You are trying to decide how much to save for retirement. Assume you plan to save $7,000 per year with the first investment made one year from now. You think you can earn 10.5​% per year on your investments and you plan to retire in  25 ​years, immediately after making your last $ 7,000 investment.

a. How much will you have in your retirement account on the day you​ retire?

The amount in the retirement account in 25years would be?(Round to the nearest​ cent.)

b.​ If, instead of investing $7,000 per​ year, you wanted to make one​ lump-sum investment today for your retirement that will result in the same retirement​ saving,

how much would that lump sum need to​ be?(Round to the nearest​ cent.)

c. If you hope to live for 25 years in​ retirement, how much can you withdraw every year in retirement​ (starting one year after​ retirement) so that you will just exhaust your savings with the 25th withdrawal​ (assume your savings will continue to earn 10.5​%

The amount you can withdraw every year in retirement is (Round to the nearest​ cent.)

in​ retirement)?d.​ If, instead, you decide to withdraw $148,000 per year in retirement​ (again with the first withdrawal one year after​ retiring), how many years will it take until you exhaust your​ savings? (Use​ trial-and-error, a financial​ calculator: solve for​ "N", or​ Excel: function​ NPER)

You will exhaust your savings in years?. (Round to two decimal​ places.)

e. Assuming the most you can afford to save is $1,400 per​ year, but you want to retire with $1,000,000 in your investment​ account, how high of a return do you need to earn on your​ investments? (Use​ trial-and-error, a financial​ calculator: solve for the interest​ rate, or​ Excel: function​ RATE)

You will need a return of ?​%(Round to two decimal​ places.)

Excel Online Structured Activity: Recapitalization

Currently, Forever Flowers Inc. has a capital structure consisting of 25% debt and 75% equity. Forever's debt currently has an 7% yield to maturity. The risk-free rate (r_RF) is 4%, and the market risk premium (r_M - r_RF) is 5%. Using the CAPM, Forever estimates that its cost of equity is currently 12%. The company has a 40% tax rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations.

Open spreadsheet

1. What is Forever's current WACC? Round your answer to two decimal places.

   %

2. What is the current beta on Forever's common stock? Round your answer to two decimal places.

3. What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, b_U?) Round your answer to two decimal places.

   Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 10%. The proposed change will have no effect on the company's tax rate.

4. What would be the company's new cost of equity if it adopted the proposed change in capital structure? Round your answer to two decimal places.

   %

5. What would be the company's new WACC if it adopted the proposed change in capital structure? Round your answer to two decimal places.

   %

6. Based on your answer to part e, would you advise Forever to adopt the proposed change in capital structure?

   _____YesNo

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9. Statue Builders, Inc. took out a loan for $65,000 that has to be repaid in 10 equal annual installments. The APR on the loan is 7.25%. How much of the second payment is interest? a) $4,814.22 b) $4,712.50 c) $4,375.43 d) $4,013.92 e) $9,361.77

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You are looking at an investment that has an effective annual rate of 11 percent.

A. What is the effective semiannual return?

B. What is the effective quarterly return?

C. What is the effective monthly return?

1) Small’s Internal Rate of Return (IRR) (second decimal; no rounding) is

a) 20.79%; b) 21.89%; c) 22.67%; d) 23.89%.

2) Big’s Internal Rate of Return (IRR) (second decimal; no rounding) is

a) 10.84%; b) 12.67%; c) 14.61%; d) 16.86%.

3) The incremental Internal Rate of Return (ΔIRR) between Small and Big (second decimal; no rounding) is
a) 8.15%; b) 8.96%; c) 9.90%; d) 10.13%.

4) If the company’s current motor budget is $1,000,000, which motor (s) should it purchase assuming that motors are independent investments?

a) Small, Medium and Big; b) Medium only; c) Small and Medium; d) Medium and Big.

Suppose that the index model for stocks A and B is estimated from excess returns with the following results:

R_A = 3.60% + 1.20R_M + e_A

R_B = -1.60% + 1.50R_M + e_B

σ_M = 16%; R-square_A = 0.25; R-square_B = 0.15

Assume you create portfolio P with investment proportions of 0.70 in A and 0.30 in B.
a. What is the standard deviation of the portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)

b. What is the beta of your portfolio? (Do not round your intermediate calculations. Round your answer to 2 decimal places.)

c. What is the firm-specific variance of your portfolio? (Do not round your intermediate calculations. Round your answer to 4 decimal places.)

d. What is the covariance between the portfolio and the market index? (Do not round your intermediate calculations. Round your answer to 3 decimal places.)

1. For a stock with a beta coefficient of b = 1.50, it is: more volatile than the average stock. about the same volatility of an average stock. less volatile than the average stock. Cannot determine. 2. For a stock with a beta coefficient of b = 1.50, in a year when the market return is 20%, we expect, in this particular example, the stock's return to be: about 20%. about 25%. about 30%. not enough information to determine. 3. For a stock with a beta coefficient of b = 1.50, in a year when the market return is -10%, we expect, in this particular example, the stock's return to be: about 0%. about -10%. about -20%. about -30%. 4. For a stock with a beta coefficient of b = 0, which of these statements is true in this particular example? The line in the graph is flat It is like a riskless asset with a guaranteed return of 10% no matter what the market does There is no chance of lower performance than the market but also no chance of better performance. All of the above.

Zippen Industries 10.750% bonds mature December 12, 2026. The bond is callable December 12, 2022 at 5.125 call premium. The offer on the bond to settle December 12, 2015 is currently 86.374.

calculate The Yield to Maturity?

and the Yield to Call?

The Archer family raises cattle on their farm in West Midlands. They also have a large garden in which they grow ingredients for making two types of relish - SauceA and SauceB. These they sell at local stores.

The profit per kilogram of SauceA is £4 and the profit per kilogram of SauceB is £4. The ingredients in each relish are cabbage, tomatoes, onions, and oil. One kilogram of SauceA must contain at least 65% but no more than 73% cabbage, and at least 6% onion, and at least 8% oil. One kilogram of SauceB must contain at least 60% but no more than 75% tomatoes, and at least 7% onion, and at least 7% oil. Both relishes contain no more than 11% onion and no more than 10% oil.

The family has enough time to make no more than 870 kilograms of relish. They know also that they will sell at least 40% more SauceA than SauceB. They will have this year 390 kilograms of cabbage, 370 kilograms of tomatoes, and 130 kilograms of onion. They can use any amount of oil needed.

What is the maximal profit that the family can gain by producing and selling the relish?

Suppose an individual invests $25,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 4 percent of the amount invested and is deducted from the original funds invested. In addition, annual fund operating expenses (or 12b-1 fees) are 0.90 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 5 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))

Question 5 (a) Modigliani and Miller showed that when firms have to pay taxes, a firm’s value increases with leverage. Briefly discuss what prevents a firm from taking on high levels of debt. (b) Maturity Rating Features Bond A 10 years AA Put provision Bond B 10 years A Call provision Appraise which bond has the higher yield to maturity. (c) Your company buys from a supplier who offers credit terms of 3/10 net 130. Discuss whether your company should or should not pay cash for the goods it buys if it can borrow funds from the bank at 10% per annum. (Use a 360-day year for your computations.)

Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3 million and will last for six years. Variable costs are 31% of sales, and fixed costs are $1,966,298 per year. Machine B costs $4.96 million and will last for nine years. Variable costs for this machine are 21% of sales and fixed costs are $1,360,602 per year. The sales for each machine will be $9.2 million per year. The required return is 8 %, and the tax rate is 38%. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis.

Calculate the EAC for machine A. (Round answer to 2 decimal places. Do not round intermediate calculations)

Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3.1 million and will last for six years. Variable costs are 30% of sales, and fixed costs are $1,945,921 per year. Machine B costs $4.9 million and will last for nine years. Variable costs for this machine are 23% of sales and fixed costs are $1,315,442 per year. The sales for each machine will be $9.3 million per year. The required return is 8 %, and the tax rate is 38%. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis.

Calculate the EAC for machine B. (Round answer to 2 decimal places. Do not round intermediate calculations)

Use data below for questions 17-23 in this section and the data in the MS Excel attachment to calculate a budget for 2019. Hint: You may find it helpful to create a “standard” P&L which states all data as a percent of sales. Some “planning” questions will provide all needed data in the questions themselves.

Mr. Moore believes that roughly 8% more meals can be served in 2019 (due to the new strategy kicking into high gear) so he plans to serve 272,514 meals in 2019. He also plans to adjust prices so an average meal will be $7.35 per meal. Hint: “Sales” have been calculated as number of meals served x average price per meal.

The consulting team believes that the cost of product (calculated as a percent of sales) can be 35% of sales in 2019. Mr. Moore wants to keep the good staff he hires and so is planning to give “cost of living raises” of 2.5% over 2018 in the next year. Benefits will remain at the current 35% of the labor cost next year. The utility companies have advised all business customers that rates will increase by 15% next year.

According to the loan agreement, there will be no repayment of principle on the revolving line of credit (since we are currently in the draw period). Hence payments being made are just interest payments which are expected to be $3,000 total in 2019.* Because of agreements with the city and the insurance company (from whom he received his loan) taxes and insurance will remain the same in 2019.* Likewise depreciation expense will remain the same as in 2014.*

Service costs are expected to grow by 15% next year plus an added $55,000 is to be budgeted for extra accounting services. Other Expenses (GSA, advertising and promotion and other) are expected to increase by 10% from 2018. The heavy advertising of the new restaurant should not be necessary and there’s been time to plan for some other efficiencies. The income tax rate is expected to be 28% of EBITD which is reduced for interest and depreciation, the same percent of EBITD as in 2018.

* These values have been entered on the worksheet; there is no need to calculate these amounts. Calculate and enter only those amounts on the exam with question numbers’ shown.

1. What is to be the Sales budget for 2019?
2. What is to be the Cost of Product for 2019?
3. What is to be the Labor budget for 2019?
4. What is to be the Benefits budget for 2019?
5. What is to be the Cost of Services for 2019?
6. What are Total Costs to be budgeted for 2019?
7. What are Earnings before Interest, Taxes and Depreciation (EBITD) to be for 2019?