The following information is available about an investment opportunity. Investment will occur at year 0 and sales will occur from year 1 to year 8. Use a nominal discount rate, calculated as in = (1 + ir)(1 + p) – 1, where ir is the real discount rate, and p is expected inflation.

Facts and assumptions

Initial cost $28,000,000

Unit sales $400,000

Selling price per unit, year 1 $60

Variable cost per unit, year 1 $42

Life expectancy (years) 8

Salvage value $0

Depreciation Straight-line

Tax rate 37%

Real discount rate 10.0%

Inflation rate 0.0%

a. Prepare a spreadsheet to estimate the project’s annual after-tax cash flows.

b. Calculate the investment’s internal rate of return and its net present value assuming zero inflation.

c.

How do the internal rate of return and net present value change when you assume an inflation rate of 8 percent per year in price and variable cost per unit?

d. How do you explain the fact that inflation causes the internal rate of return to increase and the NPV to decrease?

e. Does inflation make this investment more attractive or less attractive? Why?

Information on lightening power Co. is show below. Assume the company's tax rate is 24 percent.

DEBT: 16,900 5.9 percent coupon bonds outstanding, $1000 par value, 26 years to maturity, selling for 106.5 percent of par; semi annual payments

COMMON STOCK: 555,000 shares outstanding, selling for $82.00 per share; Beta is 1.20

PREFERRED STOCK: 22,000 shares of 4.2 percent preferred stock outstanding, currently selling for $91.40 per share. the par value is $100.

MARKET: 6.5 percent market risk premium and 3.1 percent risk-free rate.

A.) What is the company's cost of each form of financing?

B.) Calculate the company's WACC.

Show all work, Please and thank you :)

Futures

What is the implied interest rate on a Treasury bond ($100,000, 6% coupon, semiannual payment with 20 years to maturity) futures contract that settled at 100'16? Do not round intermediate calculations. Round your answer to two decimal places.

%??????

If interest rates increased by 1%, what would be the contract's new value? Do not round intermediate calculations. Round your answer to the nearest cent.

$ ??????

PLEASE SHOW FORMULA!! Thank you :)

Belarus Bearing Just paid a dividend of £7.20 per share on its stock. The dividends are expected to grow at a constant rate of 6% per year, indefinitely. If investors require (the discount rate) a 12% return on Belarus Bearing stock, what is the current price (Po)? What will the price be in 3 (P3) years? In 15 years (P15)?

n  If the stock is marketable at $95, what would be your investment decisions? Why?

n  If the firm’s risk as perceived by market participants suddenly increases, causing the required return to rise to 20 percent, what will be the common stock value today?

XYZ corp. is considering investing in a new machine. The new machine cost will $10,000 installed. Depreciation expense will be $1000 per year for the next five years. At the end of the fifth year XYZ expects to sell the machine for $6000. XYZ will also sell its old equipment today that has a book value of $3000 for $3000. In five years, the old machine will be fully depreciated and have a salvage value of zero. Additionally, XYZ Corp expects that the new machine will increase its EBIT by $2000 in each of the next five years. Assuming that XYZ’s tax rate is 21% and the new machines WACC is 15%, what is the projects NPV. Round your final answer to two decimals.

NOTE: Answer is not $13,651.94 as someone else put that

Weston Enterprises is an all-equity firm with two divisions. The soft drink division has an asset beta of 0.55, expects to generate free cash flow of $ 40 million this year, and anticipates a 3 % perpetual growth rate. The industrial chemicals division has an asset beta of 1.06, expects to generate free cash flow of $ 56 million this year, and anticipates a 2 % perpetual growth rate. Suppose the risk-free rate is 4 % and the market risk premium is 5 %. a. Estimate the value of each division. b. Estimate Weston's current equity beta c. Estimate Weston's current cost of capital. Is this cost of capital useful for valuing Weston's projects? How is Weston's equity beta likely to change over time? a. Estimate the value of each division.

You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs.” You find that the company has never used a flexible budget, and you suggest that preparing such a budget would be an excellent first step in overhead planning and control.

After much effort and analysis, you determined the following cost formulas and gathered the following actual cost data for March:

During March, the company worked 15,000 machine-hours and produced 9,000 units. The company had originally planned to work 17,000 machine-hours during March.

Required:

1. Calculate the activity variances for March.

2. Calculate the spending variances for March.

Calculate the activity variances for March. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Why do some overpriced/overvalued IPO's under perform in the long run?

As an intern in a manufacturing company, you are assigned to evaluate two alternative production quality-tracking systems. System I costs $285 000 and has three-year life. The before-tax cash operating costs are $62 000 per year. System II costs $420 000, has a five year life with the after tax costs of $34 000 per year. For both systems, straight-line depreciation is used. The resulting book value will be zero for both systems but the estimated value is around 10% of the purchase price. The tax rate is 30% and the cost of capital is 10%. Evaluate the after-tax cash flows for both alternatives and find the best alternative by considering equivalent annuities (more precisely equivalent annual cost, EAC).

An 8% coupon bond matures in 5 years. The face value is $1,000 and has a current yield of 9.1%. What is the bond's current market price?

Amanda works in the currency trading unit of Sumara Workers Bank in Togliatti, Russia. Her latest speculative position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen. The current spot rate is ¥120.00/USD$. She must choose between the 90-day options on the Japanese yen. The premium is 2.75 yen per USD. a. Should Amanda buy a put on yen or a call on yen? b. What is Amanda's break-even price on her option of choice in part a)? c. What is Amanda's gross profit and net profit if the end spot rate is 140 yen/$?

Should it be a put option? Because USD will rise significantly, we expect it to be 120+ Yen/USD right?
The breakeven will then be 122.75 and the gross and net profit will be 20Yen/USD and 17.25 Yen/USD respectively right?

“Set off right is applicable in Trust Account.” Comment on the statement. (300-400 Words)

1. a) Explain how savings institutions could use interest rate futures to reduce interest rate risk.

b) Explain why many savings institutions experience financial problems at the same time.

Question 1:   The marketing department for your electronics company has determined the relationship between price and demand for a new smartphone: Price ($) = 150 – 0.01 x (Monthly Demand) The fixed costs for this item are $50,000 per month, and the variable cost per unit is $40.   Determine: a) What is the optimal production volume per month for this product? b) What is the maximum profit per month? c) What is the domain of profitable demand? d) Prepare a spreadsheet and chart that shows cost, revenue, and profit. (Use the chart type scatter with smooth lines, over a range of demand from 0 to 12,000 units per month. The chart must include axis titles and a legend that identifies the three curves.

Question 2: You hope to sell a product for $575 that has a variable cost per unit of $335.  Your fixed cost is from rent on the fully‐furnished factory in which your product is manufactured. a) If you sell 9000 units per year, what is the maximum monthly rent you can afford to pay in order to break even? b) If the rent was actually $58,000 per month, then what is your annual profit if you sell 7000 units per year?

Question 3: A regional airline is considering the addition of winglets to its CRJ200 aircraft, at a cost of $375,000 per plane. The winglets improve fuel economy from 3150 lbs of fuel per hour to 3020 lbs/hr. Assuming a fuel cost of $0.27 per lb, and an interest rate of 1% per month, how many hours each month must be flown in order for this upgrade to break even within 3 years?

Question 4: Your company has been renting forklifts at a cost of $7500 (each) per year.  If your company upgrades the warehouse to an integrated robotic system, then forklifts would no longer be needed. The upgraded warehouse costs $208,000 to construct, $11,000 each year to maintain, and will have a useful life of 25 years.  For an interest rate of 5% per year, how many forklifts could be rented each year and break even with the cost of the upgraded warehouse?  

Question 5: You have invested $26,500 to obtain equipment that enables you to generate $4550 in revenue each month, with monthly costs of $1725. For a monthly interest rate of 3%, how many months are required for you to pay off your initial investment?

Question 6: Your company has purchased surveying equipment for $43,500, and will utilize it for 8 years before selling it for $3250.  How much new revenue must this equipment generate each year in order to pay off the equipment and realize a return of 6% per year?  Note: solve this problem with the factor method or equation method, and then also set up a spreadsheet illustration of ‘Unrecovered Investment Balance’.  (Hint: we’ve done spreadsheets like this before, on HW 7 and ICE 12).

Sia Dance Studios has an annual cash dividend policy that raises the dividend each year by 3​%. Last​ year's dividend, Div 0Div0​, was $8 per share. The company will be in business for 40 years with no liquidating dividend. What is the price of this stock if

 a. an investor wants a return of 9​%?

b. an investor wants a return of 10​%?

c.  an investor wants a return of 13​%?

d.  an investor wants a return of 15​%?

e.  an investor wants a return of 18​%?

round to the nearest cent