1. Ben invested $8,500 twenty years ago with an insurance company that has paid him 6 percent simple interest on his funds. Charles invested $8,500 twenty years ago in a fund that has paid him 6 percent interest, compounded annually. How much more interest has Charles earned than Ben over the past 20 years?
2. You have $5,000 you want to invest for the next 45 years. You are offered an investment plan that will pay you 6 percent per year for the next 15 years and 10 percent per year for the last 30 years. How much will you have at the end of the 45 years?
3. You want to purchase a new condominium that costs $287,500. Your plan is to pay 25 percent down in cash and finance the balance over 15 years at 3.65 percent. What will be your monthly mortgage payment including principal and interest?
**Can you explain the PV, n, i, PMT, and FV? I just need to know how its the right answer***
In: Finance
Your division is considering two projects with the following cash flows (in millions):
| 0 | 1. | 2 | 3 |
| Project A | -$35 | $4 | $14 | $20 |
| Project B | -$15 | $8 | $5 | $4 |
What are the projects' NPVs assuming the WACC is 5%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.
Project A: $ million
Project B: $ million
What are the projects' NPVs assuming the WACC is 10%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.
Project A: $ million
Project B: $ million
What are the projects' NPVs assuming the WACC is 15%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.
Project A: $ million
Project B: $ million
What are the projects' IRRs assuming the WACC is 5%? Do not round intermediate calculations. Round your answer to two decimal places.
Project A: %
Project B: %
What are the projects' IRRs assuming the WACC is 10%? Do not round intermediate calculations. Round your answer to two decimal places.
Project A: %
Project B: %
What are the projects' IRRs assuming the WACC is 15%? Do not round intermediate calculations. Round your answer to two decimal places.
Project A: %
Project B: %
If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)
--Select-Project A Project B Neither
If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)
-Select-Project A Project B Neither
If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 1.66%.)
-Select-Project A Project B Neither
In: Finance
YEAR CASH FLOWS PROJECT A CASH FLOWS PROJECT B 0 -20000 -20000 1 9000 6000 2 10000 11000 3 12000 15000 Which project should you choose if they are mutually exclusive and the appropriate discount rate (required return) for both is 15%? Enter only the letter A or B. nothing Which project should you choose if they are mutually exclusive and the appropriate discount rate (required return) for both is 20%? Enter only the letter A or B. nothing What is the crossover rate? Enter answer with two decimal places and no %, such as 10.75. nothing
In: Finance
1. Determining the optimal capital structure
Understanding the optimal capital structure
Review this situation: Transworld Consortium Corp. is trying to identify its optimal capital structure. Transworld Consortium Corp. has gathered the following financial information to help with the analysis.
|
Debt Ratio |
Equity Ratio |
rdrd |
rsrs |
WACC |
|---|---|---|---|---|
| 30% | 70% | 6.02% | 9.40% | 9.71% |
| 40% | 60% | 6.75% | 9.750% | 9.55% |
| 50% | 50% | 7.15% | 10.60% | 10.02% |
| 60% | 40% | 7.55% | 11.30% | 10.78% |
| 70% | 30% | 8.24% | 12.80% | 11.45% |
Which capital structure shown in the preceding table is Transworld Consortium Corp.’s optimal capital structure?
Debt ratio = 50%; equity ratio = 50%
Debt ratio = 70%; equity ratio = 30%
Debt ratio = 40%; equity ratio = 60%
Debt ratio = 60%; equity ratio = 40%
Debt ratio = 30%; equity ratio = 70%
Consider this case:
Globex Corp. currently has a capital structure consisting of 30% debt and 70% equity. However, Globex Corp.’s CFO has suggested that the firm increase its debt ratio to 50%. The current risk-free rate is 2.5%, the market risk premium is 7.5%, and Globex Corp.’s beta is 1.25.
If the firm’s tax rate is 25%, what will be the beta of an all-equity firm if its operations were exactly the same?
A. 0.86
B. 1.14
C. .9
D. 0.95
Now consider the case of another company:
US Robotics Inc. has a current capital structure of 30% debt and 70% equity. Its current before-tax cost of debt is 8%, and its tax rate is 25%. It currently has a levered beta of 1.25. The risk-free rate is 2.5%, and the risk premium on the market is 7.5%. US Robotics Inc. is considering changing its capital structure to 60% debt and 40% equity. Increasing the firm’s level of debt will cause its before-tax cost of debt to increase to 10%.
First, solve for US Robotics Inc.’s unlevered beta.
A. 0.95
B. 0.86
C. 1.05
D. 1.14
Use US Robotics Inc.’s unlevered beta to solve for the firm’s levered beta with the new capital structure.
A. 1.82
B. 2.02
C. 2.22
D. 1.92
Use US Robotics Inc.’s levered beta under the new capital structure, to solve for its cost of equity under the new capital structure.
A. 17.65%
B. 14.12%
C. 15.885%
D. 20.297%
What will the firm’s weighted average cost of capital (WACC) be if it makes this change in its capital structure?
8.12%
12.76%
8.70%
11.60%
In: Finance
MIRR unequal
lives.
Grady Enterprises is looking at two project opportunities for a parcel of land the company currently owns. The first project is a restaurant, and the second project is a sports facility. The projected cash flow of the restaurant is an initial cost of
$1 comma 410 comma 0001,410,000
with cash flows over the next six years of
$190 comma 000190,000
(year one),
$280 comma 000280,000
(year two),
$ 320 comma 000$320,000
(years three through five), and
$1 comma 730 comma 0001,730,000
(year six), at which point Grady plans to sell the restaurant. The sports facility has the following cash flows: an initial cost of
$2 comma 340 comma 0002,340,000
with cash flows over the next four years of
$440 comma 000440,000
(years one through three) and
$3 comma 060 comma 0003,060,000
(year four), at which point Grady plans to sell the facility. The appropriate discount rate for the restaurant is
9.09.0%
and the appropriate discount rate for the sports facility is
12.012.0%.
What are the MIRRs for the Grady Enterprises projects? What are the MIRRs when you adjust for the unequal lives? Do the MIRR adjusted for unequal lives change the decision based on the MIRRs? Hint: Take all cash flows to the same ending period as the longest project.
If the appropriate reinvestment rate for the restaurant is
9.09.0%,
what is the MIRR of the restaurant project?
round to two decimal places
In: Finance
Year Project A Project B 0 −$330 −$330 1 160 230 2 160 230 3 160 230 4 160 a. If the opportunity cost of capital is 12%, calculate NPV for both projects? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Project NPV A $ 485.98 B 552.42 b. Which of these projects is worth pursuing if you have enough funds and they are not mutually exclusive? Project A Project B Both
In: Finance
Could you please write a short analysis of economic and respective industry outlook in the 11 sectors of S&P 500 in 2019? Thank you
In: Finance
Compensating balance versus discount loan Weathers Catering Supply, Inc., needs to borrow $ 154 comma 000 for 6 months. State Bank has offered to lend the funds at an annual rate of 8.9 % subject to a 10.4 % compensating balance. (Note: Weathers currently maintains $ 0 on deposit in State Bank.) Frost Finance Co. has offered to lend the funds at an annual rate of 8.9 % with discount-loan terms. The principal of both loans would be payable at maturity as a single sum. a. Calculate the effective annual rate of interest on each loan. b. What could Weathers do that would reduce the effective annual rate on the State Bank loan?
In: Finance
Cost of commercial paper Commercial paper is usually sold at a discount. Fan Corporation has just sold an issue of 81-day commercial paper with a face value of $1.2 million. The firm has received initial proceeds of $1 comma 164 comma 759. (Note: Assume a 365-day year.) a. What effective annual rate will the firm pay for financing with commercial paper, assuming that it is rolled over every 81 days throughout the year? b. If a brokerage fee of $11 comma 741 was paid from the initial proceeds to an investment banker for selling the issue, what effective annual rate will the firm pay, assuming that the paper is rolled over every 81 days throughout the year?
In: Finance
|
Cheer, Inc., wishes to expand its facilities. The company currently has 5 million shares outstanding and no debt. The stock sells for $25 per share, but the book value per share is $48. Net income for Teardrop is currently $3.4 million. The new facility will cost $25 million and will increase net income by $620,000. The par value of the stock is $1 per share. Assume a constant price-earnings ratio. |
| a-1. |
Calculate the new book value per share. Assume the stock price is constant. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| a-2. | Calculate the new total earnings. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) |
| a-3. | Calculate the new EPS. Include the incremental net income in your calculations. (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) |
| a-4. | Calculate the new stock price. Include the incremental net income in your calculations. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| a-5. | Calculate the new market-to-book ratio. (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) |
| b. | What would the new net income for the company have to be for the stock price to remain unchanged? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) |
In: Finance
1. Explain how calculating the future value of cash flows is different from calculating the present value of cash flows.
2. Explain the annuity transformation method. Provide an example.
In: Finance
|
We are evaluating a project that costs $768,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 57,000 units per year. Price per unit is $60, variable cost per unit is $35, and fixed costs are $770,000 per year. The tax rate is 35 percent, and we require a return of 15 percent on this project. |
| a. |
Calculate the accounting break-even point. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| Break-even point | units |
| b-1 |
Calculate the base-case cash flow and NPV. (Do not round intermediate calculations and round your NPV answer to 2 decimal places, e.g., 32.16.) |
| Cash flow | $ | |
| NPV | $ | |
| b-2 |
What is the sensitivity of NPV to changes in the sales figure? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) |
| ΔNPV/ΔQ | $ |
| c. |
What is the sensitivity of OCF to changes in the variable cost figure? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) |
| ΔOCF/ΔVC | $ |
In: Finance
|
Hula Enterprises is considering a new project to produce solar water heaters. The finance manager wishes to find an appropriate risk adjusted discount rate for the project. The (equity) beta of Hot Water, a firm currently producing solar water heaters, is 1.1. Hot Water has a debt to total value ratio of 0.4. The expected return on the market is 0.09, and the riskfree rate is 0.04. Suppose the corporate tax rate is 34 percent. Assume that debt is riskless throughout this problem. (Round your answers to 2 decimal places. (e.g., 0.16)) |
| a. | The expected return on the unlevered equity (return on asset, R0) for the solar water heater project is %. |
| b. | If Hula is an equity financed firm, the weighted average cost of capital for the project is %. |
| c. | If Hula has a debt to equity ratio of 0.6, the weighted average cost of capital for the project is %. |
|
d. |
The finance manager believes that the solar water heater project can support 15 cents of debt for every dollar of asset value, i.e., the debt capacity is 15 cents for every dollar of asset value. Hence she is not sure that the debt to equity ratio of 0.6 used in the weighted average cost of capital calculation is valid. Based on her belief, the appropriate debt ratio to use is %. The weighted average cost of capital that you will arrive at with this capital structure is |
In: Finance
Problem 8-15 Comparing Investment Criteria [LO 1, 3, 4, 6]
Consider the following two mutually exclusive projects:
| Year A | Year B |
|
-417000 |
-36000 |
| 48000 | 19600 |
| 58000 | 14100 |
| 75000 | 14600 |
| 532000 | 11400 |
The required return on these investments is 13 percent.
Required: (a) What is the payback period for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Payback period Project A 3.44 years Project B 2.16 years
(b) What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Net present value Project A $ Project B $
(c) What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percentage rounded to 2 decimal places (e.g., 32.16).) Internal rate of return Project A % Project B %
(d) What is the profitability index for each project? (Do not round intermediate calculations. Round your answers to 3 decimal places (e.g., 32.161).)
In: Finance
Con-Agra is one of the world’s largest packaged foods companies. Take a look at it (google it): CAG (NYSE). What does the beta tell you about Con-Agra?
What is beta, how is it calculated, why is it relevant (or where it is not)? How relevant do you feel it is with respect to Con-Agra? What does it tell you about Con-Agra? Would your answer be different if the question was not about Con-Agra but instead, was about Lyft (LYFT) (NASDAQ)? What kinds of risks are there with respect to Con-Agra (in terms of systematic and non-systematic risk)? What kinds of risks are there with respect to Lyft (in term of systematic and non-systematic risk) that makes it different from Con-Agra? With that in mind, do you think the beta is a good reflection or not to invest in Con-Agra or Lyft? You can address this in the context of the Efficient Market Hypothesis if you want. Anything else worry you (or not) about Con-Agra or Lyft? (Finance related factors)
In: Finance