In: Finance
IRR AND NPV
A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:
| 0 | 1 | 2 | 3 | 4 |
| Project S | -$1,000 | $868.78 | $260 | $15 | $10 |
| Project L | -$1,000 | $0 | $250 | $380 | $824.99 |
The company's WACC is 10.0%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.
%
In: Finance
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 8 percent, and the maximum allowable payback for the project is 3.5 years Time Cash Flow 0 -5000 1 1200 2 2400 3 1600 4 1600 5 1400 6 1200 Evaluate this decision based on each of the following criteria: Payback IRR NPV In your write up, would you approve of this decision and why? Which method do you believe best evaluates this decision? Many companies have a preferred method, why is that? What things are not considered in this analysis, as in what are some possible intangible factors that might play into this?
In: Finance
Health Services Management:
Discuss the factors that shape culture in HCOs.
In: Finance
Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,000 and a cash inflow the following year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 9%. Currently, 1 U.S. dollar will buy 0.98 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 4.6%, while similar securities in Switzerland are yielding 2.3%.
If this project was instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project? Round the net present value to the nearest cent and rate of return to two decimal places.
NPV = $
Rate of return = %
What is the expected forward exchange rate 1 year from now? Do not round intermediate calculations. Round your answer to two decimal places.
Swiss franc (SFr) per U.S. $
If Sandrine undertakes the project, what is the net present value and rate of return of the project for Sandrine? Do not round intermediate calculations. Round the net present value to the nearest cent and rate of return to two decimal places.
NPV = Swiss francs
Rate of return = %
In: Finance
You are working on a bid to build two city parks a year for the next three years. This project requires the purchase of $210,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the 3-year project life. The equipment can be sold at the end of the project for $34,000. You will also need $21,000 in net working capital for the duration of the project; all net working capital will be recovered at the end of the project. The fixed costs will be $19,000 a year and the variable costs will be $150,000 per park. Your required rate of return is 12 percent and your tax rate is 34 percent. What is the minimal amount you should bid per park? (Round your answer to the nearest $100)
In: Finance
(A) Using the data below, determine the repricing gap for each maturity range.
|
maturity range |
time deposits |
expected MMDA runoff |
expected savings runoff |
securities |
loans and leases |
|
3 months or less |
3500000 |
450000 |
550000 |
35000 |
4000000 |
|
over 3 months to 1 year |
2050000 |
2250000 |
3250000 |
210000 |
7500000 |
|
over 1 year to 3 years |
450000 |
0 |
0 |
180000 |
2000000 |
|
over 3 years |
100000 |
0 |
0 |
550000 |
3800000 |
(B). If interest rates are expected to increase by 85 basis points over the next year, what effect will it have on the bank in the following year?
In: Finance
In: Finance
|
First and Ten Corporation’s stock returns have a covariance with the market portfolio of .0486. The standard deviation of the returns on the market portfolio is 21 percent and the expected market risk premium is 6.7 percent. The company has bonds outstanding with a total market value of $55.4 million and a yield to maturity of 5.6 percent. The company also has 4.6 million shares of common stock outstanding, each selling for $47. The company’s CEO considers the firm’s current debt-equity ratio optimal. The corporate tax rate is 24 percent and Treasury bills currently yield 3 percent. The company is considering the purchase of additional equipment that would cost $51 million. The expected unlevered cash flows from the equipment are $17 million per year for 5 years. Purchasing the equipment will not change the risk level of the firm. |
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Calculate the NPV of the project. (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) |
In: Finance
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Knotts, Inc., an all-equity firm, is considering an investment of $1.88 million that will be depreciated according to the straight-line method over its four-year life. The project is expected to generate earnings before taxes and depreciation of $614,000 per year for four years. The investment will not change the risk level of the firm. The company can obtain a four-year, 9.4 percent loan to finance the project from a local bank. All principal will be repaid in one balloon payment at the end of the fourth year. The bank will charge the firm $64,000 in flotation fees, which will be amortized over the four-year life of the loan. If the company financed the project entirely with equity, the firm’s cost of capital would be 11 percent. The corporate tax rate is 23 percent. |
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Using the adjusted present value method, calculate the APV of the project. (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) |
In: Finance
Ron (45) and Sue (45) are married. Their sons, Kyle (18) and Keith (14), lived with them all year, and the boys received more than 50% of their support from their parents. Ron’s wages were $52,000; Sue’s wages were $38,750; Kyle’s gross income was $7,200; Keith’s was $350.
Do ron and sue meet the qualifications for claiming the child tax credit/additional child tax credit or the credit for other dependents? choose the best answer:
a) ron and sue may claim both the child tax credit and the credit for other dependents
b) ron and sue may only claim the credit for other dependents
c) ron and sue may only claim the child tax credit
In: Finance
Estimate Cash flows of the three-year project by filling in the values in the table below. · Equipment will cost $40,000, Shipping and installation charges for the equipment are expected to total $5,000. ·The Machine is depreciated using straight line method to a value of $0 at the end of it's life. ·Net working capital is $10,000 initially and $5,000 in year 1. All investment in net working capital is recovered back at the end of the project ·Total revenues will be $50,000 in year 1, $60,000 in year 2 and $75,000 in year 3. ·Operating costs = $25,000 during the first year and increase at a rate of 6 percent per year over the 3-year project ·Marginal tax rate is 40 percent. Cost of capital = 10%
| Year | 0 | 1 | 2 | 3 |
|
Revenue |
||||
| -Operating Cost | ||||
| - Depreciation | ||||
| Operating Earnings Before Taxes | ||||
| - Taxes (40%) | ||||
| Operating Earnings After taxes | ||||
| + Depreciation | ||||
| - Change in Net working Capital | ||||
| - Initial Investment in Machinery | ||||
| Net Cash Flows |
In: Finance
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A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows: 0 1 2 3 4 5
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In: Finance
Distinguish between accounting and contemporary managerial finance
In: Finance
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Shadow Corp. has no debt but can borrow at 6.8 percent. The firm’s WACC is currently 9.2 percent and the tax rate is 22 percent. |
| a. |
What is the company’s cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | If the firm converts to 20 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c. | If the firm converts to 50 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| d-1. | If the firm converts to 20 percent debt, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| d-2. | If the firm converts to 50 percent debt, what is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance