Charlotte's Crochet Shoppe has 14,000 shares of common stock outstanding at a price per share of $74 and a rate of return of 11.57 percent. The company also has 270 bonds outstanding, with a par value of $2,000 per bond. The pretax cost of debt is 6.11 percent and the bonds sell for 96.9 percent of par. What is the firm's WACC if the tax rate is 39 percent?

A $1,000 par value bond has coupon rate of 5% and the coupon is paid semi-annually. The bond matures in 20 years and has a required rate of return of 10%. Compute the current price of this bond?

Problem 7-11
Balance Sheet Analysis

Complete the balance sheet and sales information in the table that follows for J. White Industries using the following financial data:

Total assets turnover: 1.3
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 20%
Total liabilities-to-assets ratio: 45%
Quick ratio: 1.05
Days sales outstanding (based on 365-day year): 39.5 days
Inventory turnover ratio: 7.0

Round your answers to the nearest whole dollar.

Balance Sheet

Answer all the blanks ____ and plz show steps

i want to know about the financial summary/stock purchase recommendation of the texas instrument inc.

Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1.2 on the market index. Firm-specific returns all have a standard deviation of 25%.

Suppose that an analyst studies 20 stocks and finds that one-half of them have an alpha of +1.6%, and the other half have an alpha of −1.6%. Suppose the analyst invests $1.0 million in an equally weighted portfolio of the positive alpha stocks, and shorts $1 million of an equally weighted portfolio of the negative alpha stocks.

a. What is the expected profit (in dollars) and standard deviation of the analyst’s profit? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

b. How does your answer change if the analyst examines 50 stocks instead of 20 stocks? 100 stocks? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Working Capital Cash Flow Cycle

Strickler Technology is considering changes in its working capital policies to improve its cash flow cycle. Strickler's sales last year were $2,700,000 (all on credit), and its net profit margin was 4%. Its inventory turnover was 7.5 times during the year, and its DSO was 44 days. Its annual cost of goods sold was $1,500,000. The firm had fixed assets totaling $430,000. Strickler's payables deferral period is 50 days. Assume 365 days in year for your calculations. Do not round intermediate calculations.

1. Calculate Strickler's cash conversion cycle. Round your answer to two decimal places.
        days
   
2. Assuming Strickler holds negligible amounts of cash and marketable securities, calculate its total assets turnover. Round your answer to two decimal places.
        x
   Calculate its ROA. Round your answer to two decimal places.
        %
   
3. Suppose Strickler's managers believe the annual inventory turnover can be raised to 11 times without affecting sale or profit margins. What would Strickler's cash conversion cycle have been if the inventory turnover had been 11 for the year? Round your answer to two decimal places.
        days
   What would Strickler's total assets turnover have been if the inventory turnover had been 11 for the year? Round your answer to two decimal places.
         x
   What would Strickler's ROA have been if the inventory turnover had been 11 for the year? Round your answer to two decimal places.
        %

Problem 12-16
Unequal Lives

Shao Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million and will produce net cash flows of $27 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares is expected to be zero, and the company's cost of capital is 11%.

1. By how much would the value of the company increase if it accepted the better project (plane)? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
   $ __________________million

2. What is the equivalent annual annuity for each plane? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places.

   Plane A	$ _________ million
   Plane B	$ _____________ million

Cost of Trade Credit

Grunewald Industries sells on terms of 3/10, net 60. Gross sales last year were $4,385,500 and accounts receivable averaged $466,000. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate daily sales based on a 365-day year, calculate the average receivables for discount customers, and then find the DSO for the nondiscount customers.) Do not round intermediate calculations. Round your answers to two decimal places.

13. Assuming there is ONE risk factor, the interest rate (IR) risk factor. Investors can borrow at the risk-free rate rf of 3%. Portfolio (A) is well-diversified with the risk-return profile below. If an investor wants to profit $10,000 from a net-zero portfolio, constructed with Portfolio A, IR portfolio, and the risk-free rate. How much does he need to borrow/lend at the risk-free rate?

Portfolio A has a beta of 1.2 and E(R)-rf = 8%

Interest Rate Risk Factor Portfolio has a beta of 1 and E(R)-rf = 6%

a) Borrow $55,556

b) Lend $55,556

c) Borrow $250,000

d) Lend $250,000

e) None of the above

Consider the following option portfolio: You write a January 2012 expiration call option on IBM with exercise price $172, and the price of the call option is $8.93. You also write a January expiration IBM put option with exercise price $167, the price of the put option is $10.85.

Instructions: for parts a, b, and c, enter your answer as a decimal rounded to the nearest cent.

a. What will be the profit/loss on this position if IBM is selling at $159 on the option expiration date? $  

b. What will be the profit/loss on this position if IBM is selling at $180 on the option expiration date? $  

c. At what two stock prices will you just break even on your investment (i.e., zero net profit)?

    For the put, this requires that: $  

    For the call this requires that: $  

d. What kind of “bet” is this investor making; that is, what must this investor believe about IBM’s stock price in order to justify the position?

• betting that the IBM stock price will go up.

• betting that the IBM stock price will go down.

• betting that the IBM stock price will have low volatility.

• betting that the IBM stock price will have high volatility.

Kim Inc. must install a new air conditioning unit in its main plant. Kim must install one or the other of the units; otherwise, the highly profitable plant would have to shut down. Two units are available, HCC and LCC (for high and low capital costs, respectively). HCC has a high capital cost but relatively low operating costs, while LCC has a low capital cost but higher operating costs because it uses more electricity. The costs of the units are shown here. Kim's WACC is 5.5%.

1. Which unit would you recommend?

   1. Since all of the cash flows are negative, the IRR's will be negative and we do not accept any project that has a negative IRR.
   2. Since all of the cash flows are negative, the NPV's cannot be calculated and an alternative method must be employed.
   3. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any project that has a negative NPV.
   4. Since we are examining costs, the unit chosen would be the one that had the lower NPV of costs. Since LCC's NPV of costs is lower than HCC's, LCC would be chosen.
   5. Since we are examining costs, the unit chosen would be the one that had the lower NPV of costs. Since HCC's NPV of costs is lower than LCC's, HCC would be chosen.

   -Select-IIIIIIIVVItem 1

2. If Kim's controller wanted to know the IRRs of the two projects, what would you tell him?

   1. The IRR of each project will be positive at a lower WACC.
   2. There are multiple IRR's for each project.
   3. The IRR of each project is negative and therefore not useful for decision-making.
   4. The IRR cannot be calculated because the cash flows are all one sign. A change of sign would be needed in order to calculate the IRR.
   5. The IRR cannot be calculated because the cash flows are in the form of an annuity.

   -Select-IIIIIIIVVItem 2

3. If the WACC rose to 11% would this affect your recommendation?

   1. Since all of the cash flows are negative, the NPV's will be negative and we do not accept any project that has a negative NPV.
   2. When the WACC increases to 11%, the NPV of costs are now lower for LCC than HCC.
   3. When the WACC increases to 11%, the NPV of costs are now lower for HCC than LCC.
   4. When the WACC increases to 11%, the IRR for LCC is greater than the IRR for HCC, LCC would be chosen.
   5. When the WACC increases to 11%, the IRR for HCC is greater than the IRR for LCC, HCC would be chosen.

   -Select-IIIIIIIVVItem 3

   Why do you think this result occurred?

   1. The reason is that when you discount at a higher rate you are making negative CFs higher and this lowers the NPV.
   2. The reason is that when you discount at a higher rate you are making negative CFs smaller and this lowers the NPV.
   3. The reason is that when you discount at a higher rate you are making negative CFs smaller thus improving the NPV.
   4. The reason is that when you discount at a higher rate you are making negative CFs higher thus improving the IRR.
   5. The reason is that when you discount at a higher rate you are making negative CFs higher thus improving the NPV.

BEA

is considering a change in its capital structure. BEA currently has $20 million in debt

carrying a rate of 8%, and its stock price is $40 per share with 2 million shares outstanding.

BEA is a zero

-

growth firm and pays out all its earnings as dividends. Th

e firm’s EBIT is

$14.933 million, and it faces a 40% federal

-

plus

-

state tax rate.

The market risk premium is 4% and the risk

-

free rate is 6%. BEA is considering increasing

its debt level to a capital structure with 40% debt, based on market values, and

repurchasing

shares with the extra money that is borrows. BEA will have to retire the old debt in order

to issue new debt, and the rate on the new debt will be 9%. BEA has a beta of 1.00

i.

What is BEA’s current WACC?

ii.

What is BEA’s unlevered beta?

(Hint: use

market values of debt to equity when

un

-

levering, which is the same as using

iii.

What’s BEA’s new beta and cost of equity?

iv.

What’s BEA’S new WACC

(after the change in capital

structure)

?

v.

What’s BEA’s total value of the firm with 40% debt? (after the recapitalization is

fully completed).

vi.

What’s BEA’S value of equity and debt, when debt is 40% of the capital structure?

vii.

What’s the value of a share before the repurchase?

viii.

After retiring the old debt, how much cash is left to repurchase shares?

ix.

How many shares will be outstanding after the rep

urchase?

x.

What will the price of a share be after the repurchase?