With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this causal surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,900 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $63,000 in net working capital to start. Total fixed costs are $152,000 per year, variable production costs are $20 per unit, and the units are priced at $63 each. The equipment needed to begin production will cost $620,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 24 percent and the required rate of return is 16 percent. What is the NPV of this project?

Quantitative Problem 1: Assume today is December 31, 2013. Barrington Industries expects that its 2014 after-tax operating income [EBIT(1 – T)] will be $430 million and its 2014 depreciation expense will be $60 million. Barrington's 2014 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2014 will be $20 million. The firm's free cash flow is expected to grow at a constant rate of 4.5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.4%; the market value of the company's debt is $2.3 billion; and the company has 180 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Using the corporate valuation model, what should be the company's stock price today (December 31, 2013)? Round your answer to the nearest cent. Do not round intermediate calculations.
$ per share

Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.

The weighted average cost of capital is 12%, and the FCFs are expected to continue growing at a 4% rate after Year 5. The firm has $24 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 20 million shares outstanding. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations.
$ per share?

Mr. Sam Golff desires to invest a portion of his assets in rental property. He has narrowed his choices down to two apartment complexes, Palmer Heights and Crenshaw Village. After conferring with the present owners, Mr. Golff has developed the following estimates of the cash flows for these properties. Palmer Heights - Yearly After-tax Cash Inflow (in thousands)/Probability: $40/.2, 45/.2, 60/.2, 75/.2, 80/.2; Crenshaw Village - Yearly Aftertax Cash Inflow (in thousands)/Probability: $45/.4, 50/.2, 60/.1, 70/.3. a. Find the expected cash flow from each apartment complex. (Enter your answers in thousands (e.g, $10,000 should be entered as "10").) b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round your answers to 3 decimal places.) c. Which apartment complex has more risk?

Treynor Pie Company is a food company specializing in high-calorie snack foods. It is seeking to diversify its food business and lower its risks. It is examining three companies—a gourmet restaurant chain, a baby food company, and a nutritional products firm. Each of these companies can be bought at the same multiple of earnings. The following represents information about all the companies.
  

a-1. Compute the coefficient of variation for each of the four companies. (Enter your answers in millions (e.g., $100,000 should be entered as ".10"). Round your answers to 3 decimal places.)
  

a-2. Which company is the least risky?
  

a-3. Which company is the most risky?
  

b. Which of the acquisition candidates is most likely to reduce Treynor Pie Company's risk?
  

Describe data validation, absolute cell referencing, custom formatting, naming a range in Excel. Why is this important for financial modeling? Use examples.

Mr. Sam Golff desires to invest a portion of his assets in rental property. He has narrowed his choices down to two apartment complexes, Palmer Heights and Crenshaw Village. After conferring with the present owners, Mr. Golff has developed the following estimates of the cash flows for these properties.
    

a. Find the expected cash flow from each apartment complex. (Enter your answers in thousands (e.g, $10,000 should be enter as "10").)
  

  
b. What is the coefficient of variation for each apartment complex? (Do not round intermediate calculations. Round your answers to 3 decimal places.)
  

  
c. Which apartment complex has more risk?
  

Machine A: This project costs $10 million. The expected net cash flows are $4 million per year for 4 years, when is to be replaced. Machine B: It costs $15 million, and has expected cash flows of $3.5 per year for 8 years, when it will be replaced. The cost of capital is 10%. Machine prices are expected to stay steady as production efficiencies are expected to offset inflation. Evaluate these projects. a. Calculate NPV, IRR, Replacement Chain, and Equivalent Annual Annuity. b. Which project should be company accept?

Debby’s Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $33,600. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby’s cost of capital is 11 percent. Use Appendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods.
  

  
a. What is the expected value of the cash flow? The value you compute will apply to each of the five years.
  

  
b. What is the expected net present value? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
  

  
c. Should Debby buy the new equipment?
  

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