Max Laboratories Inc. has been operating for over thirty years producing medications and food for pets and farm animals. Due to new growth opportunities they are interested in your expert opinion on a series of issues described below. The firm has a target capital structure of 40 percent debt and 60 percent common equity, which the CFO considers to be the optimal capital structure and plans to maintain it in the future. Next year the firm forecasts Earnings per share (EPS) of $15. Max Labs has One million common shares outstanding. The firm has a line of credit at the local bank at the following interest rates: Can borrow up to $6,000,000 at an 8% interest rate; the rate goes to 10% for amounts above $6,000,000. The firm’s interest subsidy tax rate is 25 percent. The firm plans to retain 70% of the forecasted Net income; the remaining 30% of the estimated profits will be paid as dividends to common shareholders next year. Currently common shares sell for $110 and the expected earnings growth is 9%. The floatation costs to raise new common equity capital, equal 7% of the share price.

Suppose that every 4 months, you make a $595 payment toward a 10-year loan whose annual rate is 4.5%. How much was the loan for?

The answer is $14,289, but I'm not sure why. Can someone explain this to me?

Suppose that Disney is considering one more Toy Story movie. The company is not confident in box office sales, but they do believe that the file will create merchandising opportunities (DVDs, toys, clothes,..etc). Their early analysis believes the move will have an NPV of -$39.00 million if you only look at ticket sales in the theater. However, they also believe that the movie will create sales of $82.00 million per year in merchandise. The merchandise sales will decline each year by 26.00% in perpetuity. Let’s assume that after-tax operating margin on these sales is 11.00%, and that Disney has a cost of capital at 10.00%.

A) What is the cash flow created by the merchandise side effect in the first year? (answer in terms of millions, so 1,000,000 would be 1.00)

B) Let’s value this as a perpetuity. The merchandise sales will continue indefinitely, BUT the sales will decrease each year. What is the net NPV for creating the movie? (answer in terms of millions, so 1,000,000 would be 1.00)

You are CEO of Rivet​ Networks, maker of​ ultra-high performance network cards for gaming​ computers, and you are considering whether to launch a new product. The​ product, the Killer​ X3000, will cost $ 903 comma 000 to develop up front​ (year 0), and you expect revenues the first year of $ 798 comma 000 ​, growing to $ 1.46 million the second​ year, and then declining by 45 % per year for the next 3 years before the product is fully obsolete. In years 1 through​ 5, you will have fixed costs associated with the product of $ 102 comma 000 per​ year, and variable costs equal to 45 % of revenues.    a. What are the cash flows for the project in years 0 through​ 5? b. Plot the NPV profile for this investment using discount rates from​ 0% to​ 40% in​ 10% increments. c. What is the​ project's NPV if the​ project's cost of capital is 9 % ​? d. Use the NPV profile to estimate the cost of capital at which the project would become​ unprofitable; that​ is, estimate the​ project's IRR.

Financial analysts recommend investing 15% to 20% of your annual income in your retirement fund to reach a replacement rate of 70% of your income by age 65. This recommendation increases to almost 30% if you start investing at 45 years old. Mallori Rouse is 28 years old and has started investing $5,100 at the end of each year in her retirement account. How much will her account be worth in 20 years at 10% interest compounded annually? How much will it be worth in 30 years? What about at 40 years? How much will it be worth in 50 years? (Please use the following provided Table 13.1.) (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

Garcia's Truckin' Inc. is considering the purchase of a new production machine for ​$150,000. The purchase of this machine will result in an increase in earnings before interest and taxes of ​$40,000 per year. To operate the machine​ properly, workers would have to go through a brief training session that would cost ​$7,000 after taxes. It would cost ​$4,000 to install the machine properly.​ Also, because this machine is extremely​ efficient, its purchase would necessitate an increase in inventory of ​$15,000. This machine has an expected life of 10 ​years, after which it will have no salvage value.​ Finally, to purchase the new​ machine, it appears that the firm would have to borrow​ $100,000 at 12 percent interest from its local​ bank, resulting in additional interest payments of ​$12,000 per year. Assume simplified​ straight-line depreciation and that the machine is being depreciated down to​ zero, a 35 percent marginal tax​ rate, and a required rate of return of 15 percent.

a. What is the initial outlay associated with this​ project?

b. What are the annual​ after-tax cash flows associated with this project for years 1 through​ 9?

c. What is the terminal cash flow in year 10 (what is the annual​ after-tax cash flow in year 10 plus any additional cash flows associated with the termination of the​ project)?

d. Should the machine be​ purchased?

Derivatives are contracts enabling both buyers and sellers to execute a future transaction at a price determined at the outset of the derivatives contract. Please answer the following questions.

1. What is the difference between a call and put option?
2. What does the exercise - -or strike price denote?
3. Of the five inputs used on the Black-Scholes model, please list three of the most important inputs used in the model.  
4. What happens to the call-option premium when the strike price begins to rise (Assuming that there are no changes to the other variables in the Black-Scholes model)?

Tom Cruise Lines Inc. issued bonds five years ago at $1,000 per bond. These bonds had a 30-year life when issued and the annual interest payment was then 13 percent. This return was in line with the required returns by bondholders at that point as described below:

Assume that five years later the inflation premium is only 3 percent and is appropriately reflected in the required return (or yield to maturity) of the bonds. The bonds have 25 years remaining until maturity.
  
Compute the new price of the bond. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places. Assume interest payments are annual.)

New Price of Bond _____

Your company has just signed a​ three-year nonrenewable contract with the city of New Orleans for earthmoving work. You are investigating the purchase of heavy construction equipment for this job. The equipment costs ​$192,000 and qualifies for​ five-year MACRS depreciation. At the end of the​ three-year contract, you expect to be able to sell the equipment for $70,000. If the projected operating expense for the equipment is ​$70,000 per​ year, what is the​ after-tax equivalent uniform annual cost​ (EUAC) of owning and operating this​ equipment? The effective income tax rate is 28​%, and the​ after-tax MARR is 11​% per year.

The​ after-tax equivalent uniform annual cost is $?

Explain the purpose of financial ratios and what issues should be considered when using them for comparing organizations? Explain the purpose and difference types of benchmarking.

Unit price: $50
Variable cost: $30
Fixed Cost: $430,000
Expected Sales: 42,000 units per year

However, you recognize that some of these estimates are subject to error. Suppose that each variable may turn out to be either 10% high or 10% lower than the initial estimate. The project will last for 10 years and requires an initial investment of $1.9 million, which will be depreciate straight line over the project life to a final value of zero. The firm’s tax rate is 35% and the required rate of return is 10%.

1. What is project NPV in the best case scenario, that is, assuming all variables take on the best possible value?
2. What is project NPV in the worst case scenario?

Bid price $

Latesha Moore has a choice at work between a traditional health insurance plan that pays 80 percent of the cost of doctor visits after a $250 deductible and an HMO that charges a $10 co-payment per visit plus a $20 monthly premium deduction from her paycheck. Latesha anticipates seeing a doctor once a month for her high blood pressure. The cost of each office visit is $50. She normally sees the doctor an average of three times a year for other health concerns. Comment on the difference in costs between the two health-care plans and the advantages and disadvantages of each.

formance lg3 lg4 mary and nick ...

Question: Case Problem 13.1 Assessing the Stalchecks’s Portfolio Performance LG3 LG4 Mary and Nick Stalchec...

Case Problem 13.1
Assessing the Stalchecks’s Portfolio Performance
LG3 LG4 Mary and Nick Stalcheck have an investment portfolio containing 4 investments. It was developed to provide them with a balance between current income and capital appreciation. Rather than acquire mutual fund shares or diversify within a given class of investments, they developed their portfolio with the idea of diversifying across various asset classes. The portfolio currently contains common stock, industrial bonds, mutual fund shares, and options. They acquired each of these investments during the past 3 years, and they plan to purchase other investments sometime in the future.
Currently, the Stalchecks are interested in measuring the return on their investment and assessing how well they have done relative to the market. They hope that the return earned over the past calendar year is in excess of what they would have earned by investing in a portfolio consisting of the S&P 500 Stock Composite Index. Their research has indicated that the risk-free rate was 7.2% and that the (before-tax) return on the S&P 500 portfolio was 10.1% during the past year. With the aid of a friend, they have been able to estimate the beta of their portfolio, which was 1.20. In their analysis, they have planned to ignore taxes because they feel their earnings have been adequately sheltered. Because they did not make any portfolio transactions during the past year, all of the Stalchecks’s investments have been held more than 12 months, and they would have to consider only unrealized capital gains, if any. To make the necessary calculations, the Stalchecks have gathered the following information on each investment in their portfolio.
Common stock. They own 400 shares of KJ Enterprises common stock. KJ is a diversified manufacturer of metal pipe and is known for its unbroken stream of dividends. Over the past few years, it has entered new markets and, as a result, has offered moderate capital appreciation potential. Its share price has risen from $17.25 at the start of the last calendar year to $18.75 at the end of the year. During the year, quarterly cash dividends of $0.20, $0.20, $0.25, and $0.25 were paid.
Industrial bonds. The Stalchecks own 8 Cal Industries bonds. The bonds have a $1,000 par value, have a 9.250% coupon, and are due in 2024. They are A-rated by Moody’s. The bonds were quoted at 97.000 at the beginning of the year and ended the calendar year at 96.375%.
Mutual fund. The Stalchecks hold 500 shares in the Holt Fund, a balanced, no-load mutual fund. The dividend distributions on the fund during the year consisted of $0.60 in investment income and $0.50 in capital gains. The fund’s NAV at the beginning of the calendar year was $19.45, and it ended the year at $20.02.
Options. The Stalchecks own 100 options contracts on the stock of a company they follow. The value of these contracts totaled $26,000 at the beginning of the calendar year. At year-end the total value of the options contracts was $29,000.
Questions
a.   Calculate the holding period return on a before-tax basis for each of these 4 investments.
b.   Assuming that the Stalchecks’s ordinary income is currently being taxed at a combined (federal and state) tax rate of 38% and that they would pay a 15% capital gains tax on dividends and capital gains for holding periods longer than 12 months, determine the after-tax HPR for each of their 4 investments.
c.   Recognizing that all gains on the Stalchecks’s investments were unrealized, calculate the before-tax portfolio HPR for their 4-investment portfolio during the past calendar year. Evaluate this return relative to its current income and capital gain components.
d.   Use the HPR calculated in question c to compute Jensen’s measure (Jensen’s alpha). Use that measure to analyze the performance of the Stalchecks’s portfolio on a risk-adjusted, market-adjusted basis. Comment on your finding. Is it reasonable to use Jensen’s measure to evaluate a 4-investment portfolio? Why or why not?
e.   On the basis of your analysis in questions a, c, and d, what, if any, recommendations might you offer the Stalchecks relative to the revision of their portfolio? Explain your recommendations

show how to get from a to b.