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Quartz Corporation is a relatively new firm. Quartz has experienced enough losses during its early years to provide it with at least eight years of tax loss carryforwards. Thus, Quartz’s effective tax rate is zero. Quartz plans to lease equipment from New Leasing Company. The term of the lease is six years. The purchase cost of the equipment is $900,000. New Leasing Company is in the 40 percent tax bracket. There are no transaction costs to the lease. Each firm can borrow at 8 percent. |
| a. | What is Quartz’s reservation price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Reservation price | $ |
| b. | What is New Leasing Company’s reservation price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| Reservation price | $ |
In: Finance
|
You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $7,120,000, and it would be depreciated straight-line to zero over five years. Because of radiation contamination, it will actually be completely valueless in five years. You can lease it for $1,900,000 per year for five years. Assume that the tax rate is 35 percent. You can borrow at 11 percent before taxes. |
|
Calculate the NAL. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| NAL | $ |
| Should you lease or buy? | ||||
|
In: Finance
A company purchased an equipment that falls in 3-year property class. The cost of the equipment is 75,000 and installation cost is 5,000. The equipment is expected to have 3,000 salvage value. Using the MACRS depreciation table, calculate the MACRS depreciation charges for the 2nd year.
A.34,650
B.35,100
C.36,000
D.33,750
In: Finance
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You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a common practice with expensive, high-tech equipment). The scanner costs $5,400,000, and it would be depreciated straight-line to zero over three years. Because of radiation contamination, it will actually be completely valueless in three years. You can lease it for $2,225,000 per year for three years. Assume the tax rate is 35 percent. The borrowing rate is 14 percent before taxes. |
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Your company does not expect to pay taxes for the next several years, but the leasing company will pay taxes. Over what range of lease payments will the lease be profitable for both parties? (Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. Enter your answers from lowest to highest. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| Lease payment range | $ to $ | ||
In: Finance
Discuss the reasons broker-dealers tend to hold less equity capital than commercial banks.
In: Finance
Corporation accountants assembled the following data for the year ended December 10,2018:
|
ATTERA CORPORATION |
||
|
December 31 |
2018 |
2017 |
|
Current assets: |
|
|
|
Cash and cash equivalents |
$78,700 |
$28,000 |
|
Accounts receivable |
69,600 |
64,200 |
|
Inventory |
79,500 |
84,400 |
|
Current liabilities: |
|
|
|
Accounts payable |
$58,700 |
$55,700 |
|
Income tax payable |
13,900 |
16,900 |
|
Transaction Data for 2018: |
|
|
Net income |
$58,000 |
|
Purchase of treasury stock |
15,100 |
|
Issuance of common stock for cash |
36,800 |
|
Loss on sale of equipment |
9,000 |
|
Payment of cash dividends |
18,500 |
|
Depreciation expense |
21,000 |
|
Issuance of long-term note payable in exchange for cash |
30,000 |
|
Purchase of building for cash |
127,000 |
|
Sale of equipment for cash |
57,000 |
Required: Prepare Corporation's statement of cash flows and explain why do you add back depreciation to cash flow statement?
In: Finance
I need to see this work done in excel please using formulas. Thank you!
4) You are saving for retirement in 20 years. Today, you place $100,000 in a bank account that pays 4% interest, compounded annually, leaving the funds on deposit for the entire 20 years. You also contribute $2,000 each year into your pension plan for 10 years, beginning this year. The pension plan grows at 7% a year. How much do you have available for retirement, 20 years from now? BE CAREFUL; this is a multi-step problem.
In: Finance
A corporate bond matures on October 31, 2035. Its coupon rate is 5.00% and face value is $100. Its yield is 5.90%. How much is its price on June 3, 2020?
In: Finance
What would you pay for a $140,000 debenture bond that matures in 15 years and pays $7,000 a year in interest if you wanted to earn a yield of:
4%
5%
6%
In: Finance
Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with a retirement income of $30,000 per month for 20 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 10 years at an estimated cost of $380,000. Third, after he passes on at the end of the 20 years of withdrawals, he would like to leave an inheritance of $950,000 to his nephew Frodo. He can afford to save $3,300 per month for the next 10 years. If he can earn an EAR of 10 percent before he retires and an EAR of 7 percent after he retires, how much will he have to save each month in Years 11 through 30? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
In: Finance
Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the NPV of the PJX5?
a. The PJX5 will cost $1.78 million fully installed and has a 10 year life. It will be depreciated to a book value of $242,327.00 and sold for that amount in year 10.
b. The Engineering Department spent $14,645.00 researching the various juicers.
c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $23,737.00.
d. The PJX5 will reduce operating costs by $463,693.00 per year.
e. CSD’s marginal tax rate is 34.00%.
f. CSD is 65.00% equity-financed.
g. CSD’s 18.00-year, semi-annual pay, 5.78% coupon bond sells for $987.00.
h. CSD’s stock currently has a market value of $20.88 and Mr. Bensen believes the market estimates that dividends will grow at 3.30% forever. Next year’s dividend is projected to be $1.54.
In: Finance
Suppose you live in a world with only
two risky assets: Amazon and Facebook (you can label these assets A
and F, respectively). Furthermore, suppose these assets have the
following expected returns and standard deviations:
|
Amazon (A) |
Facebook (F) |
|
|
Er |
14% |
5% |
|
σ |
10% |
4% |
a)If the correlation of Amazon and Facebook returns is equal to 0.3, what is the covariance of their returns?
Use Excel to calculate the expected return and standard
deviation of the risky portfolio for different combinations of
weights for A and F. In other words, set up your Excel spreadsheet
to calculate the following:
| wA | wF | ErP | Std dev P |
| -0.5 | 1.5 | ||
| -0.4 | 1.4 | ||
| -0.3 | 1.3 | ||
| -0.2 | 1.2 | ||
| -0.1 | 1.1 | ||
| 0 | 1 | ||
| 0.1 | 0.9 | ||
| 0.2 | 0.8 |
etc… (for additional combinations of weights from wA =
-0.5 to wA = 1.5)
Please include a screenshot of the filled-in table with your problem set solutions.
a)What is the optimal risky portfolio assuming rf = 2% as in part e? Label this point P on your graph from part d.(Hint: Use Solver to choose the risky portfolio weights that maximize the Sharpe Ratio of the CAL created by combining the risky portfolio and the risk-free asset.)
b) Draw in the CAL through the optimal portfolio from part a.
c) What is the expected return and standard deviation of the complete portfolio that invests y=0.4 (i.e. 40%) in the optimal risky portfolio and 1-y = 0.6 (i.e 60%) in the risk-free asset.
d) If your utility from investing in the market is given by U = Er - 12σ2 – 10σ4 , what is your optimal complete portfolio? (Hint: Use Solver to find the % of your complete portfolio in the risky asset (i.e. y) that maximizes your utility.)
e)What is a possible intuition of including the σ4 term in the utility function in part b?
In: Finance
Levi Strauss & Company has an outstanding B-rated bond that has a coupon rate of 12.25%, a face value of $1000 and is currently priced at $1117.50. If this bond pays interest semi-annually and matures in 4 years,
In: Finance
Create your own hypothetical capital budgeting project.
A) Make up a company (it could be real or fictional) and make up/describe a potential project for that company (you should be able to do this in one or two sentences…don’t worry about extreme detail).
B) Create a cash flow stream for this project (the cash flow stream should be between 4-7 years in length), a critical acceptance level (T), and a required return (k). (Hint: Your cash flows must exceed your initial investment and your critical acceptance level must be less than the length of the project).
C) Calculate the PP, IRR and NPV for your project
D) For each decision technique, identify whether or not that technique suggests you should accept or reject the project
E) Overall, identify whether or not you should accept or reject the project and why. Note that part D is asking for 3 answers (one for each decision technique) while E is just asking for one answer – what is your final recommendation. Also, why doesn’t need to be a long answer, just a few words.
In: Finance
Carlsbad Corporation's sales are expected to increase from $5 million in 2016 to $6 million in 2017, or by 20%. Its assets totaled $2 million at the end of 2016. Carlsbad is at full capacity, so its assets must grow in proportion to projected sales. At the end of 2016, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 4%
a. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent. $
b
Why is this AFN different from the one when the company pays dividends?
I. Under this scenario the company would have a lower level of retained earnings, which would increase the amount of additional funds needed.
II Under this scenario the company would have a lower level of retained earnings, which would decrease the amount of additional funds needed.
III Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of additional funds needed
IV Under this scenario the company would have a higher level of retained earnings, which would reduce the amount of assets needed
v Under this scenario the company would have a higher level of spontaneous liabilities, which would reduce the amount of additional funds needed.
In: Finance