If a company accepts all projects by comparing their IRR to the WACC, what will happen?

Your Investment advisor suggests a protective put position: go long the STI index fund and long put options on this fund. The option has an exercise price of $80 and 1 month until expiration. Assume STI index is currently trading at $100. Your best friend Joe recommends you to buy a 1-month call option on the STI index fund with exercise price $90 and buy 1-month risk-free asset with face value of $90.

a) Draw the payoffs to both strategies as a function of the STI index fund value in 1 month' time. Label your graph clearly.

b) Which of these strategies require a greater initial cash flow?

c) Suppose the market prices of the securities are as follows: STI index fund: $100 Riskfree asset: 85 Call: 20 Put: 2 Construct a table of realised profits for each portfolio for the following values of the STI index fund in 1 month: $0, $80, $90, $100, and $120. Plot the profits to each portfolio as a function of STI index fund value on one graph.

d) Which strategy is riskier? Briefly explain.

CASH CONVERSION CYCLE

Parramore Corp has $15 million of sales, $3 million of inventories, $2 million of receivables, and $3 million of payables. Its cost of goods sold is 65% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
     days
2. 
   
3. If Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.
     days
4. 
   
5. How much cash would be freed up, if Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $
6. 
   
7. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.

Table with Cash Flows for 5 projects.

1. Calculate the IRR for each of the projects presented. Rank the projects based on their IRR.
2. Graph the projects on an Investment Opportunity Schedule (interest rate on the vertical axis and initial investment on the horizontal). Suppose the firm has a capital rationing amount of $170,000 and a required rate of return of 10%.
3. Which projects should the firm implement based on your analysis using the IRR approach above? Write an email to your CFO explaining your rationale proving the choices based on the considerations of shareholder value and the maximum investment budget.

Rhonda owns a small chain of ice cream stores. You have been hired as a consultant to help with the role of the financial manager. She asks you for advice on the following three issues.

Part A: New Equipment

1. Rhonda is debating about buying a new ice cream machine for one of her stores. The current machine is valued at $10,000 this year and will generate $2,500 of profit for the store. The value of the machine at the end of the year will be $8,250. Her other option is to purchase a new piece of equipment for $15,000. The new equipment will generate $4,000 in profit and will be valued at $12,500. Calculate the holding period return for both assets.
2. Rhonda also has the option of purchasing a new espresso maker that will allow her to expand her offerings at one location. She has the savings to purchase the equipment, but would lose the 4.5% annual interest that the savings generates. She expects the espresso machine to generate profits of $3,000 each year over the next 5 years. After five years she could sell the machine for $4,000. What is the present value of the machine to her?

Part B: New Location

1. Rhonda has found a location for the next store she plans to open. The store front will require $30,000 in renovations before it is ready to open. She would like the initial investment to be paid off in 5 years. Assuming a discount rate of 4.5%, what will her annual profits for the store need to be if she wishes to recover the $30,000 in 5 years (assuming equal profits each year)?
2. What if the discount rate increased to 7.75%? What would her annual profits need to be to recover the $30,000 in 5 years?

Part C: Offering Advice

Be sure to answer each of the questions below, while providing an explanation to Rhonda for your advice.

1. Based on the holding period returns calculated in Part A.1 which option should Rhonda choose?
2. If she can purchase the espresso machine in Part A.2 for $20,000, should she?
3. If Rhonda expects profits from the new location in Part B to be $7,250 annually, should she open the new location? First, if the discount rate is 4.5%? Then, if the discount rate is 7.75%?

I ONLY NEED HELP WITH PART C. Thanks!

What would be the net annual cost of the following checking accounts? (a) Monthly fee, $4.20; processing fee, $0.20 cents per check; checks written, an average of 20 a month. (Do not round intermediate calculations. Input the answer as a positive value. Round your answer to 2 decimal places.) (b) Interest earnings of 5 percent with a $500 minimum balance; average monthly balance, $800; monthly service charge of $16 for falling below the minimum balance, which occurs three times a year (no interest earned in these months). (Do not round intermediate calculations. Input the answer as a positive value. Round your answer to 2 decimal places.)

The​ Bar-None Manufacturing Co. manufactures fence panels used in cattle feed lots throughout the Midwest. ​ Bar-None's management is considering three investment projects for next year but​ doesn't want to make any investment that requires more than three years to recover the​ firm's initial

investment. The cash flows for the three projects​ (Project A, Project​ B, and Project​ C) are as​ follows: 

Year     Project A         Project B         Project C

0          $(900)            $(9,000)          $(6,500)

1          $700                $4,000            $1,800

2          $225                $4,000            $1,800

3          $180                $4,000            $3,500

4          $60                  $4,000            $3,500

5          $450                $4,000            $3,500

a.  Given​ Bar-None's three-year payback​ period, which of the projects will qualify for​ acceptance?

b.  Rank the three projects using their payback period. Which project looks the best using this​ criterion? Do you agree with this​ ranking? Why or why​ not?

c.  If​ Bar-None uses a discount rate of 9.5% percent to analyze​ projects, what is the discounted payback period for each of the three​ projects? If the firm still maintains its​ three-year payback policy for the discounted​ payback, which projects should the firm​ undertake?

Consider a project with free cash flows in one year of $ 133 comma 513 in a weak market or $ 194 comma 564 in a strong​ market, with each outcome being equally likely. The initial investment required for the project is $ 85,000​, and the​ project's unlevered cost of capital is 16 %. The​ risk-free interest rate is 12 %. ​(Assume no taxes or distress​ costs.)

a. What is the NPV of this​ project?

b. Suppose that to raise the funds for the initial​ investment, the project is sold to investors as an​ all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this waylong dashthat ​is, what is the initial market value of the unlevered​ equity?  

c. Suppose the initial $ 85 comma 000 is instead raised by borrowing at the​ risk-free interest rate. What are the cash flows of the levered equity in a weak market and a strong market at the end of year​ 1, and what is its initial market value of the levered equity according to​ MM?  Assume that the​ risk-free rate remains at its current level and ignore any arbitrage opportunity.

a. What is the NPV of this​ project? The NPV is ​$ 56413. ​(Round to the nearest​ dollar.)

b. Suppose that to raise the funds for the initial​ investment, the project is sold to investors as an​ all-equity firm. The equity holders will receive the cash flows of the project in one year. How much money can be raised in this waylong dashthat ​is, what is the initial market value of the unlevered​ equity?  

Montego company's cash account has a balance of 14000 on January 1. Analysis of the company cash account during the year revealed the following information:

Decrease in interest payable 1000

Depreciation expense 30900

Gain on retirement of bonds 32300

Increase in accounts receivable 40000

Loss on sale on plant assets 5900

Net Income 78000

The net cash provided (used) by operating activities is:

o 23500

o 59500

o 59700

o 41500

o 94300

 The Templeton Manufacturing and Distribution Company of​ Tacoma, Washington, is contemplating the purchase of a new conveyor belt system for one of its regional distribution facilities. Both alternatives will accomplish the same task but the Eclipse Model is substantially more expensive than the Sabre Model and will not have to be replaced for 10​ years, whereas the cheaper model will need to be replaced in just 5 years. The costs of purchasing the two systems and the costs of operating them annually over their expected lives is provided​ below:

Year     Eclipse                        Sabre

0          $(1,350,000)                $(750,000)

1          $(26,000)                    $(51,000)

2          $(29,000)                    $(51,000)

3          $(29,000)                    $(57,000)

4          $(29,000)                    $(57,000)

5          $(43,000)                    $(78,000)

6          $(43,000)        

7          $(43,000)        

8          $(43,000)        

9          $(43,000)        

10        $(43,000)        

a. Templeton typically evaluates investments in plant improvements using a required rate of return of 11% What are the NPVs for the two​ systems?

b.  Calculate the equivalent annual costs for the two systems.

c.  Based on your analysis of the two systems using both their NPV and​ EAC, which system do you recommend the company​ pick? ​ Why?

Calculation of individual costs and WACC   Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 40​% long-term debt, 20​% preferred​ stock, and 40​% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 26​%.

Debt The firm can sell for ​$1010 a 12​-year, ​$1,000​-par-value bond paying annual interest at a 8.00​% coupon rate. A flotation cost of 2.5​% of the par value is required.

Preferred stock  8.00​% ​(annual dividend) preferred stock having a par value of $100 can be sold for $92. An additional fee of $6 per share must be paid to the underwriters.

Common stock  The​ firm's common stock is currently selling for $90 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from $2.70 ten years ago to the ​$5.07 dividend​ payment, Upper D0​, that the company just recently made. If the company wants to issue new new common​ stock, it will sell them $2.00 below the current market price to attract​ investors, and the company will pay $3.00 per share in flotation costs. 

a.  Calculate the​ after-tax cost of debt.

b.  Calculate the cost of preferred stock.

c.  Calculate the cost of common stock​ (both retained earnings and new common​ stock).

d.  Calculate the WACC for Dillon Labs.

Suppose that there are two assets A and B. Their expected returns are E(rA) and E(rB), where E(rA) < E(rB), and the risk free-rate is rf = 0. Their variances, greater than zero, are sd(A)^2and sd(B)^2 and they are the same . Their covariance is zero. In this question assume that shorting assets is not possible. a. (2 points) What is the variance of the portfolio that puts weight w on asset A and 1-w on asset B? Simplify the expression so that sd(B)^2 does not appear. b. (2 points) What is the minimum variance portfolio? c. (1 point) What is the variance of the minimum variance portfolio? d. (2 points) What is the Sharpe ratio of the minimum variance portfolio? e. (2 points) What must be true for the Sharpe ratio of Asset B to be higher than that of the minimum variance portfolio? f. (3 points) Is it possible for the optimal risky portfolio to be the same as the minimum variance portfolio? Very briefly explain the intuition for your answer. g. (3 points) Does your result in part (e) of this question imply that there are no benefits to diversification when two assets are uncorrelated? h. (3 points) Explain the justification for constructing optimal complete portfolios using only the optimal risky portfolio and the risk-free asset.

1. Bloom Corp. is evaluating the possible acquisition of Tulip Inc. at the end of 2019. After the merger, Bloom expects to operate Tulip as a wholly-owned subsidiary of Bloom. Bloom’s analysts have estimated the following information for Tulip as a stand-alone entity and if it becomes part of Bloom (this incorporates the impact of synergies expected from the merger). The risk-free rate is 5.5% and the market risk premium is 4.5%. Tulip Inc. has 120,000 shares of stock outstanding.

Stand-alone Tulip Inc. Data                                                                                  2020

1. Estimate the per share stock price of stand-alone Tulip Inc. as of year-end 2019.
2. As of year-end 2019, what is the merger value of Tulip Inc. to Bloom Corp. (on a per share basis)?
3. If Bloom offers a price of $10.25 for each share of Tulip, what is the NPV of the acquisition to Bloom Corp? To Tulip Inc.?

Has the retail stock market turned into short term investing opportunities or are their still investors in it for the long run? Not including Amazon

Star Industries owns and operates landfills for several municipalities throughout the Midwestern part of the U.S. Star typically contracts with the municipality to provide landfill services for a period of 20 years. The firm then constructs a lined landfill​ (required by federal​ law) that has capacity for five years. The

​$9million expenditure required to construct the new landfill results in negative cash flows at the end of years​ 5, 10, and 15. This change in sign on the stream of cash flows over the​ 20-year contract period introduces the potential for multiple​ IRRs, so​ Star's management has decided to use the MIRR to evaluate new landfill investment contracts. The annual cash inflows to Star begin in year 1 and extend through year 20 are estimated to equal $4.1 million​ (this does not reflect the cost of constructing the landfills every five​ years). Star uses a

10.2% discount rate to evaluate its new​ projects, so it plans to discount all the construction costs every five years back to year 0 using this rate before calculating the MIRR.

a.  What are the​ project's NPV,​ IRR, and​ MIRR?

b.  Is this a good investment opportunity for Star​ Industries? Why or why​ not?