The most recent financial statements for Moose Tours, Inc., appear below. Sales for 2016 are projected to grow by either 20, 25, or 30 percent. Interest expense will remain constant; the tax rate and the dividend payout rate will also remain constant. Costs, other expenses, current assets, fixed assets, and accounts payable increase spontaneously with sales.

The Nash Corp. is considering four investments. Which provides the highest after-tax return for Nash Corp. if it is in the 21% federal tax bracket? Assume the tax rate on dividends is 15%.

• Treasury bonds at 4%

• Preferred stock at 7.5%

• Corporate bonds at 7.5%

• Municipal bonds at 7.25%

Lear Corporation has decided to acquire a new equipment at a cost of $698,000. The equipment has an expected life of 6 years and will be depreciated using 5-year MACRS with rates of .20, .32, .192, .1152, .1152, and .0576 (note that 5-year MACRS depreciation actually takes place over 6 years). There is no actual salvage value. Riverhawk Financing has offered to lease the equipment to Lear for $135,000 a year for 6 years. Lear has a cost of equity of 11.2 percent, a pre-tax cost of debt of 5.8 percent, and a marginal tax rate of 25 percent. Should Lear lease or buy?

The WACC is a weighted average of the costs of debt, preferred stock, and common equity. Would the WACC be different if the equity for the coming year came solely in the form of retained earnings versus equity from the sale of new common stock? Would the calculated WACC depend in any way on the size of the capital budget? How might dividend policy affect the WACC? Please explain.

Woodbridge's stock is currently selling for $26.00 a share but is expected to decrease to either $23.40 or increase to $28.60 a share over the next year. The risk-free rate is 3 percent. What is the current value of a 1-year call option with an exercise price of $26?

Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $100. The materials cost for a standard diamond is $50. The fixed costs incurred each year for factory upkeep and administrative expenses are $205,000. The machinery costs $1.6 million and is depreciated straight-line over 10 years to a salvage value of zero.

a. What is the accounting break-even level of sales in terms of number of diamonds sold? (Do not round intermediate calculations.)

b. What is the NPV break-even level of diamonds sold per year assuming a tax rate of 21%, a 10-year project life, and a discount rate of 10%? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

The cost of a truck is $18,000 and am approved for an 8% loan but can choose to finance the loan for either 48 or 60 months.

What will be the additional cost over the life of the loan, if i choose the 60 month term instead of 48 months? can you please give a formula that is clear?

Consider a 30-year mortgage with an interest rate of 10% compounded monthly and a monthly payment
of $850.
(1) Calculate the principal.
(2) How much of the principal is paid the first, 5th, 20th and last year?
(3) How much interest is paid the first, 5th, 20th and last year year?
(4) What is the total amount of money paid during the 30 years?
(5) What is the total amount of interest paid during the 30 years?
(6) What is the unpaid balance after 25 years?
(7) How much has to be deposited into a savings account with an interest rate of 4% compounded
quarterly in order to pay the unpaid balance of the mortgage after 25 years?
(8) How much has to be deposited each quarter year in a fund with an interest rate of 8% compounded
quarterly in order to cover the unpaid balance after 25 years?

Fijisawa Inc. is considering a major expansion of its product line and has estimated the following cash flows associated with such an expansion. The initial outlay would be ​$1,800,000​, and the project would generate incremental free cash flows of ​$700,000 per year for 6 years. The appropriate required rate of return is 6 percent.

a. Calculate the NPV.

b. Calculate the PI.

c. Calculate the IRR.

d. Should this project be​ accepted?

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.