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
How has technology changed the way target cash balances are set.
In: Finance
what is the potential for inflation in the US economy, considering the Fed's accommodative policies during the Great Recession?
In: Finance
Problem 4-17
Present Value for Various Compounding Periods
Find the present value of $475 due in the future under each of the following conditions. Do not round intermediate calculations. Round your answers to the nearest cent.
In: Finance
Consider the following 6 months of returns for 2 stocks and a portfolio of those 2 stocks:
|
Jan |
Feb |
Mar |
Apr |
May |
Jun |
|
||||||||||||||||
|
Stock A |
2% |
5% |
−6% |
3% |
−2% |
4% |
||||||||||||||||
|
Stock B |
0% |
−3% |
8% |
−1% |
4% |
−2% |
||||||||||||||||
|
Portfolio |
1% |
1% |
1% |
1% |
1% |
11% |
||||||||||||||||
The portfolio is composed of 50% of Stock A and 50% of Stock B.
a. What is the expected return and standard deviation of returns for each of the two stocks?
b. What is the expected return and standard deviation of returns for the portfolio?
c. Is the portfolio more or less risky than the two stocks? Why?
a. What is the expected return and standard deviation of returns for each of the two stocks?
The expected return of Stock A is___? (Round to one decimal place.)
In: Finance
Future Value of an Annuity
Find the future value of the following annuities. The first payment in these annuities is made at the end of Year 1, so they are ordinary annuities. Round your answers to the nearest cent. (Notes: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in many situations, to see how changes in input variables affect the output variable. Also, note that you can leave values in the TVM register, switch to Begin Mode, press FV, and find the FV of the annuity due.)
Now rework parts a, b, and c assuming that payments are made at the beginning of each year; that is, they are annuities due.
In: Finance
|
Highway 65, Inc., is going to elect four board members next month. Betty Brown owns 18.3 percent of the total shares outstanding. |
| a. |
What percentage of stock is needed to have one of her friends elected under the cumulative voting rule? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | What percentage of stock is needed to have one of her friends elected under the staggered cumulative voting rule under which shareholders vote on one board member(s) at a time? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance
A project with a life of 6 years is expected to provide annual sales of $460,000 and costs of $333,000. The project will require an investment in equipment of $790,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 34 percent. What is the annual operating cash flow for the best-case scenario?
A. 50,080
B. 162,327
C. 128,390
D. 207,094
E. 167,742
In: Finance
You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $3,130,000 this year. Depreciation, the increase in net working capital, and capital spending were $239,000, $104,000, and $485,000, respectively. You expect that over the next five years, EBIT will grow at 20 percent per year, depreciation and capital spending will grow at 25 per year, and NWC will grow at 15 per year. The company currently has $17,900,000 in debt and 515,000 shares outstanding. After Year 5, the adjusted cash flow from assets is expected to grow at 3.5 percent indefinitely. The company’s WACC is 8.7 percent and the tax rate is 35 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Share price $
In: Finance