The bonds issued by Stainless Tubs bear a 8 percent coupon, payable semiannually. The bonds mature in 8 years and have a $1,000 face value. Currently, the bonds sell for $1042. What is the yield to maturity?

Thurston Petroleum is considering a new project that complements its existing business. The machine required for the project costs $4.7 million. The marketing department predicts that sales related to the project will be $2.83 million per year for the next four years, after which the market will cease to exist. The machine will be depreciated to zero over its 4-year economic life using the straight-line method. Cost of goods sold and operating expenses related to the project are predicted to be 30 percent of sales. The company also needs to add net working capital of $210,000 immediately. The additional net working capital will be recovered in full at the end of the project’s life. The tax rate is 22 percent and the required return for the project is 13 percent.

What is the NPV?

Should the company proceed with the project?

Discuss and evaluate the statement "Maximizing shareholder wealth should be the goal of all financial managers, regardless of the effect on the quality of the product, customer service, and employee and supplier relations." by explaining why you do or don't agree with this statement and providing at least 3 points supporting your argument.

You are considering two investment options. In option A, you have to invest $4500 now and $1000 three years from now. In option B, you have to invest $3500 now, $1000 a year from now, and $1000 three years from now. In both options, you will receive four annual payments of $2000 each (you will get the first $2000 payment a year from now). Which of these two options would you choose based on AE criterion? Assume the interest rate is 10%.

Note: find the AE for both projects. Include the annual revenues in AE calculations. Show your calculations.

1. Use the following information to answer the next four questions.

   Carson Co. is considering buying a tract of land for oil drilling. The company is certain they will find oil on the land, but they are unsure about the future demand for crude oil. Carson will spend a total of $15 million on initial costs if managers choose to pursue the project. Managers believe there is a 55% chance that demand for crude oil will be strong. If demand is strong, cash flows from the project are expected to be $6 million per year over the next 4 years. However a weak demand for crude will result in an annual cash flow of $4 million per year over 4 years.  Carson's required rate of return is 10%.

   Find the expected net present value of the project (in terms of millions). Round intermediate steps to four decimals.

   		1.1663
   		.5324
   		-9.9
   		16.1663
   		2.1854

6.25 points

Question 4

1. Now, assume Carson has the ability to reduce the scale of the project. Specifically, if the company desires, it can sell a portion of its drilling equipment for $3.5 million in year 2. If managers choose to contract, the company will only receive 70% of their previous expected future cash flows from operations in years 2-4. Find the value of the option to contract (in millions of dollars). Round intermediate steps to four decimals.

   		.0839
   		1.2472
   		.0809
   		.5634

6.25 points

Question 5

1. Now assume that Carson does not have the ability to contract, but they can abandon the project in year 2. If the company chooses to abandon, they will receive a total cash flow of $11 million in year 2. Find the net present value of the project with the abandonment option attached (in terms of millions of dollars). Round intermediate steps and your final answer to four decimals. Do not use the dollar sign when entering your answer.

6.25 points

Question 6

1. Now, suppose that Carson has the ability to either contract or abandon the project in year two as described in the previous two questions. Find the NPV of the project (in terms of millions of dollars) with both options attached.

"You have just sold your house for $1,000,000 in cash. Your mortgage was originally a 30-year mortgage with monthly payments and an initial balance of $800,000. The mortgage is currently exactly 18½ years old, and you have just made a payment. If the interest rate on the mortgage is 5.25% (APR), how much cash will you have from the sale once you pay off the mortgage? 1 In cell D13, by using cell references, calculate the discount rate (1 pt.). 2 In cell D14, by using cell references, calculate the monthly payment (1 pt.). Note: (1) The output of the expression or function you typed in this cell is expected as a positive number. (2) For the nper parameter, use cells D8 and D9. 3 In cell D15, by using cell references, calculate the number of periods remaining on the loan (1 pt.). 4 In cell D16, by using cell references, calculate the amount that you owe on the mortgage (1 pt.). Note: The output of the expression or function you typed in this cell is expected as a positive number.

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $290,000, and it would cost another $58,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $72,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require a $9,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $57,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%.

1. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign.
   $

2. What are the project's annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent.

   In Year 1 $

   In Year 2 $

   In Year 3 $

3. If the WACC is 10%, should the spectrometer be purchased?
   -Select-Yes or No

The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $625,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $280,000. The old machine is being depreciated by $125,000 per year, using the straight-line method.

The new machine has a purchase price of $1,100,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $140,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $230,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.

1. What initial cash outlay is required for the new machine? Round your answer to the nearest dollar. Negative amount should be indicated by a minus sign.
   $
   
2. Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers to the nearest dollar.

   Year	Depreciation Allowance, New	Depreciation Allowance, Old	Change in Depreciation
   1	$	$	$
   2
   3
   4
   5

3. What are the incremental net cash flows in Years 1 through 5? Round your answers to the nearest dollar.

   Year 1	Year 2	Year 3	Year 4	Year 5
   $	$	$	$	$

4. Should the firm purchase the new machine?
   -Select-Yes or No
   
   Support your answer. explain
5. In general, how would each of the following factors affect the investment decision, and how should each be treated?
   1. The expected life of the existing machine decreases.

   explain

   2. The WACC is not constant, but is increasing as Bigbee adds more projects into its capital budget for the year.

   explain

Bill is comparing the risk of two bonds. Both bonds were issued by Whole Giant Foods. The first bond has a 9% coupon and the second bond has a 7% coupon. Both bonds have 6 years remaining until maturity and a yield to maturity of 6%.. If market interest rates decrease by 2%, what is the percent price change for each of these bonds? Please show your work

Annual Coupon

You must evaluate a proposal to buy a new milling machine. The base price is $173,000, and shipping and installation costs would add another $17,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $86,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $3,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $56,000 per year. The marginal tax rate is 35%, and the WACC is 14%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.

1. How should the $5,000 spent last year be handled?
   1. Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   2. The cost of research is an incremental cash flow and should be included in the analysis.
   3. Only the tax effect of the research expenses should be included in the analysis.
   4. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
   5. Last year's expenditure is considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   
   -Select-1

2. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.
   $

3. What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Do not round your intermediate calculations.

   Year 1 $

   Year 2 $

   Year 3 $

4. Should the machine be purchased?
   -Select-Yes or No

Brown Enterprises' bonds earn a 7.60 percent yield to maturity. They have a 20-year maturity, and an annual coupon rate of 8 percent. Coupons are paid semiannually. What is their current yield?

Assume sales for Peach Street Industries are expected to increase by 8.00% from 2015 to 2016. Peach Street is operating at full capacity currently and expected assets-to-sales and spontaneous liabilities-to-sales to remain the same. Additionally, the firm is looking to maintain their 2015 net profit margin and dividend payout ratios for 2016. The firm’s tax rate is 37.00% and selected income statement and balance sheet information for 2015 is provided below:

The firm is projecting sales growth of 10% from 2015 to 2016. If the firm did not have access to or did not want to use external capital sources to grow sales, what is the maximum rate of sales growth (self-sustaining growth rate) could the firm could achieve under these conditions?

Part C The long-run

Assume that the 4-A Clinic is at capacity with the workers you hired above. To expand further, some adjacent office space would need to be leased and new equipment would need to be added. The fixed costs associated with this are shown below. The patient-equivalents are total patients seen, not the increase in patient.

Other assumptions (so that wrong answer from 1-7 don’t effect your answers below):

The marginal cost (labor, operating costs, and consumables, but not the fixed costs) of seeing another patient-equivalent is $150.

The revenue from a patient-equivalent is fixed at $300.

Calculate the average incremental fixed cost per patient for

1. An increase from 50 to 70 patients
2. An increase from 70 to 90 patients
3. An increase from 90 to 100 patients
4. In expanding the clinic, which is most profitable?

1. Stay at 50 patients.
2. Expand to 70 patients
3. Expand to 90 patients
4. Expand to 100 patients.

National​ Steel's 15-year, $1,000 par value bonds pay 9 percent interest annually. The market price of the bonds is $900​, and your required rate of return is 12 percent.

a. Compute the​ bond's expected rate of return.

b. Determine the value of the bond to​ you, given your required rate of return.

c. Should you purchase the​ bond?