You are evaluating two different aluminum milling machines. The Alumina I costs $240,000, has a three-year life, and has pretax operating costs of $63,000 per year. The Alumina II costs $420,000, has a five-year life, and has pretax operating costs of $36,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $40,000. If your tax rate is 35 percent and your discount rate is 10 percent, which do you prefer? Why?
Answer this question using Microsoft Excel. Mark the key equations and write them out.
In: Finance
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Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,340,000; the new one will cost $1,600,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $340,000 after five years. |
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The old computer is being depreciated at a rate of $268,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $460,000; in two years, it will probably be worth $124,000. The new machine will save us $294,000 per year in operating costs. The tax rate is 24 percent and the discount rate is 11 percent. |
| a. |
Calculate the EAC for the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| b. |
What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
Suppose that a bond has the following terms:
•10-years-to-maturity
•$1000 face value
•Semi-annual coupons, with an annual coupon rate of 5%
Suppose that all discount rates are 7%.
1. Calculate the price of the bond.
2. Calculate the bond’s modified duration.
3. Calculate the bond’s convexity.
4. If discount rates increase to 10%, what is the new price of the bond. Do (i) the actual calculation and (ii) approximate the new bond price using the duration and convexity. How well does the duration and convexity approximation work?
In: Finance
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.31 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,725,000 in annual sales, with costs of $635,000. The project requires an initial investment in net working capital of $280,000, and the fixed asset will have a market value of $225,000 at the end of the project. a. If the tax rate is 23 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) b. If the required return is 11 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
In: Finance
Use the following information for Clarington INC. (assume the tax rate is 34%):
| 2017 | 2018 | |||
| Sales | $ | 11,573 | $ | 12,936 |
| Depreciation | 1,661 | 1,736 | ||
| Cost of goods sold | 3,979 | 4,707 | ||
| Other expenses | 946 | 824 | ||
| Interest | 776 | 926 | ||
| Cash | 6,067 | 6,466 | ||
| Accounts receivable | 8,034 | 9,427 | ||
| Short-term notes payable | 1,171 | 1,147 | ||
| Long-term debt | 20,320 | 24,696 | ||
| Net fixed assets | 50,888 | 54,273 | ||
| Accounts payable | 4,384 | 4,644 | ||
| Inventory | 14,283 | 15,288 | ||
| Dividends | 1,411 | 1,618 | ||
Prepare a statement of financial position for this company for 2017 and 2018. (Be sure to list the accounts in order of their liquidity and liabilities in the order of their maturity. Omit $ sign in your response.)
| CLARINGTON, INC. Statement of Financial Position as of Dec. 31 |
|||
| 2017 | 2018 | ||
| Assets | |||
| (Click to select) Accounts payable Inventory Notes payable Cash Accounts receivable | $ | $ | |
| (Click to select) Owner's equity Accounts receivable Accounts payable Notes payable Long-term debt | |||
| (Click to select) Inventory Accounts receivable Net fixed assets Accounts payable Notes receivable | |||
| Current assets | |||
| (Click to select) Accounts payable Net fixed assets Accounts receivable Notes receivable Long-term debt | |||
| Total assets | $ | $ | |
| Liabilities | |||
| (Click to select) Accounts payable Net fixed aseets Cost of goods sold Long-term debt Accounts receivable | $ | $ | |
| (Click to select) Accounts receivable Notes receivable Cash Notes payable Accounts payable | |||
| Current liabilities | |||
| (Click to select) Cash Cost of goods sold Accounts receivable Owner's equity Long-term debt | |||
| (Click to select) Cost of goods sold Cash Owner's equity Accounts receivable Notes receivable | |||
| Total liabilities & owner's equity | $ | $ | |
Prepare a statement of comprehensive income for this company for 2017 and 2018. (Round the final answers to 2 decimal places. Omit $ sign in your response.)
| CLARINGTON, INC. Statement of Comprehensive Income |
|||
| 2017 | 2018 | ||
| Sales | $ | $ | |
| COGS | |||
| Other expenses | |||
| Depreciation | |||
| EBIT | $ | $ | |
| Interest | |||
| EBT | |||
| Taxes (34%) | |||
| Net income | |||
| Dividends | $ | $ | |
| Additions to RE | |||
In: Finance
Consider the following abbreviated financial statements for Barrie Enterprises:
| BARRIE Enterprises 2017 and 2018 Partial Statement of Financial Position |
||||||||||||
| Assets | Liabilities and Owner's Equity | |||||||||||
| 2017 | 2018 | 2017 | 2018 | |||||||||
| Current assets | $ | 914 | $ | 990 | Current liabilities | $ | 365 | $ | 410 | |||
| Net fixed assets | 3,767 | 4,536 | Long-term debt | 1,991 | 2,117 | |||||||
| BARRIE Enterprises 2018 Statement of Comprehensive Income |
||
| Sales | $ | 11,592 |
| Costs | 5,405 | |
| Depreciation | 1,033 | |
| Interest paid | 294 | |
a. What is owner's equity for 2017 and 2018? (Negative answer should be indicated by a minus sign. Omit $ sign in your response.)
| Owner's equity 2017 | $ |
| Owner's equity 2018 | $ |
b. What is the change in net working capital for 2018? (Negative answer should be indicated by a minus sign. Omit $ sign in your response.)
Change in NWC $
c1. In 2018, Barrie Enterprises purchased $1,890 in new fixed assets. How much in fixed assets did Barrie Enterprises sell? (Negative answer should be indicated by a minus sign. Omit $ sign in your response.)
Fixed assets sold $
c2. In 2018, Barrie Enterprises purchased $1,890 in new fixed assets. What is the cash flow from assets for the year? (The tax rate is 35%.) (Negative answer should be indicated by a minus sign. Omit $ sign in your response.)
Cash flow from assets $
d1. During 2018, Barrie Enterprises raised $378 in new long-term debt. How much long-term debt must Barrie Enterprises have paid off during the year? (Negative answer should be indicated by a minus sign. Omit $ sign in your response.)
Debt retired $
d2. During 2018, Barrie Enterprises raised $378 in new long-term debt. What is the cash flow to creditors? (Negative answer should be indicated by a minus sign. Omit $ sign in your response.)
Cash flow to creditors $
In: Finance
2) You are evaluating two different aluminum milling machines. The Alumina I costs $240,000, has a three-year life, and has pretax operating costs of $63,000 per year. The Alumina II costs $420,000, has a five-year life, and has pretax operating costs of $36,000 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $40,000. If your tax rate is 35 percent and your discount rate is 10 percent, which do you prefer? Why?
Answer this question using Microsoft Excel. Mark the key equations and write them out.
In: Finance
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Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $1,500,000, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 29,000 keyboards each year. The price of each keyboard will be $52 in the first year and will increase by 4 percent per year. The production cost per keyboard will be $22 in the first year and will increase by 5 percent per year. The project will have an annual fixed cost of $265,000 and require an immediate investment of $230,000 in net working capital. The corporate tax rate for the company is 21 percent. The appropriate discount rate is 9 percent. |
| What is the NPV of the investment? |
In: Finance
Chris Griffin has a $8,000 debt balance on his Visa card that charges 18.4 percent compounded monthly, and his minimum monthly payment is 3 percent of his debt balance, which is $240. How many months will it take Chris to pay off his credit card if he pays the current minimum payment of $240 at the end of each month? If chris made monthly payments of $290 at the end of each month, how long would it take to pay off his credit card debt? For chris to pay off his credit card if he pays the current minimum payment of $240 at the end of each month, it will take approximately ___ months.
In: Finance
A local finance company quotes an interest rate of 18.1 percent on
one-year loans. So, if you borrow $39,000, the interest for the
year will be $7,059. Because you must repay a total of $46,059 in
one year, the finance company requires you to pay $46,059/12, or
$3,838.25 per month over the next 12 months.
What rate would legally have to be quoted? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
APR ___________ %
What is the effective annual rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
EAR____________%
In: Finance
1.) What is the future value after 3 years of the cashflow below if the interest rate is 4%?
YR: 1 2 3
CF: 500 400 300
2.) What is the present value of the cash flows above if the discount rate is 12%?
Please show work + formulas used. Studying for an exam.
In: Finance
You are an analyst at a large firm. The Chief Financial Officer
presents the following free cash flow data for ABC Corp (in
millions of $).
Year Cash Flow
2010 1600
2011 2600
2012 3200
2013 3400
2014 2300
She asks you to please calculate the:
- Geometric Total Return
- The Annualized Rate of Change
Then, the director asks you to make a 10 year cash flow forecast
based upon the annualized rate of growth in cash flow.
Next, she asks you to calculate the NPV of the forecasted cash
flows assuming an immediate investment cost of $19.8 billion.
To estimate the weighted average cost of capital, please use the
following data points.
Market Value of Debt - $580,000,000
Market Value of Equity - $1,302,000,000
Current Yield to Maturity on Debt – 5.1875%
Tax Rate – 35.2%
Expected Return on Market – 11.7%
Current 10 year U.S. Treasury – 4.3%
Beta – 2.41
In: Finance
Suppose the inflation rate is expected to be 6% next year, 4% the following year, and 2.15% thereafter. Assume that the real risk-free rate, r*, will remain at 2.45% and that maturity risk premiums on Treasury securities rise from zero on very short-term bonds (those that mature in a few days) to 0.2% for 1-year securities. Furthermore, maturity risk premiums increase 0.2% for each year to maturity, up to a limit of 1.0% on 5-year or longer-term T-bonds.
Calculate the interest rate on 2-year
Treasury securities. Round your answer to two decimal places.
________ %
Calculate the interest rate on 3-year
Treasury securities. Round your answer to two decimal places.
________ %
Calculate the interest rate on 4-year
Treasury securities. Round your answer to two decimal places.
________ %
Calculate the interest rate on 5-year
Treasury securities. Round your answer to two decimal places.
________ %
Calculate the interest rate on 10-year
Treasury securities. Round your answer to two decimal places.
________ %
Calculate the interest rate on 20-year
Treasury securities. Round your answer to two decimal places.
________ %
Select the correct yield curve based on these data.
In: Finance
What factors affect nominal interest rates? In other words, what is the risk free rate and what factors determine the risk premium? Explain them.
In: Finance
Actual and adjusted prices of a stock on January 15 were $45.75 and $12.4578, respectively. On February 22, the stock had a 3-for-1 split. On March 10, the stock paid a dividend of $0.75 per share. On April 15, the actual and adjusted prices of the stock were $20.45 and $17.3217. What was the return on the stock between January 15 and April 15?
а. - 53.66%
b. 34.10%
c. 35.74%
d. 39.04%
You invested $25,000 in a mutual fund 3 years ago. The mutual fund paid dividends of $800, $875 and $975 at the end of years 1, 2 and 3. After the third dividend you cashed your investment for $29,000. What was your annual rate of return on this investment?
a. 8.42%
b. 8.87%
c. 16.00%
d. 26.60%
3. A stock provided a return of 3 percent in the first quarter,
15 percent in the second quarter, −10 percent in the third quarter
and 5 percent in the fourth quarter. The return over the year from
this stock was
a. 13% b.11.94% c. -23% d.- 0.23%
If the effective annual rate of return is 16 percent per year,
the equivalent quarterly rate of return is
a. less than 4 percent
b. equal to 4 percent
c. more than 4 percent
d. 16 percent
In: Finance