Bill Clinton reportedly was paid an advance of $ 10.0 million to write his book My Life . Suppose the book took three years to write. In the time he spent​ writing, Clinton could have been paid to make speeches. Given his​ popularity, assume that he could earn $ 7.5 million a year​ (paid at the end of the​ year) speaking instead of writing. Assume his cost of capital is 9.9 % per year.

a. What is the NPV of agreeing to write the book​ (ignoring any royalty​ payments)?

b. Assume​ that, once the book is​ finished, it is expected to generate royalties of $ 4.6 million in the first year​ (paid at the end of the​ year) and these royalties are expected to decrease at a rate of 30 % per year in perpetuity. What is the NPV of the book with the royalty​ payments?

Assume Gillette Corporation will pay an annual dividend of

$0.63

one year from now. Analysts expect this dividend to grow at

12.4%

per year thereafter until the

5th

year.​ Thereafter, growth will level off at

2.2%

per year. According to the​ dividend-discount model, what is the value of a share of Gillette stock if the​firm's equity cost of capital is

8.5%​?

Q15) The market risk premium for next period is 8.50% and the risk-free rate is 3.80%. Stock Z has a beta of 0.636 and an expected return of 13.40%. What is the: "

a) Market's reward-to-risk ratio? :

b) Stock Z's reward-to-risk ratio :

Assume Gillette Corporation will pay an annual dividend of

$0.62

one year from now. Analysts expect this dividend to grow at

12.7%

per year thereafter until the

44th

year.​ Thereafter, growth will level off at

2.2%

per year. According to the​ dividend-discount model, what is the value of a share of Gillette stock if the​firm's equity cost of capital is

8.6%​?

You are evaluating a project that will cost $ 522 ,000​, but is expected to produce cash flows of $ 121,000 per year for 10 ​years, with the first cash flow in one year. Your cost of capital is 11.1 % and your​ company's preferred payback period is three years or less.

a. What is the payback period of this​ project?

b. Should you take the project if you want to increase the value of the​ company?

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

Kim Mitchell, the new credit manager of the Vinson Corporation, was alarmed to find that Vinson sells on credit terms of net 90 days while industry-wide credit terms have recently been lowered to net 30 days. On annual credit sales of $2.83 million, Vinson currently averages 95 days of sales in accounts receivable. Mitchell estimates that tightening the credit terms to 30 days would reduce annual sales to $2,705,000, but accounts receivable would drop to 35 days of sales and the savings on investment in them should more than overcome any loss in profit. Assume that Vinson’s variable cost ratio is 68%, taxes are 40%, and the interest rate on funds invested in receivables is 17%. Perform the required analysis to answer the questions above. Assuming a 365-day year, calculate the net income under the current policy and the new policy.

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

1)Current policy:

2) New policy:

3) Should the change in credit terms be made?

Which of the following is true concerning diversification? Assume that the securities being considered for selection into a portfolio are not perfectly correlated.

Group of answer choices

The risk of the portfolio is certain to be increased as securities are added.

As more securities are added to the portfolio, the market risk of the portfolio declines.

After about 10 securities are added to the portfolio, additional securities have essentially no impact on reducing risk.

As more and more securities are added to the portfolio, the level of risk approaches the level of systematic risk in the market.

If you hold more than 100 securities, then the portfolio is risk-free.

CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $429,000 is estimated to result in $161,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table) and it will have a salvage value at the end of the project of $62,000. The press also requires an initial investment in spare parts inventory of $16,700, along with an additional $3,700 in inventory for each succeeding year of the project. The shop’s tax rate is 22 percent and its discount rate is 9 percent. Calculate the project's NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

1. Which of these risks will a diversified investor likely not need to worry about?

a. A computer hack erases all electronic financial records of everyone in the country. b. A firm's key advertising executives quit to start their own company. c. A highly contagious virus emerges that turns humans into zombies.

a. a only

b. b only

c. c only

d. a and b

e. a and c

f. b and c

g. will not need to worry about any of them

2. A broadly diversified investor considering making a small (relative to his existing portfolio) bond investment does not need to worry about the bond's ______ risk.

a. idiosyncratic

b. market

c. systematic

d. total

please explain, thanks!

After paying $3 million for a feasibility study, Stanley wrote a proposal with the following cash flow estimates for a 25-year capital project.

Equipment cost: $34 million, Shipping costs: $1 million, Installation: $19 million, Salvage: $4, Working capital investment: $2 million, Revenues are expected to increase by $20 million per year and cash operating expenses by $9 million per year.

The firm’s marginal tax rate is 40 percent, its weighted average cost of capital is 9%, and the firm requires a 3 year payback. Assume straight-line depreciation.

Evaluate the project using NPV, IRR, PI, and PB.

Answers:

IO = $56 million

Δ D = $2 million

NCF1-25 = $7.4 million

NCF25 = $6 million

NPV = $17.38 million > 0, so Accept

IRR = 12.60% > 9%, so Accept

PI = 1.31 > 1, so Accept

PB = 7.57 years > 3 so Reject

ACCEPT the project

Please show work and formula while avoiding Excel/spreadsheet programs. Thank you

NOK Plastics is considering the acquisition of a new plastic injection-molding machine to make a line of plastic fittings. The cost of the machine and dies is $125,000. Shipping and installation is another $8,000. NOK estimates it will need a $10,000 investment in net working capital initially, which will be recovered at the end of the life of the equipment. Sales of the new plastic fittings are expected to be $350,000 annually. Cost of goods sold are expected to be 50% of sales. Additional operating expenses are projected to be $115,000 per year over the machine’s expected 5-year useful life. The machine will depreciated using a 5-year MACRS class life. The equipment will be sold at the end of its useful life (5 years) for $35,000. The tax rate is 25% and the relevant discount rate is 15%. Calculate the net present value (NPV), internal rate of return (IRR), payback period (PB), and profitability index (PI) and state whether the project should be accepted.

Please explain how you get After-tax Salvage Value

Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $25.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.27 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.61 million per year and cost $1.50 million per year over the 10-year life of the project. Marketing estimates 16.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 27.00%. The WACC is 13.00%. Find the IRR (internal rate of return).

Thanks!