Explain the step in constructing an incremental budget and why one should be employed. Explain the strengths and weaknesses of an incremental budget and how a manager can unnecessarily increase or pad his or her budget?

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Describe how Airbnb company can make extra revenue from value added services rather than relying on fixed commission from host and guest ( 300-500 words no plagiarized content)

FCOJ, Inc., a prominent consumer products firm, is debating whether to convert its all-equity capital structure to one that is 30 percent debt. Currently, there are 7,000 shares outstanding, and the price per share is $44. EBIT is expected to remain at $30,100 per year forever. The interest rate on new debt is 9 percent, and there are no taxes.

a.       Allison, a shareholder of the firm, owns 150 shares of stock. What is her cash flow under the current capital structure, assuming the firm has a dividend payout rate of 100 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b.       What will Allison’s cash flow be under the proposed capital structure of the firm? Assume she keeps all 150 of her shares. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c.       Assume that Allison unlevers her shares and re-creates the original capital structure. What is her cash flow now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

SuFi Inc. is expected to pay the following dividends over the next four years: $9, $7, $5, and $2.74. Their CFO, Mr. Dane Cook, pledges to maintain a constant 5 percent growth rate in dividends forever. If the required return on the stock is 13 percent, what is the current share price?

You are an analyst for a venture capital fund.  The firm you are valuing is expected to have free cash flows next year of $1,000, and they are expected to grow at 4% every year forever (if they survive).  Further, using CAPM and accounting for the fees that your VC charges, the cost of capital for the firm is 23%.  What is the value of the firm, assuming it survives?

$813

$5263

$961.54

$25000

A rival VC fund put in a bid for the firm. They are offering to invest $100 for 16.67% of the firm. What is the implied pre-money valuation? What is the implied probability of survival for the firm?

100 ; about 25%

300 ; about 15%

500 ; about 10%

700 ; about 75%

A company is considering a new 6-year project that will have annual sales of $255,000 and costs of $160,000. The project will require fixed assets of $279,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 35 percent. What is the operating cash flow for Year 2?

1. Compton Corporation currently has no debt in its capital structure. As an unlevered firm, its cost of equity is 13 percent. It is considering substituting $8,000 in debt at 6 percent interest. The EBIT for the firm is $5,000 under either scenario, and the tax rate is 35 percent.

Unlevered Firm Levered Firm

EBIT $5000 $5000

Interest 0 480

EBT 5000 4520  

Taxes (.35) 1750 1582

Net Income 3250 2938

c.         Calculate the cost of equity and the WACC for the levered firm

Suppose that you are purchasing a house (loan amount = $200,000) and inquire about the terms for a 30-year fixed-rate mortgage.

LOAN A:

• annual interest rate of 3.75% with monthly payments and compounding
• no discount points
• origination fee of 0.75%
• $928 in third-party closing costs

What is the Effective Borrowing Cost for loan A assuming no prepayment? What is the EBC for the loan if we prepay at the end of the third year?

12. a. How is “bond risk” measured?

b. If a bond has modified duration of 5, how will a 1% increase in interest rates affect the price?

ExxonMobil has historically had a very low debt-to-equity ratio within the oil industry, but it recently issued $12 billion in new debt to raise capital to buy up distressed rivals. The cost of this debt turns out to have been around 2%. In this problem we'll calculate how this bond issuance may have affected ExxonMobil's cost of capital.

For the sake of this problem, assume that ExxonMobil was an unlevered firm prior to this debt issuance (at the time of the above mentioned debt issuance the debt-to-equity ratio of ExxonMobil was just over 0.1, so ExxonMobil was pretty unlevered at the time). The equity beta of ExxonMobil is 0.85, the risk-free rate of return is 0.5% and the market risk premium is 4%. The EBIT for ExxonMobil is $15 billion, which you can assume will remain constant in perpetuity. The tax rate is 35%, and earnings after taxes are paid out entirely as dividends.

Your task in this problem is to calculate the WACC for ExxonMobil before and after the bond issuance.

Colsen Communications is trying to estimate the first-year net operating cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project:

The company has a 40% tax rate, and its WACC is 10%.

Write out your answers completely. For example, 13 million should be entered as 13,000,000.

1. What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest dollar.
   $  
2. 
   
3. If this project would cannibalize other projects by $0.5 million of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest dollar.
   The firm's OCF would now be $ _______
4. 
   
5. Ignore Part b. If the tax rate dropped to 30%, how would that change your answer to part a? Round your answer to the nearest dollar.
   Would the firm's operating cash flow increase or decrease by $ ________

how can investors use common stock valuation method and interpret the subjective aspect of it.

What are the problems in undertaking policy evaluation?

The company is considering the introduction of a new product that is expected to reach sales of $10 million in its first full year and $13 million of sales in the second and third years. Thereafter, annual sales are expected to decline to two-thirds of peak annual sales in the fourth year and one-third of peak sales in the fifth year. No more sales are expected after the fifth year. The CGS is about 60% of the sales revenues in each year. The GS&A expenses are about 23.5% of the sales revenue. Tax on profits is to be paid at a 40% rate. A capital investment of $0.5 million is needed to acquire production equipment. No salvage value is expected at the end of its five-year useful life. This investment is to be fully depreciated on a straight-line basis over five years. In addition, working capital is needed to support the expected sales in an amount equal to 27% of the sales revenue. This working capital investment must be made at the beginning of each year to build up the needed inventory and implement the planned sales program. Furthermore, during the first year of sales activity, a one-time product introductory expense of $200,000 is incurred. Approximately $1.0 million has already been spent promoting and test marketing the new product.

a. Formulate a multiyear income statement to estimate the cash flows throughout its five-year life cycle.

b. Assuming a 20% discount rate, what is the new product’s NPV?

c. Should the company introduce the new product?