17. You have a 2% bond paying annual coupons, 3 years until maturity with $1000 face value. Yield to maturity is 2.5%. What is the duration of the bond? Show all calculations.

18. Suppose there is another bond which pays annual coupons of 5% and has 3 years to maturity with a $1000 face value. Yield to maturity is 2.5%. Is the duration of this bond higher or lower than the bond in question 17?

You are planning to make monthly deposits of $475 into a retirement account with an APR of 10 percent interest compounded monthly. If your first deposit will be made one month from now, how large will your retirement account be just after three months. Round your answer to the nearest dollar.

Then using the same numbers calculate what it will be after just 2 months

The Bruin's Den Outdoor Gear is considering a new 7-year project to produce a new tent line. The equipment necessary would cost $1.59 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 26,000 tents per year at a price of $69 and variable costs of $29 per tent. The fixed costs will be $445,000 per year. The project will require an initial investment in net working capital of $213,000 that will be recovered at the end of the project. The required rate of return is 11.2 percent and the tax rate is 34 percent. What is the NPV?

Multiple Choice

• $816,841

• $1,186,611

• $660,072

• $510,939

• $548,380

Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3.12 million and will last for six years. Variable costs are 31% of sales, and fixed costs are $2,006,820 per year. Machine B costs $4.92 million and will last for nine years. Variable costs for this machine are 24% of sales and fixed costs are $1,342,459 per year. The sales for each machine will be $9.4 million per year. The required return is 10 %, 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)

A large retailer such as Walmart possesses power over smaller suppliers. In theory, Walmart could force these suppliers to sell on payment terms that were well beyond a typical industry norm.

1. How would this impact Walmart’s cash cycle?
2. How would this impact the suppliers’ cycle?
3. Are there any ethical issues involved in such a practice?

Amazing Manufacturing, Inc., has been considering the purchase of a new manufacturing facility for $520,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value at that time. Operating revenues from the facility are expected to be $400,000, in nominal terms, at the end of the first year. The revenues are expected to increase at the inflation rate of 5 percent. Production costs at the end of the first year will be $245,000, in nominal terms, and they are expected to increase at 6 percent per year. The real discount rate is 8 percent. The corporate tax rate is 23 percent. Calculate the NPV of the project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16)

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures:

Of the firm’s sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 35 percent are paid in the month after sale and 65 percent are paid in the second month after the sale. Materials cost 30 percent of sales and are purchased and received each month in an amount sufficient to cover the following month’s expected sales. Materials are paid for in the month after they are received. Labor expense is 40 percent of sales and is paid for in the month of sales. Selling and administrative expense is 15 percent of sales and is paid in the month of sales. Overhead expense is $30,500 in cash per month.

Depreciation expense is $10,500 per month. Taxes of $8,500 will be paid in January, and dividends of $4,500 will be paid in March. Cash at the beginning of January is $90,000, and the minimum desired cash balance is $85,000.

Assume the market price of a 6​-year bond for Margaret Inc. is ​$775​, and it has a par value of $ 1,000. The bond has an annual interest rate of 7​% that is paid semiannually. What is the yield to maturity of the​ bond?

The yield to maturity of the bond is

Allison, Inc. has established a target capital structure of 35 percent debt and 65 percent common equity. The firm expects to earn $550 million in after-tax income during the coming year, and it will retain 35 percent of those earnings. The current market price of the firm's stock is $26; its last dividend was $2.25, and its expected growth rate is 5.5 percent. Allison can issue new common stock at a 15 percent flotation cost.

a. What is the cost of retained earnings?
b. What is the cost of a new common stock issue?
c. What is the maximum capital budget that Allison can support with retained earnings?

d. Suppose Allison has a $450 million budget. What will be Allison’s marginal cost of common equity?

Problem 3-7

The following table contains the demand from the last 10 months:

a. Calculate the single exponential smoothing forecast for these data using an α of 0.20 and an initial forecast (F₁) of 33. (Round your intermediate calculations and answers to 2 decimal places.)

b. Calculate the exponential smoothing with trend forecast for these data using an α of 0.20, a δ of 0.20, an initial trend forecast (T₁) of 1.00, and an initial exponentially smoothed forecast (F₁) of 32. (Round your intermediate calculations and answers to 2 decimal places.)

c-1. Calculate the mean absolute deviation (MAD) for the last nine months of forecasts. (Round your intermediate calculations and answers to 2 decimal places.)

c-2. Which is best?

References

Worksheet

Consider a share of stock that cost $50 one year ago but is worth $55 today (assume no dividends were paid out)?

1. What was the total (annual) return?

2. If the R_fis 4% and R_mis 12%, what is this stock’s beta (assume the beta has stayed the same since last year and the stock is in equilibrium)?

3. Using the same information, now assume the stock costs $52 today.  If it is in equilibrium, what must its beta be under this situation?

How long will it take an amount to double if it is deposited into an account which pays 3.8% interest compounded continuously? Use a 360 day year and give the answer to the nearest day.

Please show work. I am willing to rate you well if you give in-depth detail as how to solve the problem. Thanks!

Please explain why the following are value drivers in Finance/Corporate Finance:

1. Sales growth

2. Operating Profitability (OP = NOPAT/sales)

3. Capital Requirements (CR= operating capital/sales)

4. WACC (why is this a proxy for risk)

(I am having issues understanding why these are key value drivers in finance. Please explain their importance and how they value drivers.)

Returns earned over a given time period are called realized returns. Historical data on realized returns is often used to estimate future results. Analysts across companies use realized stock returns to estimate the risk of a stock. Consider the case of Happy Dog Soap Inc. (HDS): Five years of realized returns for HDS are given in the following table. Remember: 1. While HDS was started 40 years ago, its common stock has been publicly traded for the past 25 years. 2. The returns on its equity are calculated as arithmetic returns.

3. The historical returns for HDS for 2014 to 2018 are: 2014 2015 2016 2017 2018 Stock return 22.50% 15.30% 27.00% 37.80% 11.70% Given the preceding data, the average realized return on HDS’s stock is . The preceding data series represents of HDS’s historical returns. Based on this conclusion, the standard deviation of HDS’s historical returns is . If investors expect the average realized return from 2014 to 2018 on HDS’s stock to continue into the future, its coefficient of variation (CV) will be

You receive a 3-year $23,000 loan with an interest rate of 13% p.a., to be repaid in three annual installments. The loan requires that you make two equal total payments of $2,000 at t = 1 and t = 2, with the remaining loan balance paid at maturity. What is the total payment amount at t = 3, rounded to the nearest dollar?