On November 1, 2009, Riley Corp. sold a $700 million bond issue to finance the purchase of a new distribution facility. These bonds were issued in $1,000 denominations with a maturity date of November 1, 2049. The bonds have a coupon rate of 6.00% with interest paid semiannually. Required: a) Determine the value today, November 1, 2019 of one of these bonds to an investor who requires an 8 percent return on these bonds. Why is the value today different from the par value? b) Assume that the bonds are selling for $890.00. Determine the current yield and the yield-to-maturity. Explain what these terms mean. c) Explain what layers or textures of risk play a role in the determination of the required rate of return on Riley’s bonds.

You are considering a 3-year project of which details are summarized below. Your required rate of return for capital budgeting purposes is 20 percent.

• Annual sales = 30,000 units
• Unit sales price = $5.00
• Variable costs = $2.00 per unit
• Annual fixed costs = $18,000
• Initial capital investment = $72,000, depreciated to zero over 3 years
• Initial investment in working capital = $20,000, fully recovered at the end of the project
• The tax rate is 25%

a. What is the project’s annual net income?

b. What is the project’s annual operating cash flow?

c. What is the project’s initial capital investment?

d. What is the project’s NPV?  

e. What is the project’s IRR?  

f. Should you accept this project? Why or why not?

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow –$351,000 $66,800 $85,000 $142,000 $123,000 $82,200 Use the PI decision rule to evaluate this project. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) PI Should it be accepted or rejected? Accepted Rejected

5) Assuming £1.00 = $1.45 and €1.00 = $1.25, the interest rate in the UK is 6.50% and the interest rate in Germany is 5.45%, determine the forward rate of the   £ / € if interest rate parity (IRP) holds. What does this imply about future forward rates? Explain how you can engage in covered interest arbitrage if the spot rate remains the same, and the interest rate in the UK is still 6.50%, and the forward rate is .868 £ / € .

Suppose that XYZ Corp is considering financing a project with only equity. The project’s unlevered cost of capital is 10%. The project will require a $1000 initial investment today and pay incremental free-cash-flows of $100 in perpetuity starting the end of the next year. If the firm were to finance the project with debt so that its D/E ratio is 0.50 how will the NPV of the project change? Assume the interest rate on the new debt will be 3%, and the firm faces a 21% tax rate. Round your answer to two decimals.

A loan is amortized over 7 years with monthly payments at a nominal interest rate of 9% compounded monthly. The first payment is $1000 and is to be paid one month from the date of the loan. Each succeeding monthly payment will be 3% lower than the prior payment. Calculate the outstanding loan balance immediately after the 68th payment is made.

A loan is repaid with payments which start at $400 the first year and increase by $60 per year until a payment of $1240 is made, at which time payments cease. If interest is 5% effective, find the amount of principal in the 6th payment.

Provide the pros and cons for each of the nonequity and equity modes of entry.

Bluegrass Mint Company has a debt-equity ratio of .30. The required return on the company’s unlevered equity is 12.6 percent and the pretax cost of the firm’s debt is 6.4 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $19,500,000. Variable costs amount to 55 percent of sales. The tax rate is 24 percent and the company distributes all its earnings as dividends at the end of each year.

a. If the company were financed entirely by equity, how much would it be worth? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

- $52,928,571.43

b. What is the required return on the firm’s levered equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

-14.01%

c-1. Use the weighted average cost of capital method to calculate the value of the company. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

c-2. What is the value of the company’s equity? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

c-3. What is the value of the company’s debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

d. Use the flow to equity method to calculate the value of the company’s equity. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

The Pharoah Products Co. currently has debt with a market value of $275 million outstanding. The debt consists of 9 percent coupon bonds (semiannual coupon payments) which have a maturity of 15 years and are currently priced at $1,429.26 per bond. The firm also has an issue of 2 million preferred shares outstanding with a market price of $17 per share. The preferred shares pay an annual dividend of $1.20. Pharoah also has 14 million shares of common stock outstanding with a price of $20.00 per share. The firm is expected to pay a $2.20 common dividend one year from today, and that dividend is expected to increase by 4 percent per year forever. If Pharoah is subject to a 40 percent marginal tax rate, then what is the firm’s weighted average cost of capital?

Calculate the weights for debt, common equity, and preferred equity. (Round intermediate calculations and final answers to 4 decimal places, e.g. 1.2514.)
Debt ______

Preferred Equity _______

Common Equity ________

Calculate the cost of debt. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

Cost of Debit _______ %

What is the firm’s weighted average cost of capital? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

WACC ______%

It is your job to determine your company’s marginal cost of capital schedule. The firm’s current capital structure, which it considers optimal, consists of 30% debt, 20% preferred stock, and 50% common equity. The firm has determined that it can borrow up to $15 million in debt at a pre-tax cost of 7%, an additional $9 million at a pre-tax cost of 9%, and any additional debt funds at 11%. The firm expects to retain $25 million of its earnings; any additional income can be raised by issuing new common stock. The firm’s common stock currently trades at $30 per share, and it pays a $3.00 per share dividend. Dividends are expected to grow at a 5% annual rate over time. If the firm issues new common stock it will be sold to the public at a 10% discount. There will also be a $2.00 per share flotation cost. Preferred stock can be issued in unlimited quantities at a pre-tax cost of 12%. If the firm decides to raise more than $80m in capital, what is the cost of that capital? Assume a tax rate of 40%.

1.) Sharon is 45 years old and wants to retire at 65. She wishes to make monthly deposits in an account paying 9% compounded monthly so when she retires she can withdraw $1000 a month for 20 years. How much should she deposit each month? 2.) David works during the summer to help with expenses at school the following year. He is able to save $250 each week for 12 weeks, and he invests it at an annual rate of 7% that is compounded monthly. When school starts, David will begin to withdraw equal amounts from this account each week. What is the most David can withdraw each week for 34 weeks?

can I get some help please?

Project C0 C1 C2 C3 C4 C5

A -2000 +2000 0 0 0 0

B -3000 +2000 +1000 +2000 +1000 0

C -4000 +0 +2000 +1000 +1000 +3000

1. If the opportunity cost of capital is 12%, which projects have positive NPVs? Which

projects would a firm accept using the NPV rule?

2. Calculate the payback period of each project. Which project(s) would a firm using the

payback rule accept if the cutoff period were three years?