St. Johns River Shipyards is considering the replacement of an 8-year-old riveting machine with a new one that will increase earnings before depreciation from $24,000 to $46,000 per year. The new machine will cost $80,000; and it will have an estimated life of 8 years and no salvage value. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. The applicable corporate tax rate is 40%, and the firm's WACC is 10%. The old machine has been fully depreciated and has no salvage value. Should the old riveting machine be replaced by the new one? Explain your answer. Show your calculation of the after-tax cash flows, a timeline with the after-tax cash flows, and calculate the NPV.

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 ​$70,000 per year. To operate the machine​ properly, workers would have to go through a brief training session that would cost ​$6,000 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 ​$30,000. 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 9 percent interest from its local​ bank, resulting in additional interest payments of ​$9,000 per year. Assume simplified​ straight-line depreciation and that the machine is being depreciated down to​ zero, a 34 percent marginal tax​ rate, and a required rate of return of 13 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?

Each of two mutually exclusive projects involves an investment of $124,000. Net cash flows for the projects are as follows:

A.    Calculate each project's payback period. (2 Points)

B.    Compute the Net Present Value (NPV) of each project when the firm's cost of capital is 10 percent. (2 Points)

C.    Internal Rate of Return (IRR) -Your choice; based on your answer to part (B). (2 Points)

D.    Modified Internal Rate of Return (MIRR) Your choice; based on your answer to part (B). (2 Points)

An engineer wants to estimate the annual inflation-free cost of owning an aerobic digester system with a capacity of 195 million gallons per day (MGD) for the first 8 years of operation. Company records show that the cost of a similar system with a capacity of 75 MGD was $8 million five years ago. The equipment cost index has increased 26% per year since then, and the future general inflation rate is forecast to be 2% per year. He estimates that the annual operating expenses of the new system would be $440,000 per year for the first two years and increase to $441,500 per year thereafter, due to the increase in maintenance costs. Calculate the annual inflation-free cost of owning the 295-MGD system for the first 8 years. Use a cost-capacity exponent of 0.14 for the system and a market-based MARR of 8% per year.

Consider the previous question with the following new information: Fixed costs are assumed to be $500,000 per year. The company estimates the variable cost per unit (v) to be $75 and expects to sell each unit for $425. There are no taxes and the required rate of return is 22% per year. Suppose that sales are currently estimated to be 5000 units per year.

What is the degree of operating leverage?   (Round to 1 decimal place, ie 2.3)

Using your answer from above, estimate what the new monthly operating cash flow (OCF) will be if sales increase by 100 units: $   (Round your answer to the nearest whole dollar, and do NOT use commas in your response, ie. 456789)

Suppose that the Euro-denominated interest rate is 1.5%, the dollar-
denominated interest rate is 1%, and the current exchange rate is 1.42 dollars per
Euro. What is the 6-month forward exchange rate in Vancouver (i.e., C$ per 1
Euros)? What is the 6-month forward exchange rate in Milan (i.e., Euros per 1
C$)? [Assume that interest rates are annualized and continuously compounded.]

Consider a 30-year mortgage with an interest rate of 10% compounded monthly and a monthly payment
of $850.

(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?

Describe the tools the Fed has in its toolbox.

Look up the 2019 Capital Market Assumptions from Voya. The .pdf document should be titled, "2019 Capital Market Assumptions."

Find their correlation matrix and then find the following correlations:

1. S&P 500 with MSCI EM (this is emerging market stocks)                            [ Select ]                       ["0.91", "0.70", "0.88", "0.93"]      
2. Barclays U.S. Aggregate with S&P 500                            [ Select ]                       ["0.20", "0.88", "0.43", "0.12"]      
3. Bloomberg Commodity with Russell 3000 (small-cap stocks)                            [ Select ]                       ["0.31", "0.24", "0.25", "0.27"]      

In 2015, the Keenan Company paid dividends totaling $2,740,000 on net income of $12 million. Note that 2015 was a normal year and that for the past 10 years, earnings have grown at a constant rate of 4%. However, in 2016, earnings are expected to jump to $19.2 million and the firm expects to have profitable investment opportunities of $9.6 million. It is predicted that Keenan will not be able to maintain the 2016 level of earnings growth because the high 2016 earnings level is attributable to an exceptionally profitable new product line introduced that year. After 2016, the company will return to its previous 4% growth rate. Keenan's target capital structure is 40% debt and 60% equity.

1. Calculate Keenan's total dividends for 2016 assuming that it follows each of the following policies: (Write out your answers completely. For example, 25 million should be entered as 25,000,000.)
   1. Its 2016 dividend payment is set to force dividends to grow at the long-run growth rate in earnings. Round your answer to the nearest cent.
      $
   2. 
      
   3. It continues the 2015 dividend payout ratio. Round your answer to the nearest cent. Do not round intermediate calculations.
      $
   4. 
      
   5. It uses a pure residual dividend policy (40% of the $9.6 million investment is financed with debt and 60% with common equity). Round your answer to the nearest cent.
      $
   6. 
      
   7. It employs a regular-dividend-plus-extras policy, with the regular dividend being based on the long-run growth rate and the extra dividend being set according to the residual dividend policy. Round your answer to the nearest cent.
2. 
   
3. Which of the preceding policies would you recommend?
   -Select-Policy 1Policy 2Policy 3Policy 4Item 6
4. 
   
5. Assume that investors expect Keenan to pay total dividends of $8,000,000 in 2016 and to have the dividend grow at 4% after 2016. The stock's total market value is $210 million. What is the company's cost of equity? Round your answer to two decimal places.
   %
6. 
   
7. What is Keenan's long-run average return on equity? [Hint: g = Retention rate x ROE = (1.0 - Payout rate)(ROE).] Do not round intermediate calculations. Round your answer to two decimal places.
   %
8. 
   
9. Does a 2016 dividend of $8,000,000 seem reasonable in view of your answers to parts c and d? If not, should the dividend be higher or lower?
   Yes or No it should be lower or No, it should be higher

New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $930,000, and it would cost another $24,000 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $620,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $14,500. The sprayer would not change revenues, but it is expected to save the firm $392,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.

1. What is the Year-0 net cash flow?

   $  

2. What are the net operating cash flows in Years 1, 2, and 3?

   Year 1:	$
   Year 2:	$
   Year 3:	$

3. What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)?

   $  

4. If the project's cost of capital is 11%, what is the NPV of the project?

   $  

General Electric has just issued a callable​ (at par)​ 10-year, 6.0% coupon bond with annual coupon payments. The bond can be called at par in one year or anytime thereafter on a coupon payment date. It has a price of $102.00.

a. What is the​ bond's yield to​ maturity?

b. What is its yield to​ call?

c. What is its yield to​ worst?

An employee contributes $16,700 to a 401(k) plan each year, and the company matches 10 percent of this annually, or $1,670. The employee can allocate the contributions among equities (earning 14 percent annually), bonds (earning 6 percent annually), and money market securities (earning 4 percent annually). The employee expects to work at the company 20 years. The employee can contribute annually along one of the three following patterns:

Calculate the terminal value of the 401(k) plan for each of the 3 options, assuming all returns and contributions remain constant over the 20 years. (Do not round intermediate calculations. Round your answers to the nearest whole number. (e.g., 32))