Easy Car Corp. is a grocery store located in the Southwest. It paid an annual dividend of ​$2.00 last year to its shareholders and plans to increase the dividend annually at the rate of 3.0​%. It currently has 1,000,000 common shares outstanding. The shares currently sell for ​$17 each. Five years ago, Easy Car Corp. issued 30,000 semiannual 27-year bonds with a coupon rate of 8​% and a par value of ​$1,000. The bonds currently have a yield to maturity​ (YTM) of 9%. What is the weighted average cost of capital (WACC) for Easy Car Corp. if the corporate tax rate is 40%?

Synovec Co. is growing quickly. Dividends are expected to grow at a rate of 25 percent for the next three years, with the growth rate falling off to a constant 6 percent thereafter. If the required return is 11 percent, and the company just paid a dividend of $1.15, what is the current share price? Answer is $39.08. Can you just show all work on how to get that number?

Manzana Inc. is buying a piece of equipment. The equipment costs $2,000,000. The equipment is considered for tax purposes as a 5-year MACRS class. If the equipment is sold at the end of 6 years for $400,000, what is the after-tax cash flow from the sale of this asset (termination value of the equipment)? The marginal tax rate is 40 percent.

The annual expense percentage for a 5-year MACRS property from year 1 to 6 respectively are: 20.00%; 32.00%; 19.20%; 11.52%; 11.52: and 5.76%.

Explain how the following users of financial statements might utilize the financial ratios:

• Managers
• Boards of Directors
• Short term lenders
• Stockholders

Which ratios would each group be interested in?

2. Analysis of an expansion project

Companies invest in expansion projects with the expectation of increasing the earnings of its business.

Consider the case of Garida Co.:

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 $15,000 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.)

$59,441

$39,627

$49,534

$56,964

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

Using the ___(straight-line or accelerated)___ 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?

$791

$931

$559

$1,024

A loan of $50,000 is made today. This loan will be repaid by a first smaller repayment, followed by 15 level repayments, i.e., there are 16 repayments in total.

The first smaller repayment will occur exactly 3 years from today and each subsequent repayment (starting from the first level repayment) will occur exactly 1 year after the previous repayment. Explicitly, the final repayment will occur exactly 18 years from today.

If the interest being charged on this loan is 4.8% per annum compounded half-yearly, and the first smaller repayment is $570,

(c) Calculate the amount of the level repayments.

Daily Enterprises is purchasing a $ 10.2 million machine. It will cost $ 50,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. The machine will generate incremental revenues of $ 3.8 million per year along with incremental costs of $ 1.2 million per year. If​ Daily's marginal tax rate is 35 %​, what are the incremental earnings​ (net income) associated with the new​ machine?

The information below pertains to Barkley Company for 2019.

a. Net income for 2019 was $300,000.

b. $500,000 of 8% 10-year convertible bonds issued at 97 ($1,000 face per bond); each bond is convertible into 40 shares of common stock, were outstanding the entire period. The discount is being amortized on a straight-line basis.

c. $700,000 of 6% convertible, cumulative preferred stock, $100 par value, which was issued at $104; each share is convertible into 4 shares of common stock were outstanding the entire period.

d. 100,000 shares of $10 par value common stock was outstanding at the beginning of 2019. On July 29, an additional 20,000 shares were issued. On September 15, a 20% stock dividend was declared and issued. On December 1, 6,000 shares were reacquired as treasury stock.

e. Tax rate for 2019 of 30%

f. Average market price of common stock $25 per share for the year

g. Outstanding incentive stock option include options (granted at the beginning of 2018 with a 2 year vesting period) to purchase 8,000 shares of common stock at $20 per share.

Note: the conversion ratios and exchange rates for convertible bonds, preferred stock and options are shown on an as adjusted basis after the stock dividend. Instructions:

1. Compute the basic earnings per share. Show supporting calculations.

2. Compute the diluted earnings per share. Show supporting calculations. 3. Indicate which earnings per share figure(s) Barkley Company would report on its 2019 income statement.

Johnny’s Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $49,000 and will be depreciated straight-line over 3 years. It will be sold for scrap metal after 5 years for $12,250. The grill will have no effect on revenues but will save Johnny’s $24,500 in energy expenses. The tax rate is 30%.

Required:

a. What are the operating cash flows in each year?
b. What are the total cash flows in each year?
c. Assuming the discount rate is 12%, calculate the net present value (NPV) of the cash flow stream. Should the grill be purchased?

A one-year, $24,600, 12% note is signed on April 1. If the note is repaid on October 1 of the same year, how much interest expense is incurred? (Do not round intermediate calculations.)

$2,952

$1,476

$1,722

$1,230

The following 12%, $1,000 notes were issued on December 1. Which of the following is the correct method of calculation for the interest accrued as of December 31 of the same year on each of the notes described?

Interest on a 4-month note is calculated as: $1,000 × 12% × 1/12.

Interest on a 3-month note is calculated as: $1,000 × 12% × 1/3.

Interest on a 4-month note is calculated as: $1,000 × 12% × 1/4.

Interest on a 2-year note is calculated as: $1,000 × 12% × 1/24.

Better Mousetraps has developed a new trap. It can go into production for an initial investment in equipment of $21.6 million. The equipment will be depreciated straight line over 6 years, but, in fact, it can be sold after 6 years for $672,000. The firm believes that working capital at each date must be maintained at a level of 20% of next year’s forecast sales. The firm estimates production costs equal to $8.00 per trap and believes that the traps can be sold for $17 each. Sales forecasts are given in the following table. The project will come to an end in 6 years, when the trap becomes technologically obsolete. The firm’s tax bracket is 40%, and the required rate of return on the project is 12%.

a. What is project NPV? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

b. By how much would NPV increase if the firm uses double-declining balance depreciation with a later switch to straight-line when remaining project life is only two years? (Do not round intermediate calculations. Enter your answer in millions rounded to 3 decimal places.)

Talia’s Tutus bought a new sewing machine for $70,000 that will be depreciated over 5 years using double-declining-balance depreciation with a switch to straight-line.

Required:

a. Find the depreciation charge each year.

b. If the sewing machine is sold after 2 years for $44,000, what will be the after-tax proceeds on the sale if the firm’s tax bracket is 35%?

Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $7,800 and sell its old washer for $1,600. The new washer will last for 6 years and save $2,300 a year in expenses. The opportunity cost of capital is 17%, and the firm’s tax rate is 21%.

a. If the firm uses straight-line depreciation over a 6-year life, what are the cash flows of the project in years 0 to 6? The new washer will have zero salvage value after 6 years, and the old washer is fully depreciated. (Negative amounts should be indicated by a minus sign.)

b. What is project NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. What is NPV if the firm investment is entitled to immediate 100% bonus depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $150,000 and sell its old low-pressure glueball, which is fully depreciated, for $26,000. The new equipment has a 10-year useful life and will save $34,000 a year in expenses. The opportunity cost of capital is 11%, and the firm’s tax rate is 21%. What is the equivalent annual saving from the purchase if Gluon can depreciate 100% of the investment immediately. (Do not round intermediate calculations. Round your answer to 2 decimal places.)