A loan of $3,200 is obtained at 8.4% payable monthly and is due in six years. To accumulate the principal the borrower will make monthly deposits into a sinking fund which earns 7.2% interest compounded monthly. Determine the total periodic payment. IF the debt had been amortized with payments equal in size to the total periodic payment, what would be the effective interest rate to the nears 0.01%?

MM without Taxes

Companies U and L are identical in every respect except that U is unlevered while L has $7 million of 6% bonds outstanding. Assume that (1) there are no corporate or personal taxes, (2) all of the other MM assumptions are met, (3) EBIT is $3 million, and (4) the cost of equity to Company U is 12%.

1. What value would MM estimate for each firm? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answers to two decimal places.

   Company U	$   million
   Company L	$   million

   
   
2. What is r_s for Firm U? Round your answer to two decimal places.
   %
   
   What is r_s for Firm L? Do not round intermediate calculations. Round your answer to two decimal places.
   %
   
3. Find S_L. Round your answer to two decimal places. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000.
   $   million
   
4. What is the WACC for Firm U? Round your answer to one decimal place.
   %
   
   What the WACC for Firm L? Round your answer to one decimal place.
   %
   
5. Suppose V_U = $20 million and V_L = $22 million. According to MM, are these values consistent with equilibrium?
   -Select-Yes/No Item 8

The Minot Kit Aircraft Company of​ Minot, North​ Dakota, uses a plasma cutter to fabricate metal aircraft parts for its plane kits. The company currently is using a cutter that it purchased four years ago that has a book value of $90,000 and is being depreciated $22,500 per year over the next 4 years. If the old cutter were to be sold​ today, the company estimates that it would bring in an amount equal to the book value of the equipment. The company is considering the purchase of a new automated plasma cutter that would cost $380,000 to install and that would be depreciated over the next 4 years toward a $36,000 salvage value using​ straight-line depreciation. The primary advantage of the new cutter is the fact that it is fully automated and can be run by one operator rather than the three employees that are currently required. The labor savings would be $110,000 per year. The firm faces an income tax rate of 28 percent. At the end of the​ 4-year project both cutters could be sold at their​ end-of-project book value.

a.  What are the differential operating cash flow savings per year during years 1 through 4 for the new plasma​ cutter?

b.  What is the initial cash outlay required to replace the existing plasma cutter with the newer​ model?

c.  What does the timeline for the replacement project cash flows for years 0 through 4 look​ like?

d.  If the company requires a discount rate of 13 percent for new​ investments, should the plasma cutter be​ replaced?

Brief an overview of financial planning and its types.

The Big Company is considering the following investment alternatives with the objective of increasing sales of Product P. You have been asked to evaluate each option:

Investment A: Purchase new machinery with the capacity to increase production of Product P. The machine will cost $501,000 and Big has experience with this type of equipment. Given that this investment is considered to have a reasonably low risk associated with it, the company appropriately selected a 6% required rate of return (discount rate).

Investment B: Purchase new machinery that is also believed to have the capacity to increase production of Product P. This machine will cost $520,000. This type of machinery uses new technology that has not been fully tested so there are some concerns about its actual productivity. The company chose an 8% required rate of return (discount rate).

Investment C: Purchase new machinery that is also believed to have the capacity to increase production, but again, there is concern that the new technology that this machine uses has not been fully tested. This machine will cost $525,000. However, instead of producing Product P, Big would enter a new market by producing Product Q. Big has little familiarity with marketing Product Q. The company chose a 10% required rate of return (discount rate).

Your case analysis should be presented in a report format with the following parts:

What do you recommend? For each method (payback, net present value, and internal rate of return) identify whether the investment is acceptable or not.

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 4.1%. The probability distribution of the risky funds is as follows:

The correlation between the fund returns is 0.16.

Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations and round your final answers to 2 decimal places. Omit the "%" sign in your response.)

General Instrumentation Company manufactures dashboard instruments for heavy construction equipment. The firm is based in Baltimore, but operates several divisions in the United States, Canada, and Europe. The Hudson Bay Division manufactures complex electrical panels that are used in a variety of the firm’s instruments. There are two basic types of panels. The high-density panel (HDP) is capable of many functions and is used in the most sophisticated instruments, such as tachometers and pressure gauges. The low-density panel (LDP) is much simpler and is used in less-complicated instruments. Although there are minor differences among the different high-density panels, the basic manufacturing process and production costs are the same. The high-density panels require considerably more skilled labor than the low-density panels, but the unskilled labor needs are about the same. Moreover, the direct materials in the high-density panel run substantially more than the cost of materials in the low-density panels. Production costs are summarized as follows:

The annual fixed overhead in the Hudson Bay Division is $140,000. There is a limited supply of skilled labor available in the area, and the division must constrain its production to 44,000 hours of skilled labor each year. This has been a troublesome problem for Jacqueline Ducharme, the division manager. Ducharme has successfully increased demand for the LDP line to the point where it is essentially unlimited. Each LDP sells for $42. Business also has increased in recent years for the HDP, and Ducharme estimates the division could now sell anywhere up to 7,000 units per year at a price of $126.

On the other side of the Atlantic, General Instrumentation operates its Volkmar Tachometer Division in Berlin. A recent acquisition of General Instrumentation, the division was formerly a German company known as Volkmar Construction Instruments. The division’s main product is a sophisticated tachometer used in heavy-duty cranes, bulldozers, and backhoes. The instrument, designated as a TCH–320, has the following production costs.

The cost of purchased components includes a $160 control pack currently imported from an Asian electronics Company. Fixed overhead in the Volkmar Tachometer Division runs about $840,000 per year. Both skilled and unskilled labor are in abundant supply. The TCH–320 sells for $300.

Bertram Mueller, the division manager of the Volkmar Tachometer Division, recently attended a high-level corporate meeting in Baltimore. In a conversation with Jacqueline Ducharme, it was apparent that Hudson Bay’s high-density panel might be a viable substitute for the control pack currently imported from Japan and used in Volkmar’s TCH–320. Upon returning to Berlin, Mueller asked his chief engineer to look into the matter. Hans Schmidt obtained several HDP units from Hudson Bay, and a minor R&D project was mounted to determine if the HDP could replace the Japanese control pack. Several weeks later, the following conversation occurred in Mueller’s office:

Required:

1. 2-a. Compute the unit contribution margin of an LDP and an HDP.

2. 2-b. Compute the unit contribution margin of Volkmar's TCH-320 under each of its alternatives.

3. 2-c. What is the unit contribution to cover company's fixed cost and profit per hour of skilled labor (scarce resource) for the following.

4. 2-d. From the perspective of General Instrumentation’s top management, how many panels should be produced for each of the following purposes?

5. 3. Assume that Hudson Bay agrees to transfer 12,000 HDP units per year to Volkmar using a transfer price equal to its current selling price of $126. If Volkmar is able to get Hudson Bay to agree to a lower transfer price, what effect will this have on General Instrumentation's income?

6. 4. What is the minimum transfer price that the Hudson Bay Division would find acceptable for the HDP?

7. 5. What is the maximum transfer price that the Volkmar Tachometer Division would find acceptable for the HDP?

8. 6. From the perspective of the corporate controller for General Instrumentation, what transfer price range would you recommend the two divisions negotiate within for the HDP units?

Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $3 million as a result of an asset expansion presently being undertaken. Fixed assets total $2 million, and the firm plans to maintain a 60% debt-to-assets ratio. Rentz's interest rate is currently 8% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 14% of total sales, and the federal-plus-state tax rate is 40%.

What is the expected return on equity under each current assets level? Round your answers to two decimal places.

Restricted policy %

Moderate policy %

Relaxed policy %

In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption?

Yes, this assumption would probably be valid in a real world situation. A firm's current asset policies have no significant effect on sales.

Yes, sales are controlled only by the degree of marketing effort the firm uses, irrespective of the current asset policies it employs.

Yes, the current asset policies followed by the firm mainly influence the level of long-term debt used by the firm.

Yes, the current asset policies followed by the firm mainly influence the level of fixed assets.

No, this assumption would probably not be valid in a real world situation. A firm's current asset policies may have a significant effect on sales.

Parramore Corp has $13 million of sales, $2 million of inventories, $4 million of receivables, and $1 million of payables. Its cost of goods sold is 70% of sales, and it finances working capital with bank loans at an 9% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
     days
2. 
   
3. If Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.
     days
4. 
   
5. How much cash would be freed up, if Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $
6. 
   
7. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 12% each and increase its payables by 12%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $

The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.33 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 15 percent of its initial cost. The company believes that it can sell 24,500 tents per year at a price of $66 and variable costs of $26 per tent. The fixed costs will be $415,000 per year. The project will require an initial investment in net working capital of $201,000 that will be recovered at the end of the project. The required rate of return is 10.9 percent and the tax rate is 34 percent. What is the NPV?

FINANCIAL LEVERAGE EFFECTS - Hello! This is all one question, thank you very much in advance! Will thumbs up for answer! :D

The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $13 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $4.1 million with a 0.2 probability, $2.9 million with a 0.5 probability, and $0.3 million with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations.

Debt/Capital ratio is 0.

Debt/Capital ratio is 10%, interest rate is 9%.

Debt/Capital ratio is 50%, interest rate is 11%.

Debt/Capital ratio is 60%, interest rate is 14%.

1a) You are invested 38.30% in growth stocks with a beta of 1.93, 20.30% in value stocks with a beta of 0.97, and 41.40% in the market portfolio.

What is the beta of your portfolio?

Allied Materials needs $8 Million in new capital for the expansion of its composites manufacturing facilities. It is offering a $10,000, 5% bond at a discount price of $8000. The bond matures in 20 years and pays a Semiannual dividend.

a) What is the effective annual rate of return to an investor who buys the bond?

b) What is the effective annual rate of return to an investor who buys the bond and then resales it to the second investor in six years (just after the 12th payment) for $8750?

c) What is the effective annual rate of return to the second investor?

Use financial excel functions =RATE & =EFFECT to help solve these questions.

Start-Up Industries is a new firm that has raised $310 million by selling shares of stock. Management plans to earn a rate of return on equity of 20%, which is more than the 15% rate of return available on comparable-risk investments. Half of all earnings will be reinvested in the firm.

a. What will be Start-Up’s ratio of market value to book value?

b. What will be Start-Up’s ratio of market value to book value if the firm can earn only a rate of return of 10% on its investments?