Titan Mining Corporation has 8.9 million shares of common stock outstanding and 330,000 5.3 percent semiannual bonds outstanding, par value $1,000 each. The common stock currently sells for $37 per share and has a beta of 1.15; the bonds have 15 years to maturity and sell for 118 percent of par. The market risk premium is 7.7 percent, T-bills are yielding 4 percent, and the company’s tax rate is 24 percent.

a.

What is the firm's market value capital structure? (Do not round intermediate calculations and round your answers to 4 decimal places, e.g., .3216.)

Debt?

Equity?

b.If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows?

MamaMia’s Pizza purchases its pizza delivery boxes from a printing supplier. MamaMia’s delivers on average 225 pizzas each month (assume deterministic demand). Boxes cost 43 cents each, and each order costs $12.50 to process. Because of limited storage space, the manager wants to charge inventory holding at 25 percent of the cost. The lead time is 7 days, and the restaurant is open 360 days per year, assuming 30 days per month.

1. Draw a graph that sows the relationships among inventory carrying (holding) cost, order cost, and total annual cost.

The company's financial year is the calender year. Certain costs (incl. wages, rents and taxes) of 202500 € total are paid out in the middle of each month.

The company's first financial year is, exceptionally, only six months of length (1.7.-31.12.). At the beginning of the first financial year, the company has taken out a loan of 7200000 € total that has not been amortized. However, an interest of 5 % p.a. has been paid at the end of the financial year. The company has made an initial investment of 10800000 €. Half of the investment has been paid during the previous financial year and the rest must be paid at the beginning of the second financial year. Nothing has been sold yet during the the first financial year.

The revenues of the second financial year are estimated according to shipped (billed) quantities of 30000 units at a unit price of 300 € per unit. The variable costs consist of purchasing the materials and are expected to be 171 € per unit. At the end of the second financial year, 3600000 € of the debt must be amortized and an interest must be paid.   

The company then specifies the plan for the second financial year. 28 % of the annual volumes are delivered during the first half of the year and 72 % during the second. Monthly volumes are constant during both phases and the customers are given one month for payments. The company purchases the materials for the second financial year in three equal instalments. The first batch has arrived at the end of December, but the bill is not due until at the end of January. The next batches arrive at the beginning of May and September. In order for the business to run smoothly during the next year as well, the company purchases an additional batch of materials for 7500 units towards the end of December (20.12). Each batch is payable in 14 days.

It is recommended to make a table of months having the monthly information of incoming and outgoing payments allocated to the three cash flows, changes in cash and equivalents and total cash and equivalents.

Calculate the cash flow from operating activities and the cash flow from investment activities of the first financial year.

Dhingra & Associates Consulting and our firm is working on behalf of Falguni and Sameer’s Financial Empire. The Empire is involved in a major capital expansion by developing a significant Entertainment Centre.

An in- depth market survey and a concept plan have been completed by Dhingra and Associates at a considerable cost of $375,000.

Falguni has owned the land for years and the book value (balance sheet) is just $500,000, and its current market value is $4 million (4,000,000). If the Entertainment Centre project is evaluated over a 10-year period and when the Centre is shut down at the end of that period, the land would be worth $4.8 million based on a land appreciation rate of about 2% per year on average. The project requires a large castle structure, costing $18 million, to be constructed this year (year 0). The castle is a Class 1 asset with a CCA rate of 4%. At the end of the 10-year period, we estimate that the castle can be sold for about half of its initial cost.

We estimate that an investment of $7 million is required for equipment needed to operate the new Centre. This capital cost for all equipment will be depreciated using straight-line depreciation over the 10-year period (starting from year 1)1. Of course, the equipment required for the Centre will be treated quite roughly during this period, so we estimate that they will have no value at the end of the project’s life. All annual depreciation amounts related to both the castle and the equipment will result in an annual tax-shield for the company, but we’re not sure how to account for this in our project analysis. Falguni and Sameer have instructed us that they require a 10% rate of return on this type of project based on similar risk projects. They have sufficient capital available and the marginal tax rate for their company is 35%.

NOTE: 1 Straight-line depreciation means that the annual depreciation amount allowed under CCA tax rule is simply the total initial cost divided by number of years in the project’s life.

The project requires $1.2 million in incremental net working capital (NWC) immediately (at year 0). The required amount will double at the end of year 1, and then we expect that it will need to be maintained at the level of $3 million starting from the end of year 2 (when the Centre is working at full capacity) until the end of the project. Please note that at the end of the 10th year, the accumulated NWC will no longer be required.

We estimate that the Entertainment Centre will have $1 million in extra annual fixed costs for the company. Based on our marketing research, we estimate the incremental revenue in year 1 to be about $12 million, with incremental variable costs of $6 million. For each of years 2 to 7, the Centre will run at full capacity, with annual incremental revenues of $15 million and annual incremental variable costs of $7 million for the company. For the last three years (years 8-to-10), we expect a gradual slowdown in the Centre’s activities that will result in about $1 million of lost revenues per year. This will be accompanied by a $0.5 million reduction in variable costs. There will be no change in the fixed costs of operating the Centre over the 10-year period (from year 1-to-10).

Please use (display + name) the excel function/ formula used for cells (as required).

Ques 1: Given the above information, what is the NPV of this Entertainment Centre project?

Ans: Computing the NPV of the Entertainment Centre project assuming a RRR of 10%

Ques 2 :Using the base case, what is the percentage change in the project’s NPV if the required return increased by 2% (r =12% instead of 10%) to account for additional risk factors?

Ques 3 : What is the NPV in a scenario where the annual incremental costs (both fixed and variable) and annual incremental revenues are all worse by 5% compared to the base scenario?

a) Discuss the process of going public through an IPO. Your answer should also include the Part played by the underwriter in the issuance of the IPO.

Exercise 22-19 A partial trial balance of Kingbird Corporation is as follows on December 31, 2018. Dr. Cr. Supplies $2,500 Salaries and wages payable $1,500 Interest Receivable 5,400 Prepaid Insurance 90,600 Unearned Rent 0 Interest Payable 13,900 Additional adjusting data: 1. A physical count of supplies on hand on December 31, 2018, totaled $1,000. 2. Through oversight, the Salaries and Wages Payable account was not changed during 2018. Accrued salaries and wages on December 31, 2018, amounted to $4,000. 3. The Interest Receivable account was also left unchanged during 2018. Accrued interest on investments amounts to $4,800 on December 31, 2018. 4. The unexpired portions of the insurance policies totaled $59,200 as of December 31, 2018. 5. $29,500 was received on January 1, 2018, for the rent of a building for both 2018 and 2019. The entire amount was credited to rent revenue. 6. Depreciation on equipment for the year was erroneously recorded as $5,200 rather than the correct figure of $52,000. 7. A further review of depreciation calculations of prior years revealed that equipment depreciation of $7,900 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.

Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2018? (Ignore income tax considerations.)

Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2018? (Ignore income tax considerations.)

Pass the necessary adjusting entries for the following taking into account income tax effects (40% tax rate) and assuming that the books have been closed.

• How behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making.
• How framing effects can result in inconsistent and/or incorrect decisions.
• How the use of heuristics can lead to suboptimal financial decisions.

A number of investigations have been undertaken into the use of made by stake holders of the annual reports of companies in which they invested .several of these show that the annual report is regarded as an important source of information for making decisions on equity investment . Other studies indicate that the market price of the share in a company does not react in the short term to the publication of the company s annual report .How would you reconcile these findings with each other, and with the efficient markets hypothesis

Campbell Corporation is evaluating an extra dividend versus a share repurchase. In either case, $18,000 would be spent. Current earnings are $2.00 per share, and the stock currently sells for $50 per share. There are 4,000 shares outstanding. Ignore taxes and other imperfections.

a. Evaluate the two alternatives in terms of the effect on the price per share of the stock and shareholder wealth per share. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

b. What will the company's EPS and PE ratio be under the two different scenarios? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

1a. Given the following info on the zero rates (continuous compounding), compute the one-year forward rates (continuous compounding) and par rates (annual compounding)

1b. If the fixed rate of a 12x24 FRA is currently 2% in the market, is there any arbitrage opportunity? If yes, show how it can be done.

2. Given the following info, compute the zero rates (continuous compounding), the one-year forward rates (continuous compounding) and par rates (annual compounding). Coupons, if applicable, are paid once a year.

​(Calculating free cash flows​) You are considering new elliptical trainers and you feel you can sell 4000 of these per year for 5 years​ (after which time this project is expected to shut down when it is learned that being fit is​ unhealthy). The elliptical trainers would sell for ​$1800 each and have a variable cost of ​$900 each. The annual fixed costs associated with production would be ​$1200000. In​ addition, there would be a ​$7000000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the bonus depreciation method in year 1. This project will also require a​ one-time initial investment of ​$1500000 in net working capital associated with​ inventory, and​ working-capital investment will be recovered when the project is shut down.​ Finally, assume that the​ firm's marginal tax rate is 22 percent. a. What is the initial outlay associated with this​ project? b. What are the annual free cash flows associated with this project for years​ 1, and 2 through​ 4? c. What is the terminal cash flow in year 5 ​(that is, what is the free cash flow in year 5 plus any additional cash flows associated with the termination of the​ project)? d. What is the ​project's NPV given a required rate of return of 11 ​percent? a. What is the initial outlay associated with this​ project? ​$   ​(Round to the nearest​ dollar.) b. What is the free cash flows associated with this project for year​ 1? ​$   ​(Round to the nearest​ dollar.) What are the free cash flows associated with this project for years 2 through 4​ (note that the cash flows for years 2 through 4 are​ equal)? ​$   ​(Round to the nearest​ dollar.) c. What is the terminal cash flow in year 5 ​(that is, what is the free cash flow in year 5 plus any additional cash flows associated with the termination of the​ project)? ​$  ​(Round to the nearest​ dollar.) d. What is the ​project's NPV given a required rate of return of 11 ​percent? ​$   ​(Round to the nearest​ dollar.)

ABC Trading wants to raise equity to fund an acquisition of a small company (XYZ). ABC is considering two choices: (i) using an underwriting syndicate, (ii) a rights offering. The price of ABC stock is $60 and there are 250 million shares outstanding.

(a) If ABC agrees to pay 3% to an underwriter to issue the stock, what are the net proceeds to the company if it sells 20 million shares to the public for $60 each?

(b) ABC issues a rights offer to its existing stockholders that lets them purchase stock at the price of $58 each. (Note: stockholders will receive one right for each 12.5 shares they own, so only 20 million shares can be issued). What are the net proceeds to the company if it sells 20 million shares using the rights offering?

(c) What is the market value of the firm in (a), (b) (ignoring information effects)?

(d) What is the expected information effect from the company announcing it is issuing equity to fund acquisitions?

Compare and contrast the international bank services & products offered by any two universal banks(example :- Bank of America & HSBC Holdings) and decide which bank would be more preferred by international customers.