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We are evaluating a project that costs $856,000, has a life of 9 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 157,000 units per year. Price per unit is $41, variable cost per unit is $25, and fixed costs are $865,416 per year. The tax rate is 22 percent, and we require a return of 18 percent on this project. |
| 1a. Calculate the accounting break-even point. |
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1b. What is the degree of operating leverage at the accounting break-even point? |
| 2a. Calculate the base-case cash flow. |
| 2b. Calculate the NPV. |
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2c. What is the sensitivity of NPV to changes in the quantity sold? |
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2d. What your answer tells you about a 500-unit decrease in the quantity sold? |
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3a. What is the sensitivity of OCF to changes in the variable cost figure? |
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3b. How much will OCF change if variable costs decrease by $1? |
In: Finance
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Consider a project with the following data: Accounting break-even quantity = 13,700 units; cash break-even quantity = 9,600 units; life = five years; fixed costs = $185,000; variable costs = $23 per unit; required return = 12 percent. Ignoring the effect of taxes, find the financial break-even quantity. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
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| Suppose you are offered $8,000 today but must make the following payments: |
| Year | Cash Flows ($) | ||
| 0 | $ 8,000 | ||
| 1 | −4,300 | ||
| 2 | −3,000 | ||
| 3 | −2,100 | ||
| 4 | −1,300 | ||
| a. | What is the IRR of this offer? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | If the appropriate discount rate is 13 percent, should you accept this offer? |
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| c. | If the appropriate discount rate is 20 percent, should you accept this offer? |
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| d-1. |
What is the NPV of the offer if the appropriate discount rate is 13 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| d-2. | What is the NPV of the offer if the appropriate discount rate is 20 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
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With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual 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 8,600 in the first year, with growth of 8 percent each year for the following four years (Years 2 through 5). Production of these lamps will require $51,000 in networking capital to start. Total fixed costs are $111,000 per year, variable production costs are $24 per unit, and the units are priced at $52 each. The equipment needed to begin production will cost $191,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 35 percent, and the required rate of return is 25 percent. What is the NPV of this project? |
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You are eyeing an investment in Treasury Notes for a full lot (i.e. PAR=$100,000), and find a note with a maturity of 5 years. This particular Treasury has a YTM of 1.11%, and a stated rate of interest of 0.96% with a maturity of 5 years. The market price of this treasury is closest to?
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When would you use forwards, futures and options, in respect to a depreciating currency
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Assume a bond has a 1000 par value and a 5 percent coupon rate, two year remaining to maturity, and a 10 percent yield to maturity. What is the duration of this bond?
A. 2
B. 1.97
C. 1.95
D. 1.83
Answer is C. I need to know how, please show work!
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Solve only a) part
Please note - Different question.J&J Cattle has purchased a quarter section of land for $160,000. They make a down payment of $20,000, and the remainder of the purchase price ($140,000) is financed at 11% percent compounded quarterly with quarterly payments over 2 years. Develop an Excel® table to illustrate the payment amounts and schedule for the loan
a) For each of the five payment schedules, determine the present worth of the loan payments made by the borrower. Use an Excel® spreadsheet and program it such that you can enter different interest rates for the borrower's TVOM. Use TVOM rates of 8 percent, 11 percent, and 14 percent compounded quarterly. (Show your analysis and justification by drawing a graph)
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What is a merger? How does a merger differ from other forms of acquisition? From the standpoint of stockholder’s wealth, which one of the reasons may be a justifiable reason for merger or acquisition? Explain.
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Exercise 6-31 (Algorithmic) (LO. 3)
Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does not acquire the restaurant but does purchase the bakery on November 1, 2019.
Stanford incurred the following expenses:
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If required, round any division to two decimal places and use in subsequent computation. Round your final answer to the nearest dollar.
What is the maximum amount Stanford can deduct in 2019 for investigation expenses?
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Assume zero-coupon yields on default-free bonds are 4.00% (1 year), 4.30% (2 years), 4.50% (3 years), 4.70% (4 years), 4.80% (5 years).
C) Consider a four-year, default-free bond with annual coupon payments and a face value of $1000 that is issued at par. What is the coupon rate of this bond?
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The Centurion Corp. is putting together a financial plan for the company covering the next three years, and it needs to forecast its interest expense and the related tax savings. The firm’s most significant liability is a fully amortized mortgage loan on its real estate. The loan was made exactly ten and one-half years ago for $3.2M at 11% compounded monthly for a term of 30 years. Use the AMORTIZ program to predict the interest expense associated with the real estate mortgage over the next three years. (Hint: Run AMORTIZ from the loan’s beginning and add up the months in each of the next three years.)
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Lara is a security analyst with Texas City brokerage firm. Lara has been following one of the hottest issues on Wall Street, M&I Medical supplies, a company that has turned outstanding performance and showed excellent potential growth. It has 5 million shares outstanding and pays an annual dividend of $0.05 per share. Lara showed her interest in investing in M&I. Assume the company sales for the past five years have been as follows:
Year Sales ($ million)
2012 - 10.0
2013 - 12.5
2014 - 16.2
2015 - 22.0
2016 - 28.5
Lara relates to the prospects of the company, not its past. As a result, she generates the following estimate of future performance:
Expected Net Profit Margin =12%
Estimated annual dividend per share = 5c
Number of share s outstanding = No change
P/E ratio at the end of 2017 = 35
P/E ratio at the end of 2018 = 50
Questions:
4. Determine the expected future price of the stock at the od 2017
and 2018.
5. Because of several intrinsic and market factors, Lara feels that
25% is a viable figure to use for a desired rate of return.
a. Using a 25% rate of return and forecasted figures, compute the
stock’s justified price.
b. If M&I is currently trading at $32.50 per share, should Lara
consider the stock a worthy investment? Explain.
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Please respond to the following:
Describe the costs and benefits of each of the major forms of business?
Describe the goals of a financial manager.
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Examine ethical behavior within firms in relation to financial management. Provide two (2) examples of companies that have been guilty of ethics-based action related to financial management and how the companies were effected.
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