The Dunder Muffin Company is considering purchasing a new commercial oven that costs $350,000. This new oven will produce cash inflows of $115,000 at the end of Years 1 through 10. In addition to the cash inflows, at the end of Year 5 there will be a net cash outflow of $200,00. The company has a weighted average cost of capital of 12.5 percent. What is the MIRR of the investment? Would you make the investment? Why or Why not? Note that we discounted the project's negative cash flows back to the present using the project's required rate of return and then computed the MIRR from the modified cash flows. The MIRR of the investment with a discount rate of 12.5% is.

A local bike shop is considering opening a new coffee shop and to operate the shop over the next ten years. The coffee shop will occupy space next door in the same building. That space is currently being rented out to a tenant for $30,000 per year (paid at the end of each year). If you open the coffee shop, you will not be able to rent out the space and you will forgo the $30,000 rental income per year starting in one year. The project will require an upfront capital investment of $200,000 today in order to pay for remodeling the space and the new equipment. This capital investment can be expensed for tax purposes. At the end of the ten years, the store believes it can sell the equipment for $20,000. The store expects the new coffee shop to generate sales revenue from the project of $200,000 one year from today. The sales revenues are expected to grow annually at a rate of 5% over the next 10 years. The costs of goods sold amount to 30% of sales. Selling, general, and administrative (SG&A) costs are expected to amount to 40% of sales. The project will require an investment in net working capital of 10% of sales, to be in place at the beginning of each year (i.e., working capital in year 0 is based on the sales in year 1). The bike shop expects to remain very profitable in the future and to incur a marginal corporate tax rate of 20%. You plan to finance the project 40% with equity and 60% with debt. The bank offers you a loan with a fixed interest rate of 5%. The probability that you will default in any year on this loan is 1% and if you default creditors expect to recover 50% of the loan principal. You estimate the equity beta of the project to be 1.5, the Treasury bill rate to be 2%, and the market risk premium to be 8%.

a) Compute the NPV of the project.

b) The assumptions above state that the SG&A costs amount to 40% of sales. However, you are not completely sure about this assumption. What is the breakeven SG&A proportion relative to sales?

Below is a paragraph written by a new intern at your bank highlighting the various aspects of a bank’s role in the economy as well as the products and services it offers to enhance the economy.

In direct financing, savers and borrowers would definitely need banks to channel their funds. Borrowers look for safety and liquidity as they borrow and which occurs when their total receipts exceed its total expenditures. Maturity transformation is generally when, savers/depositors are willing to lend smaller amounts of money than the amounts required by borrowers. Borrowers perform risk transformation by specializing in a specific type of loans and market. Direct debits are used to pay a fixed amount at regular intervals into the account of another individual or company. Debit transfers are payments where the customer instructs the bank to transfer funds directly to the beneficiary’s bank account. Disintermediation was one of the results of the issues that the banking sector faced over the past decade. Overdraft facilities and credit lines are examples of guarantees given by bank to their corporate clients. Reregulation is the process of implementing new rules, removing restrictions and controls. Banks are said to mismatch their assets and liabilities under size transformation when borrowing long and lending long. Banks are said to mismatch their assets and liabilities under size transformation when borrowing long and lending long.

Required:

Since you find that the above paragraph does not accurately reflect the role of banks, rewrite the paragraph reflecting on your knowledge a bank’s role in the economy as well as the products and services it offers to enhance the economy.

Uncontrolled free cash flow and agency concerns may be a sign that

a. a firm is using too much debt financing

b. a firm is using too much equity financing                                                           

c. managers own a disproportionate share of the firm

d. managers are underinvesting the firmʹs cash flow

Big, Steve's makers of swizzle sticks, is considering the purchase of a new plastic stamping machine. This investment requires an initial outlay of $95,000 and will generate net cash flow of $17,000 per year for 8 years. a. What is the project's NPV using a discount rate of 11 percent? Should the project be accepted? Why or Why not? b. What is the project;s NPV using a discount rate of 16 percent? Should the project be accepted? Why or Why not? c. What is this project's internal rate of return? Should the project be accepted? Why or Why not?

Explain in detail the role of each of the following in preventing money laundering and terrorist financing in the EU: Obliged Entities; Financial Intelligence Unit (FIU). You should refer to the AML EU directives in your answer.

The recent financial crisis has spawned an impressive outpouring of blame. For example, market strategies Jeremy Grantham called the EMH "responsible for the current financial crisis". The reasoning is following: Efficient Market Hypothesis (EMH) asserts market prices reflect all available information, so the market participants felt little need to verify true values of financial assets and hence failed to detect the asset bubbles. The Turner Review, issued by U.K.'s market regulator (Financial Services Authority) in 2009, also shares a similar view. Is EMH responsible for asset bubbles and financial crisis? Briefly evaluate this argument.

A multi-national-corporation has payables in a foreign currency. Circle on the correct answer for each question.

(1) [ Long or Short ] in the foreign currency forward contract.

(2) [ Long or Short ] in the foreign currency futures contract.
(3) [ Borrow or Lend ] denominate in the foreign currency.

(4) [ Long or Short ] in the foreign currency [ Call or Put] option.

What is Insider Trading using an example to illustrate your answer Outline the arguments for restricting the practice of Insider Trading. Can you think of any arguments why you might not restrict Insider Trading through regulation?

Bill defaulted on a loan to Bank which financed the Bill’s auto. Bank was listed as a lien holder on the auto title. Who, if anyone, gets paid prior to Bank if the Bank forecloses its lien by selling the auto?

a. The auto repair shop that worked on the car prior to sale.

b.Any creditor of Bill’s owed more than the bank.

c.A judgment creditor of Bill’s.

d. All of the above.

An IOU fails the test of negotiability for which reason(s)?

a.The IOU does not have to be in writing.

b.The IOU is not an unconditional promise to pay.

c.IOUs do not have to be signed by the maker or drawer.

d.All of the above.

Which option(s) are UNavailable for the secured party to pursue when the debtor defaults?

a.Threaten legal action even when not planning to do so.

b.Follow the debtor onto the debtor’s property, threaten the debtor with a pistol, then take the collateral.

c.Sell collateral for whatever it will bring and keep any extra amount owed as compensation for being put to the trouble of conducting the sale.

d. b. and c.

What is the difference between earnings per share (EPS), funds from operation (FFO), and dividends per share?

1. Which one of the following factors is not considered in calculating the firm’s cost of equity?

1. risk free rate of return
2. beta
3. interest rate on corporate debt
4. expected return on equities
5. difference between expected return on stocks and the risk free rate of return

2. Which one of the following factors is not considered in calculating the firm’s cost of capital?

1. cost of equity
2. interest rate on debt
3. the firm’s marginal tax rate
4. book value of debt and equity
5. the firm’s target debt to equity ratio

3. A firm’s leveraged beta reflects all of the following except for

1. unleveraged beta
2. the firm’s debt
3. marginal tax rate
4. the firm’s cost of equity
5. the firm’s equity

required rate of return = 15%

year

1. make a spreadsheet using excel to calculate irr, mirr, npv,

2. using excel, draw npv profile and find "two" IRRs.

3. based on the analysis, should you take on this project?

a) The continuity of a business may be influenced by its earnings power and concise forecasting for valuation. Explain the elements that impacts earnings forecasts.

b) The following information has been extracted from the statement of income of ABC Ltd for the year 2016 and 2017.

2017 2018

sh'000 sh'000

sales 190,554   176,781

cost of goods sold 77,741 72,490

______________ _______________

gross profit 112, 813 104,291

selling, general and adminisrative expenses 90,377 81,509

Depreciation, depletion and amortization 6,316 5,907

_____________    ______________

operating profit 16,120 16,875

interest expense 0 148

Non operating income 2,930 2,363

______________   ______________

profit before tax 19,050 19,090

tax 7,811 8,010

______________   ______________

Net income 11,239 11,080

______________ ______________

Required:

i) perform a vertical common size analysis for the two years

ii) Explain how the figures obtained in (i) above may influence your forecasts for the year 2018