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.]

Lisa just won $2.5 million in the state lottery. She is given the option of receiving a lump sum $1.3 million now, or she can elect to recieve $100,000 at the end of each of the next 25 years. If Gabrielle can earn 5% annually on her investments, which option should she take? Please provide formula used to solve answer.

The Gilbert Instrument Corporation is considering replacing the wood steamer it currently uses to shape guitar sides. The steamer has 6 years of remaining life. If kept, the steamer will have depreciation expenses of $650 for 5 years and $325 for the sixth year. Its current book value is $3,575, and it can be sold on an Internet auction site for $4,150 at this time. If the old steamer is not replaced, it can be sold for $800 at the end of its useful life.

Gilbert is considering purchasing the Side Steamer 3000, a higher-end steamer, which costs $12,000 and has an estimated useful life of 6 years with an estimated salvage value of $1,500. This steamer falls into the MACRS 5-year class, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The new steamer is faster and allows for an output expansion, so sales would rise by $2,000 per year; the new machine’s much greater efficiency would reduce operating expenses by $1,900 per year. To support the greater sales, the new machine would require that inventories increase by $2,900, but accounts payable would simultaneously increase by $700. Gilbert’s marginal federal-plus-state tax rate is 25%, and the project cost of capital is 15%. Should it replace the old steamer?

Edna Recording​ Studios, Inc., reported earnings available to common stock of $4,000,000 last year. From those​ earnings, the company paid a dividend of $1.34 on each of its 1,000,000 common shares outstanding. The capital structure of the company includes 30% debt, 15% preferred stock, and 55% common stock. it is taxed at a rate of 26%.

a.  If the market price of the common stock is ​$46 and dividends are expected to grow at a rate of 9​% per year for the foreseeable​ future, what is the​ company's cost of retained earnings financing​?

b.  If under pricing and flotation costs on new shares of common stock amount to ​$9 per​ share, what is the​ company's cost of new common stock financing​?

c.  The company can issue ​$1.99 dividend preferred stock for a market price of ​$30 per share. Flotation costs would amount to ​$2 per share. What is the cost of preferred stock financing​?

d. The company can issue ​$1,000​-par-value, 11​% coupon, 12​-year bonds that can be sold for ​$1290 each. Flotation costs would amount to ​$20 per bond. Use the estimation formula to figure the approximate​after-tax cost of debt​ financing?

e. What is the WACC​?

4) Nandana invests $500 at the start of each year for 20 years in a bank account paying interest at the effective annual rate i. She takes the interest paid at the end of each year and invests it in a different account paying an effective annual rate i/2. The effective annual rate she earns on her combined investments is 6%.

a) How much money does she have at the end of 20 years? (Total of both accounts.)

b) What is i?

There is a bond that pays $100 per year interest, with a $1,000 par value. It matures in 15 years. The market required yield to maturity on a comparable bond is 12%.

1. What is the value of the bond?
2. How does the value change if the yield to maturity on a comparable bond increase to 15%? What if it decreases to 8%.
3. Explain the above questions (part b) with the concepts of interest rate risk, premium bonds and discount bonds.
4. Recalculate the answer in b, with the assumption that the bond matures in 5 years (instead of 15 years).
5. Explain the above questions (part d) with the concepts of interest rate risk, premium bonds and discount bonds.

3) Ravi invests $10,000 in an investment account that pays 4% compounded semi-annually. Ravi takes each interest payment and invests it in a savings account that pays 1% compounded monthly.

a) How much money does Ravi have at the end of 10 years?

b) What is the effective annual rate he earned over 10 years?

Calculation of individual costs and WACC: Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 40​% ​long-term debt, 10​% preferred​ stock, and 50​% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 21​%.

Debt: The firm can sell for ​$1020 a 10​-year, ​$1000​-par-value bond paying annual interest at a 7.00​% coupon rate. A flotation cost of 3​% of the par value is required.

Preferred stock: 8.00​% ​(annual dividend) preferred stock having a par value of ​$100 can be sold for ​$98. An additional fee of ​$2 per share must be paid to the underwriters.

Common stock: The​ firm's common stock is currently selling for ​$59.43 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from ​$2.70 ten years ago to the ​$4.00 dividend​ payment, Upper D0​, that the company just recently made. If the company wants to issue new new common​ stock, it will sell them ​$1.50 below the current market price to attract​ investors, and the company will pay ​$2.00 per share in flotation costs.  

a.  Calculate the​ after-tax cost of debt.

b.  Calculate the cost of preferred stock.

c.  Calculate the cost of common stock​ (both retained earnings and new common​ stock).

d.  Calculate the WACC for Dillon Labs.

1) Carlos has borrowed $8,000 for 8 years at 6% compounded semi-annually. He will repay interest every 6 months plus principal at maturity. He will also deposit X every 6 months into a sinking fund paying 5% compounded semi-annually to pay off the principal at maturity.

a) Find X.

Carlos goes bankrupt at the end of year 6, just after making his interest payment and sinking fund deposit. The bank confiscates the money in the sinking fund, but gets no further payments.

b) How much money does the bank lose as a result of the loan default at the end of year 6?

c) Over the lifetime of the loan, how much money did the bank collect? Was it more or less than the amount of the original loan?

d) Assuming the bank re-invested all of Carlos payments at 6% (compounded semi-annually), how much money does the bank have at the end of 6 years? What is the equivalent yield (compounded semi-annually) they made on their initial loan?

You have some extra cash this month and you are considering putting it toward your car loan. Your interest rate is 7.3 %7.3%​, your loan payments are $ 675$675 per​ month, and you have 3636 months left on your loan. If you pay an additional $ 1 comma 400$1,400 with your next regular $ 675$675 payment​ (due in one​ month), how much will it reduce the amount of time left to pay off your​ loan? ​(Note: Be careful not to round any intermediate steps less than 6 decimal​ places.)

Why would organizations ever issue common stock if it is so expensive? minimum 200 words

why do we need financial intermediaries in any economy ? explain clearly

Kinky Copies may buy a high-volume copier. The machine costs $100,000 and this cost can be fully depreciated immediately. Kinky anticipates that the machine can actually be sold in 5 years for $30,000. The machine will save $20,000 a year in labor costs but will require an increase in working capital, mainly paper supplies, of $10,000. The firm’s tax rate is 21%, and the discount rate is 8%. What is the NPV of the project?

Using an elaborate spreadsheet based on guidance from my textbook, I calculated that NPV is 41,959.91. Am I on the right track?

1). ABC Corporation’s stock price is trading at $75. If the company's last dividend payment was $5 what is the dividend grow rate average into the foreseeable future if required rate of return is 12% ?

2). Suppose Barbara looks out in the morning and sees a clear sky so decides that a picnic for lunch is a good idea. Last night the weather forecast included a 100% chance of rain by midday but Barbara did not watch the local news program. Is Barbara's prediction of good weather at lunch time rational? Why or why not?

3). If a corporation announces that it expects quarterly earnings to increase by 25% and it actually sees an increase of 22%, what should happen to the price of the corporation's stock if the efficient markets hypothesis holds, everything else held constant?

Jimstan & Jimstan Corp. can sell a new 10-year bond with an annual coupon of 5.5% and a face value of $1,000 for $1,206.33. The company will incur flotation costs of $40 per bond and has a tax rate of 27%.

Part 1

What are the net proceeds from selling the bond?

Nd=P−F=1,206.33−40=Nd=P-F=1,206.33-40= 1,166.33 Correct ✓

Part 2

What is the company's pre-tax cost of debt?