An oil-drilling company must choose between two mutually exclusive extraction projects, and each requires an initial outlay at t = 0 of $11.4 million. Under Plan A, all the oil would be extracted in 1 year, producing a cash flow at t = 1 of $13.68 million. Under Plan B, cash flows would be $2.0257 million per year for 20 years. The firm's WACC is 12%. Construct NPV profiles for Plans A and B. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. If an amount is zero, enter "0". Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to two decimal places. Discount Rate NPV Plan A NPV Plan B 0 % $ million $ million 5 million million 10 million million 12 million million 15 million million 17 million million 20 million million Identify each project's IRR. Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: % Find the crossover rate. Do not round intermediate calculations. Round your answer to two decimal places. % Is it logical to assume that the firm would take on all available independent, average-risk projects with returns greater than 12%? If all available projects with returns greater than 12% have been undertaken, does this mean that cash flows from past investments have an opportunity cost of only 12%, because all the company can do with these cash flows is to replace money that has a cost of 12%? Does this imply that the WACC is the correct reinvestment rate assumption for a project's cash flows?

Problem 12-09 Financing Deficit Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December 31, 2016 Cash $ 180,000 Accounts payable $ 360,000 Receivables 360,000 Notes payable 156,000 Inventories 720,000 Line of credit 0 Total current assets $1,260,000 Accruals 180,000 Fixed assets 1,440,000 Total current liabilities $ 696,000 Common stock 1,800,000 Retained earnings 204,000 Total assets $2,700,000 Total liabilities and equity $2,700,000 Income Statement for December 31, 2016 Sales $3,600,000 Operating costs 3,279,720 EBIT $ 320,280 Interest 18,280 Pre-tax earnings $ 302,000 Taxes (40%) 120,800 Net income 181,200 Dividends $ 108,000 Suppose that in 2017 sales increase by 15% over 2016 sales and that 2017 dividends will increase to $136,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 10%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations. Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 Sales $ Operating costs $ EBIT $ Interest $ Pre-tax earnings $ Taxes (40%) $ Net income $ Dividends: $ Addition to RE: $ Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 Cash $ Receivables $ Inventories $ Total current assets $ Fixed assets $ Total assets $ Accounts payable $ Notes payable $ Accruals $ Total current liabilities $ Common stock $ Retained earnings $ Total liabilities and equity

Pharoah Security Company produces a cash flow of $240 per year and is expected to continue doing so in the infinite future. The cost of equity capital for Pharoah is 20 percent, and the firm is financed entirely with equity. Management would like to repurchase $200 in shares by borrowing $200 at a 8 percent annual rate (assume that the debt will also be outstanding into the infinite future). Using Modigliani and Miller’s Proposition 1 answer the following questions.

What is the value of the firm today?

What is the value of equity after the repurchase?

What will be the rate of return on common stock required by investors after the stock repurchase? (Round answer to 2 decimal places, e.g. 17.54%.)

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 6.7 percent and a standard deviation of 9.7 percent. The risk-free rate is 3.7 percent, and the expected return on the market portfolio is 11.7 percent. Assume the capital asset pricing model holds.

What expected rate of return would a security earn if it had a .42 correlation with the market portfolio and a standard deviation of 54.7 percent? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected rate of return             %

In 525 words the challenges and risks you may face in starting a business in a foreign country including the following:
cultural, business, and political risks
How you plan to avoid operational, transaction, and translation exposure.

Summarize the issues one should address in the analysis of: Short term liquidity and Long-term solvency

Please discuss the issues, not definitions. Thank you

1. What is the price of a 1,000 par value semi-annual bond with 5.0 years to maturity and a coupon rate of 4.98% and a yield-to-maturity of 8.62% ?

Constellation Brands has a 45 day collection period. Sales for the next four quarters are estimated at $8,400, $8,800, $8,200, and $9,000, respectively, starting with the first quarter of the year. Given this information, which one of the following statements is correct? Assume a 360 day year.

Consider the following table:

a. Calculate the values of mean return and variance for the stock fund. (Do not round intermediate calculations. Round "Mean return" value to 1 decimal place and "Variance" to 2 decimal places.)  

b. Calculate the value of the covariance between the stock and bond funds.

3. Financial statements and reports The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company during a specified period of time. It reports a firm’s gross income, expenses, net income, and the income that is available for distribution to its preferred and common shareholders. The income statement is prepared using the generally accepted accounting principles (GAAP) that match the firm’s revenues and expenses to the period in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income statement and other financial statements and reports to evaluate the company’s financial performance and condition. Consider the following scenario: Cold Goose Metal Works Inc.’s income statement reports data for its first year of operation. The firm’s CEO would like sales to increase by 25% next year. 1. Cold Goose is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest and taxes (EBIT). 2. The company’s operating costs (excluding depreciation and amortization) remain at 60% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company’s tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Cold Goose expects to pay $100,000 and $821,100 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Cold Goose, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar. Cold Goose Metal Works Inc.Income Statement for Year Ending December 31 Year 1 Year 2 (Forecasted) Net sales $10,000,000 $ Less: Operating costs, except depreciation and amortization 6,000,000 Less: Depreciation and amortization expenses 400,000 400,000 Operating income (or EBIT) $3,600,000 $ Less: Interest expense 360,000 Pre-tax income (or EBT) $3,240,000 $ Less: Taxes (40%) 1,296,000 Earnings after taxes $1,944,000 $ Less: Preferred stock dividends 100,000 Earnings available to common shareholders $1,844,000 $ Less: Common stock dividends 680,400 Contribution to retained earnings $1,163,600 $1,424,900 Given the results of the previous income statement calculations, complete the following statements: • In Year 2, if Cold Goose has 10,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. • If Cold Goose has 500,000 shares of common stock issued and outstanding, then the firm’s earnings per share (EPS) is expected to change from in Year 1 to in Year 2. • Cold Goose’s before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2. • It is to say that Cold Goose’s net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company’s annual contribution to retained earnings, $1,163,600 and $1,424,900, respectively. This is because of the items reported in the income statement involve payments and receipts of cash.

8. Madsen Motors's bonds have 23 years remaining to maturity. Interest is paid annually, they have a $1,000 par value, the coupon interest rate is 7%, and the yield to maturity is 9%. What is the bond's current market price? Round your answer to the nearest cent.

9. A bond has a $1,000 par value, 10 years to maturity, and a 7% annual coupon and sells for $985.

1. What is its yield to maturity (YTM)? Round your answer to two decimal places.

10. Nesmith Corporation's outstanding bonds have a $1,000 par value, a 6% semiannual coupon, 12 years to maturity, and a 10% YTM. What is the bond's price? Round your answer to the nearest cent.

11. A firm's bonds have a maturity of 10 years with a $1,000 face value, have an 8% semiannual coupon, are callable in 5 years at $1,049.23, and currently sell at a price of $1,095.02. What are their nominal yield to maturity and their nominal yield to call? Do not round intermediate calculations. Round your answers to two decimal places.

"Interest Rate Risk [LO2] Bond J has a coupon rate of 3 percent. Bond K has a coupon rate of 9 percent. Both bonds have 14 years to maturity, make semiannual payments, and have a YTM of 6 percent. If interest rates suddenly rise by 2 percent, what is the percentage price change of these bonds? What if rates suddenly fall by 2 percent instead? What does this problem tell you about the interest rate risk of lower-coupon bonds?

Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $130. The materials cost for a standard diamond is $80. The fixed costs incurred each year for factory upkeep and administrative expenses are $206,000. The machinery costs $1.2 million and is depreciated straight-line over 10 years to a salvage value of zero.

a. What is the accounting break-even level of sales in terms of number of diamonds sold? (Do not round intermediate calculations.)

b. What is the NPV break-even level of diamonds sold per year assuming a tax rate of 21%, a 10-year project life, and a discount rate of 12%? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

NPV Your division is considering two investment projects, each of which requires an up-front expenditure of $17 million. You estimate that the investments will produce the following net cash flows: Year Project A Project B 1 $ 6,000,000 $20,000,000 2 10,000,000 10,000,000 3 20,000,000 7,000,000 What are the two projects' net present values, assuming the cost of capital is 5%? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $ Project B: $ What are the two projects' net present values, assuming the cost of capital is 10%? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $ Project B: $ What are the two projects' net present values, assuming the cost of capital is 15%? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $ Project B: $ What are the two projects' IRRs at these same costs of capital? Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: %