The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $830,000, and it would cost another $19,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $511,000. The machine would require an increase in net working capital (inventory) of $17,000. The sprayer would not change revenues, but it is expected to save the firm $442,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 40%.

1. What is the Year 0 net cash flow?
   $
2. 
   
3. 
   
4. 
   
5. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.

   Year 1	$
   Year 2	$
   Year 3	$

6. 
   
7. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $
8. 
   
9. 
   
10. 
    
11. If the project's cost of capital is 13 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.
    $  
    
    Should the machine be purchased?

Pure Expectations Theory

The yield on 1-year Treasury securities is 6%, 2-year securities yield 6.2%, 3-year securities yield 6.3%, and 4-year securities yield 6.5%. There is no maturity risk premium. Using expectations theory and geometric averages, forecast the yields on the following securities:

a. 1 year security, 1 year from now

b. 1 year security, 2 years from now

c. 2 year security, 1 year from now

d. A 3 year security , 1 year from now

Assume you purchased a share of stock in Verizon communications at the beginning of 2017 for

$77.0077.00.

A year later the stock was worth

$78.1578.15 ,

but during 2017 it paid a dividend of

$5.165.16.

Calculate the following:

a. Income.

b. Capital gain (or loss).

c. Total return

(1) In dollars.

(2) As a percentage of the initial investment.

a. The current income received is

$nothing.

(Round to the nearest cent.)b. The capital gain (or loss) is

$nothing.

(Enter a loss as a negative number and round to the nearest cent.)c. (1) The total return in dollars is

$nothing.

(Round to the nearest cent.) (2) The total return as a percentage of the initial investment is

nothing %.

(Enter as a percentage and round to two decimal places.)

For this assignment, you should use your FINANCIAL CALCULATOR, NOT EXCEL. It is not enough to provide answers without any explanation. You are required to write down the inputs into your calculator and the output. All your calculations should be performed using your calculator’s PV, I, PMT, FV, and N keys.

Problem 2 (40 points)

1. We now have a $20 million partially-amortizing (balloon) mortgage to be repaid over 10 years with constant annual payments and a final balloon payment of $15 million. The fixed interest rate on the mortgage is 8%.
   1. What is the periodic debt payment?
   2. Using the PV method, compute the outstanding balance at the end of year 5.
   3. Redo the calculation in b using the FV method.
   4. What would be the periodic debt payments if they were made monthly rather than annually?
   5. Would the borrower pay more or less interest in total compared to annual payments?

AFN equation

Broussard Skateboard's sales are expected to increase by 20% from $8.6 million in 2016 to $10.32 million in 2017. Its assets totaled $3 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 60%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.

Forecasted Statements and Ratios

Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2016, is shown here (millions of dollars):

Sales for 2016 were $250 million and net income for the year was $7.5 million, so the firm's profit margin was 3.0%. Upton paid dividends of $3 million to common stockholders, so its payout ratio was 40%. Its tax rate was 40%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2017. Do not round intermediate calculations.

1. If sales are projected to increase by $60 million, or 24%, during 2017, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
   $ million
   
2. Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.
   %
   
3. Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2017. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt).
   Assume Upton's profit margin and dividend payout ratio will be the same in 2017 as they were in 2016. What is the amount of the line of credit reported on the 2017 forecasted balance sheets? (Hint: You don't need to forecast the income statements because the line of credit is taken out on last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2017 addition to retained earnings for the balance sheet without actually constructing a full income statement.) Round your answers to the nearest cent.

   Upton Computers Pro Forma Balance Sheet December 31, 2017 (Millions of Dollars)
   Cash	$
   Receivables	$
   Inventories	$
   Total current assets	$
   Net fixed assets	$
   Total assets	$
   Accounts payable	$
   Notes payable	$
   Line of credit	$
   Accruals	$
   Total current liabilities	$
   Mortgage loan	$
   Common stock	$
   Retained earnings	$
   Total liabilities and equity	$

Describe how Credit Unions are different from banks.

Find the present value of $700 due in the future under each of these conditions: 9% nominal rate, semiannual compounding, discounted back 10 years. Do not round intermediate calculations. Round your answer to the nearest cent. $ 9% nominal rate, quarterly compounding, discounted back 10 years. Do not round intermediate calculations. Round your answer to the nearest cent. $ 9% nominal rate, monthly compounding, discounted back 1 year. Do not round intermediate calculations. Round your answer to the nearest cent. $ Why do the differences in the PVs occur?

1. Find the present values of the following cash flow streams at a 10% discount rate. Do not round intermediate calculations. Round your answers to the nearest cent.

   0

   1

   2

   3

   4

   5

   Stream A	$0	$150	$350	$350	$350	$250
   Stream B	$0	$250	$350	$350	$350	$150

   Stream A: $   

   Stream B: $   

2. What are the PVs of the streams at a 0% discount rate? Round your answers to the nearest dollar.

   Stream A: $   

   Stream B: $   

You are considering an option to purchase or rent a single residential property. You can rent it for $4,000 per month and the owner would be responsible for maintenance, property insurance, and property taxes.

Alternatively, you can purchase this property for $300,000 and finance it with an 80% mortgage at 7% interest, 25 year - fixed. The loan can be prepaid at any time with no penalty.

You have done research in the market and found that properties have historically appreciated at an annual rate of 4% per year. Rents on similar properties have also increased at the same rate. Maintenance and insurance are currently $2,500 each per year and they have been increasing at a rate of 4% per year. Property taxes have generally been about 3% of the property value each year.  

If you purchase, the plan is to occupy the property for at least four years. Selling costs would be 7% in the year of sale.

Based on this information you must decide:

• In order to earn a 10% internal rate of return, should you buy the property or rent it for a four-year period of ownership?

Butterfly Tractors had $21.50 million in sales last year. Cost of goods sold was $9.50 million, depreciation expense was $3.50 million, interest payment on outstanding debt was $2.50 million, and the firm’s tax rate was 30%.

a. What would be the impact on net income and cash flow if the firm’s interest expense were $2.50 million higher. (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places. For example, for $3.92 million, enter "3.92", not "3920000")

Consider the three stocks in the following table. P_t represents price at time t, and Q_t represents shares outstanding at time t. Stock C splits two-for-one in the last period.

Calculate the first-period rates of return on the following indexes of the three stocks: (Do not round intermediate calculations. Round your answers to 2 decimal places.)

a. A market value–weighted index

Rate of return             %

b. An equally weighted index

Rate of return             %

Butterfly Tractors had $21.50 million in sales last year. Cost of goods sold was $9.50 million, depreciation expense was $3.50 million, interest payment on outstanding debt was $2.50 million, and the firm’s tax rate was 30%.

a. What was the firm’s net income and net cash flow? (Enter your answers in millions rounded to 2 decimal places. For example, for $3.92 million, enter "3.92", not "3920000") Net income $ million Net cash flow $ million

b. What would happen to net income and cash flow if depreciation were increased by $2.50 million? (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places. For example, for $3.92 million, enter "3.92", not "3920000") Net income by $ million Cash flow by $ million

d. What would be the impact on net income and cash flow if the firm’s interest expense were $2.50 million higher. (Input all amounts as positive values.

An investment will pay $100 at the end of each of the next 3 years, $250 at the end of Year 4, $400 at the end of Year 5, and $550 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value? Its future value? Do not round intermediate calculations. Round your answers to the nearest cent.

You want to buy a car, and a local bank will lend you $10,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 5% with interest paid monthly. What will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places.

Apple has just paid a quarterly dividend of $3.69. Dividends are expected to grow by 10% for the next 4 quarters, and then grow by 1.1% thereafter. Apple has a required quarterly return of 2%.

What is the expected dividend in four quarters?

What is the terminal value in the fourth quarter (P4)?

What is the value of the stock now?

You are told today that you’ll inherit a castle from your uncle in 5 years. You’ll need to

pay a property tax of $500,000 on the castle in year 6. Then the property tax will go up

each year by 1%. You and your descendant are going to pay for the property tax each year

forever. Suppose the interest rate is 10% per year. If you want to set aside enough money

today to be able to make all the future property tax payment, how much money do you

need?