HT Tool Co is considering the purchase of a new CNC milling machine to enhance the quality of its custom fabrication services. This project is not expected to change sales, but should save the firm in labor costs. The annual labor savings is expected to be $74,350 (before tax) but the machine will use more electrical power, which is expect to cost $2,400 each year. The machine costs $145,000. It will require $21,000 in modifications to support the needs of HT Tool. An increase in inventory (net working capital) of $5,150 will be necessary.  The machine will be depreciated using MACRS with a 3-year class life (half-year convention).  The firm’s tax rate is 35%.  The plan is to sell the machine after 3 years and the expected selling price then is estimated at $65,000.  The hurdle rate for this project is 10.5% Begin with a blank unused worksheet and show your setup: a. What is the initial investment of this project? (Year 0 net cash flow). b. What are the net operating cash flows for years 1, 2, and 3? c. What is the terminal (NOT operating) cash flow in year 3? d. What are the NPV and IRR for this project? e. Should be accepted?

Issuer:                                                   Environmental Technologies Corporation
Standard and Poor rating:             AA
Par value:                                            $100,000
Coupon rate:                                      7% per annum
Coupon payment:                            Paid semiannually
Maturity date:                                   Ten years – December 31, 2026

A) What is the dollar amount of the coupon payment every six months? _______________

B) Is the coupon payment a fixed or variable rate? ____________

C) Is this bond investment grade? (Yes or No) ________________

D) What amount is Environmental Technologies Corporation promising to pay investors at maturity? ______________.

E) If you invested in this bond, are you permitted to sell it before maturity? (Yes or No) _____________.

F) Environmental Technologies Corporation’s bond is not callable. If Conservation Services Corporation sold a bond that was like the Environmental Technologies Corporation bond in every respect, except that the Conservation Services Corporation bond had a call provision, which bond would need to offer investors a higher yield? _____________________________________________________________

Stock options are a popular way for large, publicly held companies to compensate managers and executives. Frequently, the value of stock options granted to executives can result in millions of dollars of additional compensation to executives already earning high six and seven figure salaries. Why do companies favor stock options to compensate executives? Do you see any potential problems with such a compensation program? Explain. Do you think that there should be limits on such compensation? Why or why not?

1. Carla will give $200 to you every three months for 10 years (4x per year). At year 10 she will also give $10,000 to you. What amount of money must be available in her bank account in order for her to have enough money to meet her promise. The rate is 12%. Hint: this problem is a combination of 2 types of TVM problems. Your final answer is the sum of the two.

2. Brett has contract that will pay him $10,000 at the end of 5 years. Brett wants money now and not in 5 years, so he is willing to have contract signed over to you (so you would receive that money) if you give him some money today. If you require a 12% interest rate on money you lend to friends. What is the maximum amount you would you be willing to pay for this contract

Explain how real options how can be used to inform decisions to reduce the impact of exogenous shocks on the enterprise

1. Please share an example of how differences in shared meaning have affected you.

Multiple Choice

• $-2,931,556.43

• $11,459.60

• $11,917.98

• $11,001.22

• $391,852.70

A bond is purchased for $5500. It is kept for 4 years, and interest is received at the end of each year. Immediately following the owner’s receipt of the fourth interest payment, the owner sells the bond at $200 less of its par value.The bond rate of interest is 6 percent, and the owner’s money yields a 10 percent interest rate. a) Determine the bond’s face value. b) Plot the cash flow diagram for the investment. Please solve it in Excel and not in Mathematical equations. Also mention the formula and steps.

Complete an amortization schedule for a $33,000 loan to be repaid in equal installments at the end of each of the next three years. The interest rate is 11% compounded annually. Round all answers to the nearest cent.

Sarah obtains a 30-year loan at an annual fixed rate of 8% on a $220,000 house where the required down payment is 15% of the house value. What is Sarah's monthly mortgage payment?

Cost Benefit Analysis over 10 years

Do a cost benefit analysis to decide wheteher to switch from a gas car to an electric car.

HINT: Make cash flow table for 10 years reflecting the total savings of switching from gas car to electric car

The government is offering an incentive of $11,000 for trading your gas car in and buying an electric vehicle

Assume that cost of gas will increase by 5% each year

You must include NPV and IRR for both comparisons in excel AND make a reccommendation

Interest rate = 4.50%

(you are free to make any other assumtions or rates you make, but be sure to clearly list them)

Consider the following.

a. What is the duration of a two-year bond that pays an annual coupon of 9 percent and whose current yield to maturity is 14 percent? Use $1,000 as the face value. (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))
b. What is the expected change in the price of the bond if interest rates are expected to decrease by 0.2 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

a. duration of bond

b. expected change in the price

It is now January 1, 2019, and you are considering the purchase of an outstanding bond that was issued on January 1, 2017. It has a 9.5% annual coupon and had a 20-year original maturity. (It matures on December 31, 2036.) There is 5 years of call protection (until December 31, 2021), after which time it can be called at 108—that is, at 108% of par, or $1,080. Interest rates have declined since it was issued, and it is now selling at 120.08% of par, or $1,200.80.

1. What is the yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.

     %

   What is the yield to call? Do not round intermediate calculations. Round your answer to two decimal places.

     %

2. If you bought this bond, which return would you actually earn?
   1. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
   2. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
   3. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.
   4. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
3. Suppose the bond had been selling at a discount rather than a premium. Would the yield to maturity have been the most likely return, or would the yield to call have been most likely?
   1. Investors would expect the bonds to be called and to earn the YTC because the YTC is less than the YTM.
   2. Investors would not expect the bonds to be called and to earn the YTM because the YTM is greater than the YTC.
   3. Investors would not expect the bonds to be called and to earn the YTM because the YTM is less than the YTC.
   4. Investors would expect the bonds to be called and to earn the YTC because the YTC is greater than the YTM.

Following table is the data of past dividend payments.



　 dividend (in millions)
2012 $1.00
2013 $1.50
2014 $2.00
2015 $2.35
2016 $3.15
2017 $4.00
2018 $4.65
2019 $5.25
2020 $5.96


Using the past dividend data, you will forecast the future growth rate.

The most recent dividend paid by New Technologies was an annual dividend of $5.96 million in total and there are 20 million shares outstanding .

Assume T-bill rate is 3%, S&P500 market return is 7%, beta of New Technologies is 0.88.



#1. What is the appropriate discount rate (required rate of return)?

#2. You forecast that future dividends will grow for 3 years at the geometric average of historical dividend growth rate using the data given. What is the geometric average of historical dividend growth rate?

#3. You assume that dividends for the next 3 years will be increased at the rate you just calculated from #2. After that, you assume dividends are expected to increase by 4% each year forever. What should be today’s stock price per share?

#4. If the H-model is applied to the above question, at what rate should the growth rate decline each year to reach the constant growth rate of 4%?

#5. Using the H-model, what should be the stock price per share today?




#1. k = 5.54%


#1. k = 6.52%


#1. k = 9.24%


#2. geometric avg growth rate = approx. 25%


#2. geometric avg growth rate = approx. 21%


#2. geometric avg growth rate = approx. 28%


#3. approx. $15.50 per share


#3. approx. $40.30 per share


#3. approx. $21.10 per share


#4. each year it should decline by 5% per year


#4. each year it should decline by 7% per year


#4. each year it should decline by 9% per year


#5. approx. $17.80 per share


#5. approx. $20.90 per share


#5. approx. $15.20 per share