Max and Veronica Shuman, along with their teenage sons, Terry and Thomas, live in Portland, Oregon. Max is a sales rep for a major medical firm, and Veronica is a personnel officer at a local bank. Together they earn an annual income of around $100,000. Max has just learned that his recently departed rich uncle has named him in his will to the tune of some $250,000 after taxes. Needless to say, the family is elated. Max intends to spend $50,000 of his inheritance on a number of long-overdue family items (like some badly needed remodeling of their kitchen and family room, the down payment on a new Porsche Boxster, and braces to correct Tom’s overbite). Max wants to invest the remaining $200,000 in various types of fixed-income securities.

Max and Veronica have no unusual income requirements or health problems. Their only investment objectives are that they want to achieve some capital appreciation, and they want to keep their funds fully invested for at least 20 years. They would rather not have to rely on their investments as a source of current income but want to maintain some liquidity in their portfolio just in case.

Questions

1. Describe the type of bond investment program you think the Shuman family should follow. In answering this question, give appropriate consideration to both return and risk factors.

2. List several types of bonds that you would recommend for their portfolio and briefly indicate why you would recommend each.

3. Using a recent issue of the Wall Street Journal, Barron’s, or an online source, construct a $200,000 bond portfolio for the Shuman family. Use real securities and select any bonds (or notes) you like, given the following ground rules:

   1. The portfolio must include at least one Treasury, one agency, and one corporate bond; also, in total, the portfolio must hold at least five but no more than eight bonds or notes.

   2. No more than 5% of the portfolio can be in short-term U.S. Treasury bills (but note that if you hold a T-bill, that limits your selections to just seven other notes/bonds).

   3. Ignore all transaction costs (i.e., invest the full $200,000) and assume all securities have par values of $1,000 (although they can be trading in the market at something other than par).

   4. Use the latest available quotes to determine how many bonds/notes/bills you can buy.

4. Prepare a schedule listing all the securities in your recommended portfolio. Use a form like the one shown below and include the information it calls for on each security in the portfolio.

5. In one brief paragraph, note the key investment attributes of your recommended portfolio and the investment objectives you hope to achieve with it.

You are to develop a risk management plan for the Pierce family. Your plan should incorporate insurance and noninsurance recommendations. Provide a complete explanation of your assumptions. Remember to make the work your own. Case facts: Joe, 37, self-employed carpenter, four employees, nets $60,000 per year Anita, 37, part-time nurse, earns $30,000 per year Children: Nathan (12), Isaac (10), Charlotte (6), Lydia (3) Assets, in $ Personal Cash 12,000 Mutual funds 8,000 IRAs 15,000 401(k) 28,000 Car 20,000 ATV 5,000 Boat 10,000 Personal property 95,000 Home 245,000 Business Truck 30,000 Tools & materials 60,000 Liabilities Credit cards 6,000 Car 15,000 Home 168,000 Step 1: Identify and evaluate the risks faced by this family. (1/2 page) Step 2: Explain the noninsurance risk management techniques you recommend for this family. (1/2 page) Step 3: Recommend and explain appropriate insurance coverage for this family. (1/2 page) Step 4: Explain the retirement planning options you would recommend for this family. (1/2 page) Step 5: Explain the estate planning options you would recommend for this family. (1/2 page)

Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $3 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 6%.

1. Assume that the company pays no dividends.
   Under these assumptions, what would be the additional funds needed for the coming year? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.
   $
2. 
   
3. Why is this AFN different from the one when the company pays dividends?
   
   1. Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed.
   2. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of additional funds needed.
   3. Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of assets needed.
   4. Under this scenario the company would have a higher level of spontaneous liabilities, which would reduce the amount of additional funds needed.
   5. Under this scenario the company would have a lower level of retained earnings, which would increase the amount of additional funds needed.

Galvatron Metals has a bond outstanding with a coupon rate of 5.8 percent and semiannual payments. The bond currently sells for $1,954 and matures in 22 years. The par value is $2,000 and the company's tax rate is 35 percent. What is the company's aftertax cost of debt?

Quantitative Problem: Barton Industries expects next year's annual dividend, D₁, to be $1.70 and it expects dividends to grow at a constant rate g = 4.6%. The firm's current common stock price, P₀, is $20.50. If it needs to issue new common stock, the firm will encounter a 5.6% flotation cost, F. Assume that the cost of equity calculated without the flotation adjustment is 12% and the cost of old common equity is 11.5%. What is the flotation cost adjustment that must be added to its cost of retained earnings? Round your answer to 2 decimal places. Do not round intermediate calculations.
%

What is the cost of new common equity considering the estimate made from the three estimation methodologies? Round your answer to 2 decimal places. Do not round intermediate calculations.

REGRESSION AND RECEIVABLES

Edwards Industries has $320 million in sales. The company expects that its sales will increase 13% this year. Edwards' CFO uses a simple linear regression to forecast the company's receivables level for a given level of projected sales. On the basis of recent history, the estimated relationship between receivables and sales (in millions of dollars) is as follows:

Receivables = $10.25 + 0.10(Sales)

a.Given the estimated sales forecast and the estimated relationship between receivables and sales, what are your forecasts of the company's year-end balance for receivables? Enter your answer in millions. For example, an answer of $25,000,000 should be entered as 25. Round your answer to two decimal places.

b. What are your forecasts of the company's year-end days sales outstanding (DSO) ratio? Assume that DSO is calculated on the basis of a 365-days year. Do not round intermediate calculations. Round your answer to two decimal places.

Currently, Atlas Tours has $6.12 million in assets. This is a peak six-month period. During the other six months, temporary current assets drop to $490,000.

Short-term rates are 4 percent. Long-term rates are 5 percent. Annual earnings before interest and taxes are $1,170,000. The tax rate is 38 percent.

a. If the assets are perfectly hedged throughout the year, what will earnings after taxes be? (Enter answers in whole dollar, not in million.)

Earnings after taxes            $

b. If short-term interest rates increase to 5 percent when assets are at their lowest level, what will earnings after taxes be? For an example of perfectly hedged plans, see Figure 6–8

Earnings after taxes            $

Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $5 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 6%, and the forecasted retention ratio is 40%. Use the AFN equation to forecast Carlsbad's additional funds needed for the coming year. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent.

$

Now assume the company's assets totaled $3 million at the end of 2016. Is the company's "capital intensity" the same or different comparing to initial situation?
-Select-Different or The same

LONG-TERM FINANCING NEEDED

At year-end 2016, total assets for Arrington Inc. were $1.6 million and accounts payable were $330,000. Sales, which in 2016 were $3 million, are expected to increase by 30% in 2017. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to $445,000 in 2016, and retained earnings were $335,000. Arrington plans to sell new common stock in the amount of $195,000. The firm's profit margin on sales is 6%; 35% of earnings will be retained.

a. What were Arrington's total liabilities in 2016? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest cent.

b. How much new long-term debt financing will be needed in 2017? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Do not round your intermediate calculations. Round your answer to the nearest cent. (Hint: AFN - New stock = New long-term debt.)

Quantitative Problem: Barton Industries estimates its cost of common equity by using three approaches: the CAPM, the bond-yield-plus-risk-premium approach, and the DCF model. Barton expects next year's annual dividend, D₁, to be $2.30 and it expects dividends to grow at a constant rate g = 3.4%. The firm's current common stock price, P₀, is $28.00. The current risk-free rate, r_RF, = 4.7%; the market risk premium, RP_M, = 6%, and the firm's stock has a current beta, b, = 1.3. Assume that the firm's cost of debt, r_d, is 8.06%. The firm uses a 4% risk premium when arriving at a ballpark estimate of its cost of equity using the bond-yield-plus-risk-premium approach. What is the firm's cost of equity using each of these three approaches? Round your answers to 2 decimal places.

Answer those three above please and thank you :)

What is your best estimate of the firm's cost of equity?

You decide to invest in a portfolio consisting of 40 percent Stock A, 40 percent Stock B, and the remainder in Stock C. Based on the following information, what is the expected return of your portfolio? State of Economy Probability of State Return if State Occurs of Economy Stock A Stock B Stock C Recession .18 - 18.6 % - 3.8 % - 22.7 % Normal .55 10.4 % 8.4 % 17.0 % Boom .27 28.4 % 15.7 % 31.6 .

Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $260,000 if credit were extended to these new customers. Of the new accounts receivable generated, 8 percent will prove to be uncollectible. Additional collection costs will be 5 percent of sales, and production and selling costs will be 74 percent of sales. The firm is in the 35 percent tax bracket. a. Compute the incremental income after taxes. b. What will Johnson’s incremental return on sales be if these new credit customers are accepted? (Input your answer as a percent rounded to 2 decimal places.) c. If the accounts receivable turnover ratio is 6 to 1, and no other asset buildup is needed to serve the new customers, what will Johnson’s incremental return on new average investment be? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

REPLACEMENT CHAIN Rini Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $95 million, and will produce after-tax cash flows of $35 million per year. Plane B has a life of 10 years, will cost $112 million, and will produce after-tax cash flows of $25 million per year. Rini plans to serve the route for 10 years. The company’s WACC is 9%. If Rini needs to purchase a new Plane A, the cost will be $105 million, but cash inflows will remain the same. Should Rini acquire Plane A or Plane B? Explain your answer.

When writing a financial-based research paper on the company General Motors, we will discuss the industry in terms of its industrial life cycle. Discuss industry problems and opportunities for this year and specifically discuss the relationship between the industry and the whole economy, such as business-cycle sensitivity.

Comparing all methods. Given the following​ after-tax cash flow on a new toy for​ Tyler's Toys, find the​ project's payback​ period, NPV, and IRR. The appropriate discount rate for the project is 12​%. If the cutoff period is 6 years for major​ projects, determine whether management will accept or reject the project under the three different decision models. ​(Click on the following icon in order to copy its contents into a​ spreadsheet.) Initial cash​ outflow: ​$11 comma 600 comma 000 Years one through four cash​ inflow: ​$2 comma 900 comma 000 each year Year five cash​ outflow: ​$1 comma 160 comma 000 Years six through eight cash​ inflow: ​$518 comma 667 each year What is the payback period for the new toy at​ Tyler's Toys? 7.24 years  ​(Round to two decimal​ places.) Under the payback​ period, this project would be rejected . ​(Select from the​ drop-down menu.) What is the NPV for the new toy at​ Tyler's Toys? ​$ nothing  ​(Round to the nearest​ cent.)