The technique for calculating a bid price can be extended to many other types of problems. Answer the following questions using the same technique as setting a bid price; that is, set the project NPV to zero and solve for the variable in question. Guthrie Enterprises needs someone to supply it with 158,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost $1,980,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $168,000. Your fixed production costs will be $283,000 per year, and your variable production costs should be $11.20 per carton. You also need an initial investment in net working capital of $148,000. The tax rate is 23 percent and you require a return of 12 percent on your investment. Assume that the price per carton is $17.80. a. Calculate the project NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the minimum number of cartons per year that can be supplied and still break even? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) c. What is the highest fixed costs that could be incurred and still break even? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
In: Finance
11. At a discount rate of 5%, what is worth the MOST: $50 received today, $55 received in 1 year, or $65 received in 3 years? Please show your work.
12. Would it ever make any sense to pay $1,200 for an 8% coupon bond with a face value of $1,000? Explain.
In: Finance
| Joshua & White Technologies: December 31 Balance Sheets | ||||
| (Thousands of Dollars) | ||||
| Assets | 2016 | 2015 | ||
| Cash and cash equivalents | $21,000 | $20,000 | ||
| Short-term investments | 3,759 | 3,240 | ||
| Accounts Receivable | 52,500 | 48,000 | ||
| Inventories | 84,000 | 56,000 | ||
| Total current assets | $161,259 | $127,240 | ||
| Net fixed assets | 218,400 | 200,000 | ||
| Total assets | $379,659 | $327,240 | ||
| Liabilities and equity | ||||
| Accounts payable | $33,600 | $32,000 | ||
| Accruals | 12,600 | 12,000 | ||
| Notes payable | 19,929 | 6,480 | ||
| Total current liabilities | $66,129 | $50,480 | ||
| Long-term debt | 67,662 | 58,320 | ||
| Total liabilities | $133,791 | $108,800 | ||
| Common stock | 183,793 | 178,440 | ||
| Retained Earnings | 62,075 | 40,000 | ||
| Total common equity | $245,868 | $218,440 | ||
| Total liabilities and equity | $379,659 | $327,240 | ||
| Joshua & White Technologies December 31 Income Statements | ||||
| (Thousands of Dollars) | ||||
| 2016 | 2015 | |||
| Sales | $420,000 | $400,000 | ||
| COGS except excluding depr. and amort. | 300,000 | 298,000 | ||
| Depreciation and Amortization | 19,660 | 18,000 | ||
| Other operating expenses | 27,600 | 22,000 | ||
| EBIT | $72,740 | $62,000 | ||
| Interest Expense | 5,740 | 4,460 | ||
| EBT | $67,000 | $57,540 | ||
| Taxes (40%) | 26,800 | 23,016 | ||
| Net Income | $40,200 | $34,524 | ||
| Common dividends | $18,125 | $17,262 | ||
| Addition to retained earnings | $22,075 | $17,262 | ||
| Other Data | 2016 | 2015 | ||
| Year-end Stock Price | $90.00 | $96.00 | ||
| # of shares (Thousands) | 4,052 | 4,000 | ||
| Lease payment (Thousands of Dollars) | $20,000 | $20,000 | ||
| Sinking fund payment (Thousands of Dollars) | $5,000 | $5,000 | ||
| e. Perform a common size analysis. What has happened to the composition | ||||||
| (that is, percentage in each category) of assets and liabilities? | ||||||
| Common Size Balance Sheets | ||||||
| Assets | 2016 | 2015 | ||||
| Cash and cash equivalents | ||||||
| Short-term investments | ||||||
| Accounts Receivable | ||||||
| Inventories | ||||||
| Total current assets | ||||||
| Net fixed assets | ||||||
| Total assets | ||||||
| Liabilities and equity | 2016 | 2015 | ||||
| Accounts payable | ||||||
| Accruals | ||||||
| Notes payable | ||||||
| Total current liabilities | ||||||
| Long-term debt | ||||||
| Total liabilities | ||||||
| Common stock | ||||||
| Retained Earnings | ||||||
| Total common equity | ||||||
| Total liabilities and equity | ||||||
| Common Size Income Statements | 2016 | 2015 | ||||
| Sales | ||||||
| COGS except excluding depr. and amort. | ||||||
| Depreciation and Amortization | ||||||
| Other operating expenses | ||||||
| EBIT | ||||||
| Interest Expense | ||||||
| EBT | ||||||
| Taxes (40%) | ||||||
| Net Income | ||||||
In: Finance
Initial public offering On April 13, 2017, Yext Inc. completed its IPO on the NYSE. Yext sold 10,500,000 shares of stock at an offer price of $11 with an underwriting discount of $0.77 per share. Yext's closing stock price on the first day of trading on the secondary market was $13.41,and 85,489,470 shares were outstanding.
a. Calculate the total proceeds for Yext's IPO.
b. Calculate the percentage underwriter discount.
c. Calculate the dollar amount of the underwriting fee for Yext's IPO.
d. Calculate the net proceeds for Yext's IPO.
e. Calculate Yext's IPO underpricing.
f. Calculate Yext's market capitalization.
In: Finance
25. please answer all questions round to 4 decimal places
A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,455.00 to install, $5,130.00 to operate per year for 7 years at which time it will be sold for $6,941.00. The second, RayCool 8, costs $41,330.00 to install, $2,082.00 to operate per year for 5 years at which time it will be sold for $8,917.00. The firm’s cost of capital is 6.16%. What is the equivalent annual cost of the AC360? Assume that there are no taxes.
A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,548.00 to install, $5,135.00 to operate per year for 7 years at which time it will be sold for $6,971.00. The second, RayCool 8, costs $41,800.00 to install, $2,115.00 to operate per year for 5 years at which time it will be sold for $9,029.00. The firm’s cost of capital is 5.06%. What is the equivalent annual cost of the RayCool8? Assume that there are no taxes.
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $25,232.00 per year for 8 years and costs $104,695.00. The UGA-3000 produces incremental cash flows of $27,599.00 per year for 9 years and cost $126,254.00. The firm’s WACC is 9.79%. What is the equivalent annual annuity of the GSU-3300? Assume that there are no taxes.
A firm is must choose to buy the GSU-3300 or the UGA-3000. Both machines make the firm’s production process more efficient which in turn increases incremental cash flows. The GSU-3300 produces incremental cash flows of $25,825.00 per year for 8 years and costs $103,756.00. The UGA-3000 produces incremental cash flows of $27,104.00 per year for 9 years and cost $126,558.00. The firm’s WACC is 9.57%. What is the equivalent annual annuity of the UGA-3000? Assume that there are no taxes.
In: Finance
| Joshua & White Technologies: December 31 Balance Sheets | ||||
| (Thousands of Dollars) | ||||
| Assets | 2016 | 2015 | ||
| Cash and cash equivalents | $21,000 | $20,000 | ||
| Short-term investments | 3,759 | 3,240 | ||
| Accounts Receivable | 52,500 | 48,000 | ||
| Inventories | 84,000 | 56,000 | ||
| Total current assets | $161,259 | $127,240 | ||
| Net fixed assets | 218,400 | 200,000 | ||
| Total assets | $379,659 | $327,240 | ||
| Liabilities and equity | ||||
| Accounts payable | $33,600 | $32,000 | ||
| Accruals | 12,600 | 12,000 | ||
| Notes payable | 19,929 | 6,480 | ||
| Total current liabilities | $66,129 | $50,480 | ||
| Long-term debt | 67,662 | 58,320 | ||
| Total liabilities | $133,791 | $108,800 | ||
| Common stock | 183,793 | 178,440 | ||
| Retained Earnings | 62,075 | 40,000 | ||
| Total common equity | $245,868 | $218,440 | ||
| Total liabilities and equity | $379,659 | $327,240 | ||
| Joshua & White Technologies December 31 Income Statements | ||||
| (Thousands of Dollars) | ||||
| 2016 | 2015 | |||
| Sales | $420,000 | $400,000 | ||
| COGS except excluding depr. and amort. | 300,000 | 298,000 | ||
| Depreciation and Amortization | 19,660 | 18,000 | ||
| Other operating expenses | 27,600 | 22,000 | ||
| EBIT | $72,740 | $62,000 | ||
| Interest Expense | 5,740 | 4,460 | ||
| EBT | $67,000 | $57,540 | ||
| Taxes (40%) | 26,800 | 23,016 | ||
| Net Income | $40,200 | $34,524 | ||
| Common dividends | $18,125 | $17,262 | ||
| Addition to retained earnings | $22,075 | $17,262 | ||
| Other Data | 2016 | 2015 | ||
| Year-end Stock Price | $90.00 | $96.00 | ||
| # of shares (Thousands) | 4,052 | 4,000 | ||
| Lease payment (Thousands of Dollars) | $20,000 | $20,000 | ||
| Sinking fund payment (Thousands of Dollars) | $5,000 | $5,000 | ||
| f. Perform a percent change analysis. What does this tell you about the change in profitability | ||||||
| and asset utilization? | ||||||
| Percent Change Balance Sheets | Base | |||||
| Assets | 2016 | 2015 | ||||
| Cash and cash equivalents | ||||||
| Short-term investments | ||||||
| Accounts Receivable | ||||||
| Inventories | ||||||
| Total current assets | ||||||
| Net fixed assets | ||||||
| Total assets | ||||||
| Base | ||||||
| Liabilities and equity | 2016 | 2015 | ||||
| Accounts payable | ||||||
| Accruals | ||||||
| Notes payable | ||||||
| Total current liabilities | ||||||
| Long-term debt | ||||||
| Total liabilities | ||||||
| Common stock | ||||||
| Retained Earnings | ||||||
| Total common equity | ||||||
| Total liabilities and equity | ||||||
| Base | ||||||
| Percent Change Income Statements | 2016 | 2015 | ||||
| Sales | ||||||
| COGS except excluding depr. and amort. | ||||||
| Depreciation and Amortization | ||||||
| Other operating expenses | ||||||
| EBIT | ||||||
| Interest Expense | ||||||
| EBT | ||||||
| Taxes (40%) | ||||||
| Net Income | ||||||
In: Finance
Explain how the break-even point and operating leverage are affected by the choice of manufacturing facilities (Labor intensive versus capital intensive).
In: Finance
Which of the following statements about financial planning is most correct?
a. The planning process typically takes place in January and February.
b. The financial plan is created independently of the business’s strategic plan.
c. The financial plan is created independently of the business’ operating (five-year) plan.
d. The financial plan is part of the administration and human resources plan.
e. None of the above statements are correct.
In: Finance
Suppose that XTel currently is selling at $30 per share. You buy 800 shares using $18,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%.
a. What is the percentage increase in the net
worth of your brokerage account if the price of XTel
immediately changes to (a) $33; (b) $30; (c) $27?
(Leave no cells blank - be certain to enter "0" wherever
required. Negative values should be indicated by a minus sign.
Round your answers to 2 decimal places.)
b. If the maintenance margin is 25%, how low can
XTel’s price fall before you get a margin call? (Round your
answer to 2 decimal places.)
c. How would your answer to requirement 2 would
change if you had financed the initial purchase with only $12,000
of your own money? (Round your answer to 2 decimal
places.)
d. What is the rate of return on your margined position (assuming again that you invest $18,000 of your own money) if XTel is selling after one year at (a) $33; (b) $30; (c) $27? (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.)
e. Continue to assume that a year has passed. How low can XTel’s price fall before you get a margin call?
In: Finance
Miller Model with Corporate and Personal Taxes
Cruz Corporation has $100 billion of debt outstanding. An otherwise identical firm has no debt and has a market value of $450 billion. Under the Miller model, what is Cruz’s value if the federal-plus-state corporate tax rate is 28%, the effective personal tax rate on stock is 17%, and the personal tax rate on debt is 29%? Enter your answer in billions. For example, an answer of $1.23 billion should be entered as 1.23, not 1,230,000,000. Round your answer to two decimal places.
In: Finance
Sequoia Furniture Company’s sales over the past three months, half of which are for cash, were as follows:
| March | April | May |
| $438,000 | $688,000 | $558,000 |
a. Assume that Sequoia’s collection period is 60 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May?
b. Now assume that Sequoia’s collection period is 45 days. What would be its cash receipts in May? What would be its accounts receivable balance at the end of May?
In: Finance
For the year ended January 2015, Walmart (WMT) had sales of $485.7 billion, net income of $16.2 billion, assets of $203.7 billion, and a book value of equity of $85.9 billion. For the same period, Target (TGT) had sales of $73.1 billion, net income of $2.5 billion, total assets of $41.4 billion, and a book value of equity of $14 billion. Compare the profitability, asset turnover, equity multipliers, and return on equity of these firms during this period. If Target had been able to match Walmart’s asset turnover during this period, what would its ROE have been?
In: Finance
Risk and Rates of Return: Stand-Alone Risk Stand-alone risk is the risk an investor would face if he or she held only _________________ . No investment should be undertaken unless its expected rate of return is high enough to compensate for its perceived _________________ . The expected rate of return is the return expected to be realized from an investment; it is calculated as the _________________ of the probability distribution of possible results as shown below: The _________________ an asset's probability distribution, the lower its risk. Two useful measures of stand-alone risk are standard deviation and coefficient of variation. Standard deviation is a statistical measure of the variability of a set of observations as shown below: If you have a sample of actual historical data, then the standard deviation calculation would be changed as follows: The coefficient of variation is a better measure of stand-alone risk than standard deviation because it is a standardized measure of risk per unit; it is calculated as the _________________ divided by the expected return. The coefficient of variation shows the risk per unit of return, so it provides a more meaningful risk measure when the expected returns on two alternatives are not _________________ . Quantitative Problem: You are given the following probability distribution for CHC Enterprises:
|
State of Economy |
Probability |
Rate of return |
|
Strong |
0.25 |
18% |
|
Normal |
0.5 |
8% |
|
Weak |
0.25 |
-6% |
What is the stock's expected return? Round your answer to 2 decimal places. Do not round intermediate calculations. ________ %
What is the stock's standard deviation? Round your answer to two decimal places. Do not round intermediate calculations. ________ %
What is the stock's coefficient of variation? Round your answer to two decimal places. Do not round intermediate calculations. ________
In: Finance
You company wants to build a new small plant that will cost $90,000,000 to construct. You will
pay the construction engineering firm $45,000,000 today and another $45,000,000 at the end of the first year of construction. The plant will be finished 24 months from the start of construction. Each year of operation, the plant will take charges of $5,000,000 per year at the beginning of the year for raw materials, labor, and maintenance. Each year of operation, the plant will take credits of $20,000,000 in sales revenues at the end of the year. If the company requires a MARR of 15% and the plant is expected to have a life of 15 years of production, answer the following questions:
a. What is the simple Payback Period for this project ignoring the effects of time value of money? b. What is the NPV of this project using the MARR? c. What is the Discounted Payback Period of this project using the MARR? d. What is the IRR for this project?
In: Finance
YIELD TO MATURITY AND FUTURE PRICE A bond has a $1,000 par value, 10 years to maturity, and a 7% annual coupon and sells for $985.
A. What is its yield to maturity (YTM)?
B. Assume that the yield to maturity remains constant
for the next three years. What will
the price be 3 years from today?
In: Finance