XYZ just paid a dividend of $ 2.65 on its shares. The dividend growth rate is expected to be constant 4% per annum forever. Investors demand a return of 16% for the first three years, a return of 14% for the next three years and a return of 11% thereafter. What is the current price of this financial instrument?

1. Kendall Corners Inc. recently reported net income of $3.9 million and depreciation of $585,000. What was its net cash flow? Assume it had no amortization expense. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.

2. In its most recent financial statements, Del-Castillo Inc. reported $30 million of net income and $910 million of retained earnings. The previous retained earnings were $904 million. How much in dividends did the firm pay to shareholders during the year? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.

3.

The Shrieves Corporation has $15,000 that it plans to invest in marketable securities. It is choosing among AT&T bonds, which yield 8.5%, state of Florida muni bonds, which yield 4% (but are not taxable), and AT&T preferred stock, with a dividend yield of 7%. Shrieves' corporate tax rate is 35%, and 70% of the dividends received are tax exempt. Find the after-tax rates of return on all three securities. Round your answers to two decimal places.

4.

The Moore Corporation had operating income (EBIT) of $700,000. The company's depreciation expense is $140,000. Moore is 100% equity financed, and it faces a 40% tax rate.

What is the company's net income?

Assuming no changes to any of the Balance Sheet accounts, what is its net cash flow?

TIE AND ROIC RATIOS

The W.C. Pruett Corp. has $800,000 of interest-bearing debt outstanding, and it pays an annual interest rate of 12%. In addition, it has $600,000 of common stock on its balance sheet. It finances with only debt and common equity, so it has no preferred stock. Its annual sales are $2.56 million, its average tax rate is 40%, and its profit margin is 3%. What are its TIE ratio and its return on invested capital (ROIC)? Round your answers to two decimal places.

TIE :

ROIC:  %

1. Given the following set of cash flows for a project, calculate the Payback, Discounted Payback and Accounting Rate of Return. Assume a cost of capital of 10%. Assuming that this is an independent project, should the project be accepted? Why or why not?

Year                Cash Flow                 Net Profit                   Depreciation

0                    -$125,000

1                    $22,000                     $15,000                      $10,000

2                    $58,000                     $43,000                      $25,000

3                    -$30,000                   $24,000                      $21,000

4                    $35,000                     $28,000                      $18,000

5                    $28,000                     $20,000                      $15,000

6                    $60,000                      $52,000                      $11,000

And now Construct an NPV profile for the project above and explain what you find.

THE SETUP AND KEY INPUTS:                                                                   

Your best friend James just celebrated his 25th birthday and wants to start saving for his anticipated retirement. James plans to retire in 35 years and believes that he will have 25 good years of retirement (he has looked at the life expectancy tables and is playing the odds here) and believes that if he can withdraw $130,000 at the end of each year, he can enjoy his retirement. In this problem, assume that the full 25 years of retirement payments are made, and the account has a zero balance at the end.

Assume that a reasonable rate of interest for James for all scenarios presented below is 8% per year. This is an annual rate, review each individual question for more specifics on compounding periods per year.

Because James is planning ahead, the first withdrawal will not take place until one year after he retires. he wants to make equal annual deposits into his account for his retirement fund.                   

Hints: Picture the problem like this: We invest for retirement over our working lives and then we withdraw set amounts each year during retirement. Note that there are two different periods in the following timeline, N1 years for investing and a different N2 for the retirement period. In all parts of the problem the annual interest rate is 8%, whether you are looking at the investment or the retirement time periods.

|---------------------------------------------------------------------|---------------------------------------------------|

|                                Investment period, investing X$ every period                    Retirement period, receiving Y$ and having $0 at the end      |

For each question, add blank lines as needed to provide your solution.

A. If he starts making these deposits in one year and makes his last deposit on the day he retires, what amount must James deposit annually to be able to make the desired withdrawals at retirement?

A1) First: Amount James needs to have saved as of his retirement (3 pts):

A2) The amount James must save each year (beginning at the end of the first year) to fund his retirement is (3 pts):    

A3) If James decides to make monthly deposits for 35 years to reach his same retirement goal, how much must James start depositing one month from today (3 pts)?                                                                

B. If James decides he isn’t earning enough money yet and wants to wait several years before starting his investment deposits. Assume that instead of starting immediately (that is, the end of year 1), James waits for 10 years (first deposit at the end of year 10) leaving 10 fewer years (than the original plan of 35 years) to grow his retirement nest egg, what amount must he deposit annually to be able to make the desired withdrawals at retirement (4 pts)?           

C. Suppose your friend has just inherited a large sum of money. Rather than making equal annual payments for 35 years, he has decided to make one lump sum deposit today to cover his retirement needs. What amount does he have to deposit today? (3 pts)   

Use the Black-Scholes formula to the value of a call option given the following information:

T= 6 months

standard deviation=25%

Exercise price= 50

Stock price=50

Interest rate= 2%

• 3.75
• 2.87
• 3.11
• 3.63

Use the information in the previous question to find the value of a six month put option on the same stock with an exercise price of 50. Round intermediate steps to four decimals and round your final answer to two decimals.

finance

What is the NPV for each project?

What is the profitability index for each project?

Complete the balance sheet and sales information using the following financial data:

Total assets turnover: 1×
Days sales outstanding: 73.0 days^a
Inventory turnover ratio: 4×
Fixed assets turnover: 3.0×
Current ratio: 2.0×
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 20%
^aCalculation is based on a 365-day year.

Do not round intermediate calculations. Round your answers to the nearest dollar.

Barbara Jones is a sales executive at a Baltimore firm. She is 25 years old and plans to invest $4,000 each year in an IRA account until she is 65 at which time she will retire (a total of 40 payments). If Barbara invests at the beginning of each year, and the IRA investment will earn 9.95 percent annually, how much will she have when she retires? Assume that she makes the first payment today. (Round factor values to 4 decimal places, e.g. 1.5212 and final answer to 2 decimal places, e.g. 15.25.)

How you would put this problem into a financial calculator? Thanks

Beryl's Iced Tea currently rents a bottling machine for $51,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options:

a. Purchase the machine it is currently renting for $155,000. This machine will require $21,000 per year in ongoing maintenance expenses.

b. Purchase a new, more advanced machine for $265,000. This machine will require $18,000 per year in ongoing maintenance expenses and will lower bottling costs by $14,000 per year. Also, $39,000 will be spent up front to train the new operators of the machine.

Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 30%. Should Beryl's Iced Tea continue to rent, purchase its current machine, or purchase the advanced machine? To Which of the a. b. c. d. e. make this decision, calculate the NPV of the FCF associated with each alternative. following is the best choice?

a)Purchase the advanced machine, as the NPV is -$253,110

b)Purchase the current machine, as the NPV is -$283,498

c)Purchase the current machine, as the NPV is -$204,563

d)Purchase the current machine, as the NPV is −$215,906

e)Rent the current machine, as the NPV is -$229,110.

Problem 4-24 Calculating EFN [LO2]

One year ago, your company purchased a machine used in manufacturing for $90,000.You have learned that a new machine is available that offers many advantages and you can purchase it for $150,000 today. It will be depreciated on a straight-line basis over 10 years and has no salvage value.

You expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $60,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $25,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $8,182 per year. The market value today of the current machine is $5,000. Your company's tax rate is 42 %,and the opportunity cost of capital for this type of equipment is 10 %. Should your company replace its machine?

a. Yes. With an NPV of $32,577, there is a profit from replacing the machine.

b. Yes. With an NPV of $42,688, there is a profit from replacing the machine.

c. Yes. With an NPV of $52,797, there is a profit from replacing the machine.

d. No. With an NPV of -$2,797, there is a loss from replacing the machine.

e. No. With an NPV of -$22,973, there is a loss from replacing the machine.

Question:

You participate in a jury. Today a worker sued the city for the injuries suffered due to an accident with a street sweeper truck. At the trial, the doctors declare that the plaintiff will be able to return to work in five years. The jury has already ruled in favor of the plaintiff. You are the judge of the jury and propose the jury to grant today a compensation to the plaintiff. The compensation covers the following:

1. A retroactive payment equivalent to the salary of the last two years. The annual salary (monthly salary*12) of the plaintiff during the last two years would have been $40,000 (two years ago) and $43,000 (one year ago), respectively.

2. The present value of the future monthly salary for the next eight years. You assume that the salary will be $45,000 per year (monthly salary*12) for the first five years, and then $48,000 (monthly salary*12) for the next three years.

3. A payment today for the amount of $100,000 due to pain and suffering.

4. Finally, a payment of $20,000 today to cover court costs. Assume that salary payments are of equal amounts paid at the end of each month, except in the last three future years where salaries are equal but paid at the beginning of each month. It is estimated that the appropriate interest rate is 18% nominal biennial with monthly capitalization. (a) What is the amount of the retroactive payment which will be paid to the plaintiff today? (b) What is the total amount of compensation that will be paid to the plaintiff today? (c) If you were the plaintiff, would you like to use a higher or lower interest rate? Explain.