Beryl's Iced Tea currently rents a bottling machine for $54,000 per​ year, including all maintenance expenses. It is considering purchasing a machine​ instead, and is comparing two​ options:

A. Purchase the machine it is currently renting for $155,000. This machine will require $22,000 per year in ongoing maintenance expenses.

B. Purchase a​ new, more advanced machine for $260,000. This machine will require $17,000 per year in ongoing maintenance expenses and will lower bottling costs by $15,000 per year.​ Also, $39,000 will be spent upfront training the new operators of the machine.

Suppose the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each​ year, as is the rental of the machine. Assume also that the machines will be depreciated via the​ straight-line method over seven years and that they have a​ ten-year life with a negligible salvage value. The corporate tax rate is 20%. Should​ Beryl's Iced Tea continue to​ rent, purchase its current​ machine, or purchase the advanced​ machine? To make this​ decision, calculate the NPV of the FCF associated with each alternative.

Note​: the NPV will be​ negative, and represents the PV of the costs of the machine in each case.

Suppose that you consider investing in a municipal bond issued by the Cleveland County or a corporate bond. The municipal bond yields 5.75 percent per year. If you are in the 25 percent tax bracket, what is equivalent taxable yield on the municipal bond?

Assume you are a bank manager. You are given the responsibility of reviewing your bank s liquidity position by top management, as reflected by balance sheet and income statement information. To do this, your assistant assembled the following financial data per your request:

What does this information suggest?

Suppose you were considering depositing money in a savings account at two different banks. Each bank will pay 5% interest. However, bank A compounds annually and bank B compounds semiannually. Provide a detailed explanation with your investment amount, period of time and your resulting investment. In addition, provide details on how you calculated using Excel (with formula) or financial calculator inputs. Which bank would you choose and why? Be sure to cite your source(s).

Ivanka Clinton is a recent IUN graduate living in Gary Indiana and working in Chicago as a financial analyst. She maintains an aggressive investment posture including margin trading. She currently holds a $100,000 diversified stock portfolio in her margin account. The account has a debit balance of $40,000. She believes Trump Enterprises, which is selling at $20 per share, is about to soar to at least $50 per share in the next year. The company pays no dividends. The initial margin requirement is 50% and margin loans charge 10%. 1. Suppose Ivanka decides to buy 1000 shares of Trump Enterprises. Bear in mind this is a $20,000 transaction. . Assume Ivanka buys the shares with a $5,000 investment ($5000 of her own money) and a margin loan of $15,000. In a year Trump Enterprises rises to $60 per share. a. What is Ivanka’s return on the purchase of the Trump Enterprise stock? b. What is her return on the purchase of the Trump Enterprise stock if she uses her own money instead of the margin? 3. Suppose at the year-end Trump Enterprise sells for $21 per share. Rework 2a and 2b. 4. Suppose at the year-end Trump Enterprise sells for $15 per share. Rework 2a and 2b. 5. Evaluate Ivanka’s plan to pyramid. Discuss the risk and return.

An investment firm offers the​ following: Pay us ​$5033 per month for 141 ​months, and then we will pay you ​$5033 per month forever after that. What APY are they offering on this​ investment? ​ (In percent, rounded to 4​ decimals.)

Ava’s SpinBall Corp. lists fixed assets of $32 million on its balance sheet. The firm’s fixed assets have recently been appraised at $56 million. Ava’s SpinBall Corp.’s balance sheet also lists current assets at $25 million. Current assets were appraised at $46 million. Current liabilities’ book and market values stand at $7 million and the firm’s book and market values of long-term debt are $28 million.

Calculate the book and market values of the firm’s stockholders’ equity. Construct the book value and market value balance sheets for Ava’s SpinBall Corp

If you invest

​$2589 for 6 years at 9.8​% per​ year, and then the money stays invested and earns 6.5% per year for

3 more​ years, what would be your annual​ (average) rate of return for the entire 9 ​years? ​ (In percent, rounded to 3​ decimals.)

. YIELD TO MATURITY AND FUTURE PRICE A bond has a $1 ,000 par value, 10 years to maturity, and a 7% annual coupon and sells for $985. a. What is its yield to maturity (YTM)? b. Assume that the yield to maturity remains constant for the next 3 years. What will the price be 3 years from today

Carson company has obtained substantial loans from finance companies and commercial banks. The interest rate on loans is tied to market interest rates and is adjusted every six months. Because of its expectations of a strong US economy, Carson plans to grow in the future by expanding its business and making acquisitions. It expects that it will need substantial loan-term financing and plans to borrow additional funds through loans or by issuing bonds. It is also considering stock to raise funds in the next year.

Given its large exposure to interest rates charged on its debt, Carson closely monitors Fed actions. It subscribes to a special service that attempts to monitor the Fed’s actions in the Treasury security markets. It recently received an alert from the service that suggested the Fed has been selling large holdings of its Treasury securities in the secondary Treasury Securities market.

1. How should Carson interpret the actions by the Fed? That is, will these actions place upward or downward pressure on Treasury Security prices? Explain.
2. Will these actions place upward or downward pressure on Treasury yields? Explain.
3. Will these actions place upward or downward pressure on borrowing interest rates? Explain.

Consider three bonds with 6.6% coupon rates, all selling at face value. The short-term bond has a maturity of 4 years, the intermediate-term bond has maturity 8 years, and the long-term bond has maturity 30 years.

a. What will be the price of each bond if their yields increase to 7.6% in 4 Years, 8 Years, 30 Years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

What will be the price of each bond if their yields decrease to 5.6% in 4 Years, 8 Years, 30 Years? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

A 6.75% coupon rate bond makes annual interest rate payments. Par value is $1,000.
The bond matures in 12 years. The required rate of return is 7.25%. What is the current price

a 960.81 


b 960.37 


c 958.25 


d 948.22 


Refer to the previous question. What if the bond pays semi-annual interest payment. What is the value of a semi-annual bond.

a 960.81 


b 960.37 


c 958.25 


d 948.22 


Kinetics is considering a project that has a NINV of $874,000 and generates net cash flows of $170,000 per year for 12 years. What is the NPV of this project if Kinetics cost of capital is 14%?

WWT is considering replacing a $5 million piece of equipment. The project will generate pretax savings of $1,500,000 per year, and not change the risk level of the firm. The initial expense will be depreciated straight-line to zero salvage value over 5 years; the pretax salvage value in year 5 will be $500,000. The firm can obtain a 5-year $3,000,000 loan at 12.5% to partially finance the project. If the project were financed with all equity, the cost of capital would be 18%. The corporate tax rate is 34%, and the risk-free rate is 4%. The project will require a $100,000 investment in net working capital. Calculate the APV.

Logan Distributing Company of Atlanta sells fans and heaters to retail outlets throughout the Southeast. Joe Logan, the president of the company, is thinking about changing the firm's credit policy to attract customers away from competitors. The present policy calls for a 1/10, net 30 cash discount. The new policy would call for a 3/10, net 50 cash discount. Currently, 30 percent of Logan customers are taking the discount, and it is anticipated that this number would go up to 50 percent with the new discount policy. It is further anticipated that annual sales would increase from a level of $397,000 to $615,500 as a result of the change in the cash discount policy.

The increased sales would also affect the inventory level. The average inventory carried by Logan is based on a determination of an EOQ. Assume sales of fans and heaters increase from 14,775 to 22,300 units. The ordering cost for each order is $195, and the carrying cost per unit is $1.45 (these values will not change with the discount). The average inventory is based on EOQ/2. Each unit in inventory has an average cost of $12.

Cost of goods sold is equal to 65 percent of net sales; general and administrative expenses are 15 percent of net sales; and interest payments of 14 percent will only be necessary for the increase in the accounts receivable and inventory balances. Taxes will be 40 percent of before-tax income.

For average collection period, assume the customer pays on the last day possible (if they are getting the discount, that is day 10; if not, that is day 30 with the original policy and day 50 with the proposed policy).