equal to 10% of predicted first-year sales. Subsequently, net working capital is 10% of the predicted sales over the following year. Sales of protein bars are expected to be £4.8 million in the first year and to stay constant for eight years. Total manufacturing costs and operating expenses (excluding depreciation) are 80% of sales, and profits are taxed at 30%.

i. What are the free cash flows of the project? ii. If the cost of capital is 15%, what is the NPV of the project?

b) You are an analyst working for Goldman Sachs, and you are trying to value the growth potential of a large established company Big Industries. Big Industries has a thriving R&D division that has consistently turned out successful products. You estimate that, on average, the R&D division generates two new product proposals every three years, so that there is a 66% chance that a project will be proposed every year. Typically, the investment opportunities the R&D division produces require an initial investment of £10 million and yield profits of £1 million per year that grow at one of three possible growth rates in perpetuity: 3%, 0%, and −3%. All three growth rates are equally likely for any given project. These opportunities are always “take it or leave it” opportunities: If they are not undertaken immediately, they disappear forever. Assume that the cost of capital will always remain at 12% per year. What is the present value of all future growth opportunities Big Industries will produce?

[15 marks]