OpenSeas, Inc. is evaluating the purchase of a new cruise ship. The ship would cost

$ 496$496

​million, but would operate for

2020

years. OpenSeas expects annual cash flows from operating the ship to be

$ 68.6$68.6

million​ (at the end of each​ year) and its cost of capital is 11.7 %11.7%

a. Prepare an NPV profile of the purchase using discount rates of

2.0 %2.0%​,

11.5 %11.5%

and

17.0 %17.0%.

b. Identify the IRR ​(to the nearest​ 1%) on a graph.

c. Is the purchase attractive based on these​ estimates?

d. How far off could​ OpenSeas? cost of capital be​ (to the nearest​ 1%) before your purchase decision would​ change?

Note​:

Subtract the discount rate from the actual IRR. Use Excel to compute the actual IRR.

There are those who suggest that any standard setting body is redundant because accounting standards are unnecessary. Other people feel that such standards should be produces, but by the government, so that they are a legal requirement.

Required:

Discuss the statement that accounting standards are unnecessary for the purpose of regulating financial statements.

Given the following annual net cash flows, determine the IRR to the nearest whole percent of a project with an initial outlay of $1,800.

A) 14%  
B) 12%
C) 8%
D) 25%

As the director of Big Sky Corp, you are evaluating two mutually exclusive projects with the following net cash flow:

Year     Cash Flow X ($)            Cash Flow Y ($)

0          -100,000                       -100,000

1          60,000                          20,000

2          30,000                          20,000

3          30,000                          40,000

4          10,000                          60,000

5          10,000                          20,000

What is the discount payback for project Y if the interest rate is 10% per year?

4.26 years

3.86 years

4.16 years

2.36 years

What is the NPV for project Y if the discount rate is 10% per year?

$21,588.77

$21,624.87

$18,162.57

$21,323.67

What is the IRR for Project Y?

15.150%

It has no IRR

14.150%

16.150%

What is the crossover rate for the two projects?

13.81%

15.81%

12.81%

14.81%

The intercept on the x-axis for project Y is…?

16.15%

14.15%

15.15%

It does not intercept X-axis

PLEASE show your work!

A director of a public listed company has expressed concerns about the accounting treatment of some of the company's items of property, plant and equipment which have increased in value. His concern is that the statement of financial position does not show the true value of assets which have increased in value and that this 'undervaluation' is compounded by having to charge depreciation on these assets, which also reduces reported profit. He argues that this does not make economic sense.

Required:

Respond to director's concerns by summarizing the principal requirements of IAS 16 Property, Plant and Equipment in relation the revaluation of property, plant and equipment, including subsequent treatment.

                  Using the 13% cost of capital, what is the project’s NPV if it is operated for the full 3 years? Would the NPV change if the company planned to terminate the project at the end of Year 2? At the end of Year 1? What is the project’s optimal (economic) life?

A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,456.00 to install, $5,136.00 to operate per year for 7 years at which time it will be sold for $6,888.00. The second, RayCool 8, costs $41,798.00 to install, $2,013.00 to operate per year for 5 years at which time it will be sold for $8,968.00. The firm’s cost of capital is 6.80%. What is the equivalent annual cost of the RayCool8? Assume that there are no taxes .

You are valuing Soda City Inc. It has $104 million of debt, $89 million of cash, and 154 million shares outstanding. You estimate its cost of capital is 12.6%. You forecast that it will generate revenues of $703 million and $797 million over the next two years. Projected operating profit margin is 21%, tax rate is 29%, reinvestment rate is 23%, and terminal exit value multiple at the end of year 2 is 15. What is your estimate of its share price? Round to one decimal place. ​[Hint: Compute projected FCFF for years 1 and 2 based on info provided, compute terminal value using the exit multiple method, discount it all to find EV, walk the bridge to Equity, divide by number of shares outstanding.]

(L.O. 2 and 3) On January 1, 2017 Bengston Company amended its pension plan to provide greater benefits to its employees. The amendment to the plan resulted in prior service costs with a present value of $90,000. Also, the following facts relate to the pension plan for 2017

Projected benefit obligation, 12/31/16 $175,000

Plan assets, 12/31/16 171,000
Prior service cost, 1/1/17 90,000
Annual service cost, 2017 18,000

Settlement rate, 2017 12%

Actual return on plan assets 18,500
Employer’s contribution, 2017 42,000
Benefits paid to retirees, 2017 12,000
Balance in pension asset/liability, 12/31/16 4,000
Amortization of prior service cost using the years­of­service method 23,800

Instructions:

a. Based upon the information presented above prepare a pension worksheet for Bengston Company for 2017.

b.Record the journal entry to formally recognize the pension expense for 2017.

c.Prepare the reconciliation schedule for December 31, 2017.

what is the federal reserve responsibilities on its domestic scale vs international scale

Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $ 20 million upfront investment and will generate $ 20 million in savings for Facebook each year for the next 3 years. The second bid from Cisco requires a $ 81 million upfront investment and will generate $ 60 million in savings each year for the next 3 years.

a. What is the IRR for Facebook associated with each​ bid?

b. If the cost of capital for each investment is 12 %​, what is the net present value ​(NPV​) for Facebook of each​ bid? Suppose Cisco modifies its bid by offering a lease contract instead. Under the terms of the​ lease, Facebook will pay $ 24 million​ upfront, and $ 35 million per year for the next 3 years. Facebook​'s savings will be the same as with​ Cisco's original bid.

c. Including its​ savings, what are Facebook​'s net cash flow under the lease​ contract? What is the IRR of the Cisco bid​ now?

d. Is this new bid a better deal for Facebook than​ Cisco's original​ bid? Explain.

PLEASE MAKE SURE ANSWERS ARE CLEAR!!!

Calculate the Weighted Average Cost of Capital (WACC) for the following capital structure:

• 4,000 bonds with par value of $2,000 and market value of $1,800. The coupon of 10% with a tax rate of 50%.

• 400,000 common shares with par value of $70 per share and market value of $76 per share. The cost of common shares is 24%.

• 20,000 preferred shares with par value of $200 per share and market value of $200 per share. The dividend per share equal to $24.

Lean Conductors Ltd is a mid-sized Public limited company engaged in the manufacture and sale of electrical cables. As a public limited company the organization was performing reasonably well, earning steady profits and declaring a stable dividend of 12-15%.

The CEO was feeling the urge to expand the business and taste the growth of business operations and profits. He started addressing various options and shortlisted 2 options namely manufacture of LED bulbs and solar panels.

He called the Gen Mgr. - Finance for a discussion in this regard to probe the matter further. He also went on to share his dream of making the company a larger one and his belief in people like the GM who needs to stay and grow with the organization.

The GM felt excited at this prospect and started making a project report. He decided in his own mind the solar panel project with a larger profit margin looked to be a better one than LED bulbs which was dealer intensive and lesser in terms of unit margin.

Feeling the need to expand rapidly on the investment of the company and make it bigger and become a CFO in the bargain, he chose the solar panel project which was more capital intensive. An assumption about a capital structure and cost congruent to the existing structure was assumed and the projected financials were prepared.

The board of directors representing the majority of shareholders believing in the recommendations of the report adopted it for implementation. The project faced various hurdles in its implementation such delay in signing collaboration agreements, inflated cost due to poor supply of money in the market, downturn of the economy and so on. The project cost started spiraling up and to fund the expansion the funds of the existing business line were inducted into the new project since no further borrowing could be made. The company slipped into the red and reached a stage of bankruptcy without the new project even taking off.   

Questions:

1. Trace the conflict between the management and the shareholders in this case study.
2. Is the act of the GM Finance an error or sin?
3. Where do you think the CEO went wrong?
4. What according to you is the approach the CEO should have taken?

Derek’s company has existing assets that generate Earnings Per Share EPS of $5. If Derek does not invest except to maintain existing assets, EPS is expected to remain constant at $5 a year. However, starting next year, Derek an opportunity to invest $3 per share a year in developing a new technology. Each investment is expected to generate a 20% return (assume that this return is not compounded, so each year the return is 3 x .2). The technology will be fully developed by the end of the fith year. What will be the stock price and PE ratio assuming that investors require a 12%? [Hint: use the dividend discount model]