ABC is considering purchasing a smaller chain, XYZ software. ABC’s financial
analysts project that the merger will result in incremental net cash flows of $5.5
million in Year 1, $6.5 million in Year 2, $8.5 million in Year 3, and $15.5
million in year 4. Interest tax savings after the merger are estimated to be $1.8
million for each of the next 4 years. The expected cost of capital will be 10.5%,
and the company expects to experience a normal growth of 6% starting at the
beginning of the fifth year. XYZ’s outstanding debt is estimated to be $40
million, and the post merger beta is estimated to be 1.50. The risk free rate is 3.5
percent, and the market returns are 10 percent. What is the value of XYZ
Software to ABC software? (15 points)
Value: $ __________

Our award-winning folding carton structural designers, working with the latest technologies, bring you innovative paperboard folding carton structures - alternatives that can address your unique goals and take your product packaging to the next level. Whether you know exactly how you want your folding carton structure to look, or you need a partner to generate unique concepts - we're with you. Our structural designers focus first on understanding the unique qualities of your product. Then they produce innovative structural concepts that help communicate value to the customers you are trying to reach. To help you evaluate new structural designs for folding cartons, the company is considering acquisition of new IntriCut® to expand its production capacity.

The cost of IntriCut® is $ 2.75 million. Unfortunately, installing this machine will take several months and will partially disrupt production. The firm has just completed a $ 50,000 feasibility study to analyze the decision to buy the IntriCut, resulting in the following estimates:

Marketing: Once the IntriCut is operational next year, the extra capacity is expected to generate $10 million per year in additional sales, which will continue for the 10-year life of the machine.

Operations: The disruption caused by the installation will decrease sales by $ 5 million this year. As with APC's existing products, the cost of goods for the products produced by the IntriCut is expected to be 70% of their sale price. The increased production will also require increased inventory on hand of $1 million during the life of the project, including year 0.

Human Resources: The expansion will require additional sales and administrative personnel at a cost of $ 2 million per year.

Accounting: The IntriCut will be depreciated via the straight-line method over the 10-year life of the machine. The firm expects receivables from the new sales to be 15 % of revenues and payables to be 10 % of the cost of goods sold. APC's marginal corporate tax rate is 35%.

a. Determine the incremental earnings from the purchase of the IntriCut.

b. Determine the free cash flow from the purchase of the IntriCut.

c. If the appropriate cost of capital for the expansion is 10 %, compute the NPV of the purchase.

d. While the expected new sales will be $ 10. million per year from the expansion, estimates range from $ 8.0 million to $ 12.0 million. What is the NPV in the worst case? In the best case?

Problem 12-07 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): Cash $ 3.5 Accounts payable $ 9.0 Receivables 26.0 Notes payable 18.0 Inventories 58.0 Line of credit 0 Total current assets $ 87.5 Accruals 8.5 Net fixed assets 35.0 Total current liabilities $ 35.5 Mortgage loan 6.0 Common stock 15.0 Retained earnings 66.0 Total assets $122.5 Total liabilities and equity $122.5 Sales for 2016 were $325 million and net income for the year was $9.75 million, so the firm's profit margin was 3.0%. Upton paid dividends of $3.9 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. If sales are projected to increase by $70 million, or 21.54%, 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 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. % 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

Provide Sue with financial advice on which option has the potential to yield the highest monetary value. Support your rational with calculations using time value of money and comment on the risk return relationship for each option, assume interest rate on savings is 4% and is compounded semi-annually. Sue James is a 55-year old accountant who works at Ernst and Young (EY) who is about to retire. She has the following decision to make: Option A – Select a lump sum gratuity payment of $120,000 with a reduced pension of $1,750 per month. Option B – Select a monthly pension of $3,300 with no lump sum gratuity payment. In addition, Sue has a loan of $72,000 with loan payments of $1,200 per month for the next five years

What is the percentage price change for a zero coupon bond if its YTM changes from 3.7% to 4.9%? The bond's face value is $1,000 and it matures in 7 years. Use the price determined from the first yield, 3.7%, as the base in the percentage calculation. Round to the nearest tenth of a percent. (e.g., 4.32% = 4.3). [Hint: If the price dropped, enter a negative number].

Use the data for Starbucks​ (SBUX) and Google​ (GOOG)

to answer the following​ questions:

a. What is the return for SBUX over the period without including its​ dividends? With the​ dividends?

b. What is the return for GOOG over the​ period?

c. If you have

29 %29%

of your portfolio in SBUX and

71 %71%

in​ GOOG, what was the return on your portfolio excluding​ dividends?

a. What is the return for SBUX over the period without including its​ dividends?

The return without the dividends is ______​%?

​ (Round to two decimal​ places.)

With the​ dividends?

The return with the dividends is _____​% ?

​ (Round to two decimal​ places.)

b. What is the return for GOOG over the​ period?

The return is _____% ?

​ (Round to two decimal​ places.)c. If you have

29 % of your portfolio in SBUX and 71 % in​ GOOG, what was the return on your portfolio excluding​ dividends?

The return of the portfolio is _____%.

​ (Round to two decimal​ places.)

Assignment Details

Today, many companies face budgetary challenges on a continual basis. Two critical aspects that businesses lack are effective control practices and monitoring. Discuss the following in regard to this:

• What are some examples of effective control practices, and how do they help address budgetary challenges?
• What types of challenges could exist in monitoring and maintaining the controls?

Firm XYZ expects to earn $6 per share next year. In the next three years, the firm’s ROE is expected to be 12%, 15%, 18%, respectively, and its dividend payout ratio is 90%. After that, the firm's ROE is expected to increase to 25%, and the firm will set the dividend payout ratio = 60%. Assume that the discount rate is 20%. Find the stock price

Explain the 5 c's of credit?