Barry Swifter is 60 years of age and considering retirement. ​ Barry's retirement portfolio currently is valued at​ $750,000 and is allocated in Treasury​ bills, an​ S&P 500 index​ fund, and an emerging market fund as​ follows:

a.  Based on the current portfolio composition and the given expected rates of​ return, the expected rate of return for​ Barry's portfolio is

( ) ​%.

​(Round to two decimal​ places.)

b.  If Barry moves all his money out of emerging market funds and puts it in Treasury​ bills, the expected rate of return for his portfolio is

( ) %

​(Round to two decimal​ places.)

Question 4. Cash Flow Valuation Model

A local investment banking firm, Denver Creek Inc., is evaluating a deal to acquire a sports apparel company, Breezee.

The company has a term loan requiring monthly payment and the principal of the loan to be paid down over the life of the loan (that is, amortized). The debt balance at year 0 is $150 million and the loan rate is 5% (APR or annual percentage rate =5%). The loan will mature at year 3 or in 36 months.

In the long term, the company plans to manage its capital structure to a target debt-to-value ratio. The target is set at the industry average level of 20%. When the term loan matures at the end of year 3, the company will refinance with new debt to reach the target level and will keep the debt ratio at 20% in the steady state (starting year 4).

The company’s capital structure over time is presented in the table below.

Other inputs and assumptions:
Unlevered cost of capital (Ru) = 9%; Cost of capital (Rwacc) in the steady state = 11% Tax rate = 21%; Long-term growth rate (LTg) = 2%

1. Determine the term loan’s monthly total payment, principle repayment and
interest payment, and construct the amortization schedule.
Note: An amortization schedule is a complete table of periodic loan payments, showing the amount of principal repayment and the amount of interest that comprise each payment until the loan is paid off at the end of its term. 


2. Choose the appropriate cash flow valuation model and explain your rationale.

3. Apply the model of your choice and estimate the target company’s value of operation. 


You buy a 20-year bond with a coupon rate of 9.9% that has a yield to maturity of 10.9%. (Assume a face value of $1,000 and semiannual coupon payments.) Six months later, the yield to maturity is 11.9%. What is your return over the 6 months?

Consider a project with the following data: accounting break-even quantity = 29,129 units; cash break-even quantity = 17,834 units; life = 10 years; fixed costs = $204,846; variable costs = $22 per unit; required return = 12 percent; depreciation = straight line. Ignoring the effect of taxes, what is the financial break-even quantity?

You have $600 in an account which pays 4.5 % compounded annually. How many additional dollars of interest would you earn over 4 years if you moved the money to an account earning 6.6 %?

How many additional dollars of interest would you earn over 4 years from the account that pays 6.6 %?

$___ (Round to the nearest cent.)

Andy promises to pay Opie $7,000 when Opie graduates from Mayberry University in 10 years. How much must Andy deposit today to make good on his promise, if he can earn 5 % on his investments?

How much must Andy deposit today to make good on his promise?

$ ___(Round to the nearest cent.)

A company is considering undertaking a new project. The project will require purchasing a machine for $250 today. The cost of the machine will be depreciated straight-line to zero over four years. Cash sales will be $230 per year for four years (from t=1 until t=4) and costs of goods sold will run $120 per year for these four years. At t=5 you sell the machine for $50. The firm has already spent $100 for R&D last year. The corporate tax rate is 35%. Calculate the unlevered net income and the free cash flows for years 0-5.

Suppose an individual invests $10,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 3 percent of the amount invested and is deducted from the original funds invested. In addition, annual fund operating expenses (or 12b-1 fees) are 0.80 percent. The annual fees are charged on the average net asset value invested in the fund and are recorded at the end of each year. Investments in the fund return 8 percent each year paid on the last day of the year. If the investor reinvests the annual returns paid on the investment, calculate the annual return on the mutual fund over the two-year investment period

(Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161))

Make sure the answer you provide is right please

Simply Chocolate Company is considering two possible expansion plans.Proposal X involves opening five stores in North Carolina at a cost of $2,400,000. Under Proposal Y, the company would focus on Virginia and open six stores at a cost of $3,000,000. The following information is given for the two proposals:

Proposal X Proposal Y

Required investment                                      $2,400,000        $3,000,000

Estimated life                                                   10 years              10 years

Estimated residual value                                  $200,000              $200,000

Estimated annual net cash flows                        $450,000             $580,000

Required rate of return                                       14%                      14%

Calculate the Accounting Rate of Return

2

Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs:

This project will require an investment of $10,000 in new equipment. The equipment will have no salvage value at the end of the project’s four-year life. Garida pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project’s net present value (NPV) would be when using accelerated depreciation.

Determine what the project’s net present value (NPV) would be when using accelerated depreciation. (Note: Round your intermediate calculations to the nearest whole number.)

$18,502

$24,670

$20,558

$16,446

Now determine what the project’s NPV would be when using straight-line depreciation._________

Using the_______ depreciation method will result in the highest NPV for the project.

No other firm would take on this project if Garida turns it down. How much should Garida reduce the NPV of this project if it discovered that this project would reduce one of its division’s net after-tax cash flows by $300 for each year of the four-year project?

$931

$559

$1,024

$698

Which one of the following can be termed as strategy development?

a. deciding on the sources of data for market research

b. planning to recover lost market share

c. choosing the right design for market research

d. none of the above

Product and channel decisions are made during which stage of the marketing planning process?

a. Implementation

b. Situation analysis

c. Strategy development

d. Marketing program development

1. Assume you were born 30 years ago. At that time, your grandparents opened an account for you and deposited $5,000. The account has earned an average of 9%, compounded annually.

1. What is the account balance today?
2. Using the information above, construct (calculate) a timeline of account values for each year 1 – 30. Be sure to use appropriate absolute and relative referencing.
3. Create a line graph depicting how the account balance grew from year to year. Be sure to include appropriate axis labels, legends, axis formats, and chart title.  

After months of study and spending $60,000 in researching its options, Black & Decker Company purchased and installed a made-to-order machine tool for fabricating parts for small appliances this morning. The machine cost $286,000. This afternoon, Square D Company offered a similar machine tool that will do exactly the same work, but costs only $176,000 and could be installed in less than two hours. There will be no differences in either revenues or operating costs between the machines. The only annual cash flow difference will be the income tax savings due to the depreciation tax shield.

Both machines will last for six years (don’t worry about the few hours that have elapsed). Black & Decker would depreciate either machine on a straight-line basis to a $15,000 salvage value for income tax purposes. However, each machine is expected to be worth $20,000 at the end of its useful life year. The relevant income tax rate is 40%, and Black & Decker earns sufficient income from its other operations so that it can utilize any annual operating losses or losses on disposal of equipment.

The after-tax discount rate, also known as the hurdle rate or MARR, is 16%.

Required:

Using after-tax cash flow analysis, determine the minimum resale value of the “old” machine tool (“old” because it was purchased this morning) that would justify Black & Decker’s purchase of the Square D machine tool at this time.

Hint: If Black & Decker could sell the “old” machine for $1,000,000 and buy the Square D machine, they would do it in a heartbeat. On the other hand, if they could sell the “old’ machine for only $1, they would not do it. Clearly, there is a selling price between $1 and $1,000,000 where it makes sense to sell the “old” machine -- find that value. If they sell the “old” machine, there will be income tax consequences at the time of the sale (time zero).