HappyPups makes pet cameras and will be introducing their newest product, the Furbo. The Furbo is a camera that allows dog owners to check in on their pup, give their pup a treat, and talk to them while they are away. HappyPups spent $375,000 on consumer demand studies and an additional $40,000 on research and development to get the perfect product for all pet lovers. Each Furbo will sell for $195. It is expected that Furbo product will generate additional revenue from the sale of treats that are compatible with device. It is expected that 50% of Furbo purchases will result in an additional $15 net profit from treat sales at time of purchase. The Furbo has a variable cost of $125.00, and the project will incur an annual fixed cost of $1,400,000 each year. HappyPups will need to purchase a new machine to manufacture the Furbo for $2,000,000, and will be depreciated using the 3-yr MACRS schedule. HappyPups anticipates it will be able to sell the machine for $750,000 at the end of the project in three years. In order to promote the product, HappyPups will initially set aside $1,000,000 worth of inventory at the beginning of the project and will readjust NWC levels to reflect 10% of Furbo Sales (not including the treats). All inventory will be liquidated at the end of project. However, by introducing the Furbo, HappyPups anticipate that will take away roughly $1,000,000 in revenue each year from its existing pet camera line. The required return for the project is 20%, and the tax rate is 21%

• Spent $375,000 and $40,000 on consumer demand studies and R&D
• Sales: 80,000 units, 70,000 units, 60,000 units.
• Retail price: $195, Variable Costs $125, and $1,400,000 in fixed costs
• 50% of Furbo purchases will result an additional $15 in revenue from Treat sales
• Machine to manufacture the product: $2,000,000, depreciated using 3yr MACRS schedule. Will be able to sell for $750,000 at the end of the 3^rd year.
• $1,000,000 will be set aside in inventory, and then adjust to 10% of Furbo sales (just the camera), and will be liquidated and recouped at the end of the project
• $1,000,000 in revenue will be lost each year from HappyPup’s existing pet camera line.

1. Calculate the Operating Cash flows for the project.
2. Calculate the Cash Flow From Assets for this Project.
3. What is the net present value of this project? Should the project be accepted or rejected?
4. What is the IRR of this project (round to nearest number)?
5. HappyPups does not have enough cash for the machine. HappyPups current has a debt-to-equity ratio of .7, and does not want to alter its capital structure. If HappyPups will be charged 8% to raise debt and 10% to raise equity, how much will the machine effectively cost HappyPups?
6. Using the information in number 5, what is the new net present value of the project?

As a member of the Finance Department of Ranch​ Manufacturing, your supervisor has asked you to compute the appropriate discount rate to use when evaluating the purchase of new packaging equipment for the plant. Under the assumption that the​ firm's present capital structure reflects the appropriate mix of capital sources for the​ firm, you have determined the market value of the​ firm's capital structure as​ follows: To finance the​ purchase, Ranch Manufacturing will sell 10​-year bonds paying interest at a rate of 7.2 percent per year​ (with semiannual​ payment) at the market price of ​$1 comma 044. Preferred stock paying a ​$2.02 dividend can be sold for ​$24.97. Common stock for Ranch Manufacturing is currently selling for ​$54.31 per share and the firm paid a ​$3.09 dividend last year. Dividends are expected to continue growing at a rate of 5.3 percent per year into the indefinite future. If the​ firm's tax rate is 30 ​percent, what discount rate should you use to evaluate the equipment​ purchase?

Source of Capital   Market Values
Bonds $3,500,000
Preferred stock   $2,300,000
Common stock   $6,000,000

a.  Calculate component weights of capital.

The weight of debt in the​ firm's capital structure is ?

An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 13 years, while Bond S matures in 1 year. What will the value of the Bond L be if the going interest rate is 7%, 9%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 13 more payments are to be made on Bond L. Round your answers to the nearest cent. 7% 9% 12% Bond L $ $ $ Bond S $ $ $ Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change? Long-term bonds have lower reinvestment rate risk than do short-term bonds. The change in price due to a change in the required rate of return increases as a bond's maturity decreases. Long-term bonds have greater interest rate risk than do short-term bonds. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. Long-term bonds have lower interest rate risk than do short-term bonds.

Let us say you are a manager of a given Multinational Corporation and requested to solicit a fund of $300 Million for a new project.  Explain the source of fund you will be looking for? Tell us the step-by-step action you will make in getting this fund from the sources you identified.

Using the CAPM, calculate the 2016 expected return on Facebook’s shares.

Assumptions:

Risk-free rate, Rf = 2.5%

E(Rm) = 7.5%

Use the SP500 index to proxy for the market portfolio.

Hints to calculate beta:

- Use daily stock returns during 2016 (start date 01-Jan-2016, end date 31-Dec-2016).

- Download stock prices for Facebook and the SP500 with ticker name FB and ^GSPC, respectively, from www.finance.yahoo.com.

- Use adjusted prices to calculate returns.

19) There are two competing proposals for the redevelopment of a piece of vacant land in Accra. One is to construct an office block on the site and the other is to construct a casino.

(a) Calculate the Net Present Value of each project using a discount rate of 6% and comment on your results

(b) Calculate the payback of period of each project and comment on your results

(c) Based on the internal rate of return criteria, explain the advice you would give to your client if the internal rate of returns for Office and Casino are 16% and 17.8% respectively

2. (a) (i) What are the advantages and disadvantages of conventional budgeting versus zero-based budgeting?

(ii) What organizational characteristics create likely candidates for

zero-based budgeting?

(b) (i) What is variance analysis?

(ii) Explain the relationships among the static budget, flexible budget, and actual results.

​(Individual or component costs of​ capital)  Compute the cost of capital for the firm for the​ following:

a. A bond that has a ​$1 comma 000 par value​ (face value) and a contract or coupon interest rate of 10.9 percent. Interest payments are ​$54.50 and are paid semiannually. The bonds have a current market value of ​$1 comma 126 and will mature in 10 years. The​ firm's marginal tax rate is 34 percent.

b. A new common stock issue that paid a ​$1.78 dividend last year. The​ firm's dividends are expected to continue to grow at 7.5 percent per​ year, forever. The price of the​ firm's common stock is now ​$27.87.

c. A preferred stock that sells for ​$146​, pays a dividend of 8.8 ​percent, and has a​ $100 par value.  

d. A bond selling to yield 12.4 percent where the​ firm's tax rate is 34 percent.

416. Hedge fund AlphaBeta has a NAV of $1 million and a zero balance in its cumulative loss account on January 1, 2016.  Now suppose AlphaBeta’s annual performance (net of management fees) is + 13.9% in 2016, +12.6% in 2017, and -19.1% in 2018.  AlphaBeta charges a 20% performance fee.  Based on the high water mark reached in 2017, what minimum percentage gain the does the fund need to achieve in 2019 before performance fees can be taken again?

5. Assume that it is now Jan. 2017. AZDT Inc. (US) expects to receive cash dividends from a joint venture in India over the next five years. The first dividend of Rs 2 million will be paid in Dec. 2017. The dividend is then expected to grow at an annual rate of 10% over the following four years.

Current exchange rate (Rs/$) is 45 (65.25) and AZDT’s average weighted cost of capital is 10%.

a. Compute the dollar present value of the expected rupee dividend stream if the dollar is expected to depreciate by 5% per year against the rupee over the investment period.

b. Obtain the dollar present value of the expected rupee dividend stream if the rupee is expected to depreciate by 10% per year against the dollar over the investment period

c. What is the dollar present value of the expected rupee dividend stream if the exchange rate remains constant over the investment period?

6. You are interested in an International Portfolio made up of US and Canadian securities. The return on US is 15% and the return on Canada is 20%. The standard deviation of returns for US is 30% while that of Canada is 20%. If the correlation between US and Canada is -1, obtain the relevant weights for US and Canada to construct an international portfolio with zero risk. Compute the expected return on such a portfolio.

How finance companies are distinguishable from savings institutions and credit unions?

Two major risks faced by finance companies based on their uses and sources of funds

Growth Rate 4%

Required Return 11%

Year 1 Rent 20,000

Years Stable Rent 3

Years Growing Rent 7

Year Sold 10

Sale Price in 10 Years 325,000

Ask Price Today 200,000cash flows

Determine cash flows period 0-10

XXY Corp.’s has a target debt-to-equity ratio of 0.30, an equity beta of 1.10, has a marginal tax rate of 21%, and its debtholders require a return of 6%. Assuming that the current risk-free rate of interest is 2% and the expected return on the market portfolio is 12%, What is XXY Corp’s WACC? Enter your answer as a percent; do not include the % sign. Round your final answer to two decimals.