Research a company currently in the business news. Explain why it has been receiving media attention and describe the company's current financial condition compared to the rest of the industry. Support your answer with financial ratios and cite any references used.

1. You have recently earned the Certified Financial Planner ® designation and have increased your client base because of it. You have just added some members of the Gilligan’s Island cast to your list of clients. Some of their stories and investment goals are described below:

A. Bob Denver (Gilligan) received a large lump sum as compensation for the Season 3 DVD in the amount of $2.1 million. He wants to purchase a home on the beach in Northern California. You advise him to use the entire $2.1 million plus a $3.2 million loan from a financial institution that will charge him a 6.1% annual interest rate over ten years. His first payment is due on August 5, 2019.

Determine the monthly payment on the loan.

2. Alan Hale Jr (the Skipper) currently has $3.8 million invested in a well-diversified portfolio of securities earning 12%. Alan has two children (ages 15 and 10) and would like to create a trust fund for each child so that each would have $10 million on their 25^th birthdays (10 and 15 years from today). Alan would like to save quarterly for the next 5 years to provide for his children.

Determine the quarterly amount (beginning today) Alan must save to reach the goal for both children assuming the new funds will earn 12% annually.

C. Tina Louise (Ginger) has recently seen her entertainment income reduced to zero because the industry has typecast her. Luckily, she has $10 million invested in a retirement fund earning 10% per year. She is considering retirement in three years when she turns 60. Tina believes she can live until she is 90.

Determine the monthly retirement income if she earns 6% during retirement years if she wants to leave $1 million to the Howell Estate on the date of her death.

XYZ Company is considering the purchase of a new machine. The machine
will cost $200,000 and is expected to last 10 years. However, the
machine will need maintenance costing $25,000 at the end of year three
and at the end of year six. In addition, purchasing this machine would
require an immediate investment of $35,000 in working capital which
would be released for investment elsewhere at the end of the 10 years.
The machine is expected to have a $15,000 salvage value at the end of
10 years. The machine will be used to generate net cash inflows of
$46,000 per year in each of the 10 years. XYZ Company has a cost of
capital of 8% and an income tax rate of 40%.

Calculate the net present value (NPV) of this machine.

The ASAN Ink’s Inc. is evaluating the following investment opportunity which will cost the firm $90,000 if undertaken. In addition, it is projected that the following after-tax returns will be generated from the project.

1 30,000

2 45,000

3 40,000

4 -10,000

What will the NPV be on the proposed project based on a weighted average cost of capital of 12%? Additionally, what will the project’s IRR be? Which one is more reliable in this situation? Why?

Use the following information about Rat Race Home Security, Inc. to answer the questions:

Average selling price per unit $317.

Variable cost per unit $198

Units sold 315

Fixed costs $9,229

Interest expense 19,455

Based on the data above, what will be the resulting percentage change in earnings per share of Rat Race Home Security, Inc. if they expect operating profit to change 6.6 percent?

(You should calculate the degree of financial leverage first).

Use the following information about Rat Race Home Security, Inc. to answer the questions:

Average selling price per unit $305.

Variable cost per unit $184

Units sold 490

Fixed costs $8,722

Interest expense $12,378

Based on the data above, what is the degree of financial leverage of Rat Race Home Security, Inc.?

Why are changes in gross interest income and gross interest expense highly correlated, while noninterest income and noninterest expense are less highly correlated?

1. Construct a bond amortization schedule for a $100 par value 2-year bond with 7% coupons paid semiannually, redeemable at par and bought to yield 4% per annum.

2. The following shows the information of a government bond traded in the secondary market.

Type of Bond Government bond

Issue Date May 16, 2006

Maturity Date May 16, 2016

Face Value $100

Redemption Value $108

Coupon Rate 5% payable semiannually

Yield Rate 8% convertible semiannually

Construct the bond amortization schedule for year 5 and year 6 (i.e., for the 9th coupon through the 12th coupon).

11. Please solve in Excel and round to 3 decimal places:

The original cost of the new production line is estimated at $3 million and falls into 3 year MACRS. This is a 3 year project. Expected annual sales are $2,950,000 per year, with associated annual costs of $1,250,000. The project requires a net working capital of $375,000. They can usually sell their production lines for 40% of their original costs at the end of the project. The tax rate is 32% and the relevant interest rate is 15%.

a. What is the all-inclusive cash flow for year 3 (please solve in Excel)?

b. What is the NPV (please solve in Excel)?

c. What is the IRR (please solve in Excel)?

d. Does the project add value for shareholders? Why?

21. Please solve in Excel; round to 3 decimal places.

Company A has a single bond issue American bond (American bonds pay out interest semiannually); the bond has a 6.5% coupon, 9 years to maturity, trades at $1245 per $1000 face value with a face value of $600,000. The cost of equity of 11%, cost of preferred stock of 8%. The company has 120,000 shares of common stock outstanding selling at $30 per share. It has 50,000 shares of preferred stock outstanding selling at $25 per share. The tax rate is 30%.

What is Company A's WACC (please solve in Excel)?

“Bankrupt” Corporation is in a deep financial crisis. You are one of the financial avengers “Bankrupt” is desperately seeking help from. CEO of the company informed you that he is considering the two risky projects “Thanos” and “Loki” to protect the firm from financial collapse. Both projects have similar risk characteristics. Bankrupt’s WACC is 11%. The initial investments for both the projects are $200 million. Cashflow from the projects are as follows;

Year           1                2                3                4

Thanos       10M           60M           80M           160M

Loki           70M           50M           20M           160M

Now, your job is to explain the following questions in great detail so that the CEO understands your plans to protect the firm.

1. Explain your decision when Thanos and Loki are mutually exclusive, and when they are independent.
2. WACC has increased to 15%. What change you will see in NPV?
3. What is IRR and how it is different from NPV? What is the IRR for Thanos and Loki? Based on IRR which project you should accept?
4. How is IRR identical to Bond’s YTM?

1. Discuss the differences between the stock split and stock dividends.
2. Discuss the concept of share repurchases. What are the advantages and disadvantages of share-repurchase?

ABC Company plans to sell 500,000 units of finished product in July and anticipates a growth rate in sales of 10% per month. The desired monthly ending inventory in units of finished product is 65% of the next month's estimated sales. There are 355,000 finished units in inventory on June 30. Prepare the production requirement in units of finished product for the July-October.

1. You are the CEO of “I am the top 1%” Corporation, which has a capital structure of 60% equity and 40% debt. The estimated net income of your company is $600K. Your capital budget is $800K for the coming year. If you follow the residual dividend models, how much dividend you can pay and what is your pay-out ratio? What happens to dividend when estimated net income is $400K or $800K?
2. Discuss the advantages and disadvantages of Residual dividend policy.
3. What are the steps you consider in setting your dividend policy?
4. Explain the concept of DRIP with an example.