Avril Skater girl is trying to decide which recording contract she should accept and wishes it wasn’t so complicated that she can’t keep her head above water amidst all the numbers. Getting it right could be worth more than just a nickel back. Her opportunity cost is 5% p.a.
I’m With You Productions Inc. offers a payment of $2 million now on her next album plus 50% royalty on gross sales of $5 million for two years, with the royalties paid at the end of years 2 and 3. It will launch a line of Skatergirl branded clothing and other gear, paying $100,000 royalty on gross sales for five years, with the first payment end of year 1. How much is this contract worth?
In: Finance
Financing Deficit
Garlington Technologies Inc.'s 2019 financial statements are shown below:
Income Statement for December 31, 2019
Sales | $4,000,000 |
Operating costs | 3,200,000 |
EBIT | $ 800,000 |
Interest | 120,000 |
Pre-tax earnings | $ 680,000 |
Taxes (25%) | 170,000 |
Net income | 510,000 |
Dividends | $ 190,000 |
Balance Sheet as of December 31, 2019
Cash | $ 160,000 | Accounts payable | $ 360,000 | |
Receivables | 360,000 | Line of credit | 0 | |
Inventories | 720,000 | Accruals | 200,000 | |
Total CA | $1,240,000 | Total CL | $ 560,000 | |
Fixed assets | 4,000,000 | Long-term bonds | 1,000,000 | |
Total Assets | $5,240,000 | Common stock | 1,100,000 | |
RE | 2,580,000 | |||
Total L&E | $5,240,000 |
Suppose that in 2020 sales increase to $4.2 million and that 2020 dividends will increase to $192,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2019. The long-term bonds have an interest rate of 12%. New financing will be with a line of credit. Assume it will be added at the end of the year. Cash does not earn any interest income. Enter your answers as positive values. Do not round intermediate calculations. Round your answers to the nearest dollar.
Garlington Technologies Inc. Pro Forma Income Statement December 31, 2020 |
|||
Sales | $ 4,200,000 | ||
Operating costs | $ | ||
EBIT | $ | ||
Interest | $ | ||
Pre-tax earnings | $ | ||
Taxes (25%) | $ | ||
Net income | $ | ||
Dividends: | $ 192,000 | ||
Addition to RE: | $ |
Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2020 |
|||
Cash | $ | ||
Receivables | $ | ||
Inventories | $ | ||
Total current assets | $ | ||
Fixed assets | $ | ||
Total assets | $ | ||
Accounts payable | $ | ||
Line of credit | $ | ||
Accruals | $ | ||
Total current liabilities | $ | ||
LT bonds | $ 1,100,000 | ||
Common stock | $ 2,900,000 | ||
Retained earnings | $ | ||
Total L&E | $ |
In: Finance
In: Finance
Analyse the mini case regarding German luxury cars using the five competitive forces to determine the industry’s attractiveness.
In: Finance
20. The Company has a $48,000 pure discount bond that comes due in one year. The risk-free rate of return is 3 percent. The firm's assets are expected to be worth either $45,000 or $55,000 in one year. Currently, these assets are worth $50,000. What is the current value of the firm's debt?
$43,724.75 |
||
$47,681.49 |
||
$46,277.13 |
||
$45,582.52 |
||
$44,106.59 |
In: Finance
Find the present value of a deferred annuity of $500 a year for 6 years that is deferred 5 years if money is worth 6%
Please show work!
In: Finance
Broussard Skateboard's sales are expected to increase by 25% from $8.6 million in 2016 to $10.75 million in 2017. Its assets totaled $6 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 7%, and the forecasted payout ratio is 65%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
In: Finance
The current yield curve for default-free zero-coupon bonds is as follows:
Maturity (Years) YTM
1 5%
2 4%
3 3%
4 2%
a. What are the implied 1-year forward rates for year 2, year 3,
and year 4? (3 points)
b. Assume that the pure expectations hypothesis of the tern
structure is correct. If market expectations are accurate, what
will be the pure yield curve (i.e., the YTM on 1-year, 2-year and
3-year zero-coupon bonds) next year? (3 points)
c. If you purchase a 3-year zero-coupon bond now, what is the
expected total rate of return over the next year? What if you
purchase a 4-year zero-coupon bond? (4 points)
d. What should be the current price of a 4-year maturity bond with
a 3% coupon rate paid annually? If you purchased it at that price,
what would your total expected rate of return be over the next year
(coupon plus price change)? (5 points)
In: Finance
THE FOLLOWING DATA APPLY TO THE NEXT THREE PROBLEMS Johnny and Ronny have both been given $50,000 by their grandparents today on their 21st birthdays. They want to save for their future and have aspirations of one day being millionaires. Both boys plan to make annual contributions on their birthday, beginning next year. Johnny and Ronny have each opened investment accounts at Chase and Wells Fargo, respectively, and they expect to earn nominal returns of 8% and 9% respectively. Johnny has already decided to deposit $8,000 each year into his investment account, while Ronny is unsure of the amount he will deposit annually.
How many years will it take Johnny before he reaches his investment goal of $1 million?
If Ronny decides to make the same annual contributions as Tommy, how much sooner (in years) would he reach the investment goal?
Suppose Ronny was interested in reaching the investment goal at the same time as Johnny. What is the minimum monthly contribution he could make to reach $1 million at the same time as Johnny?
In: Finance
Suppose your expectations regarding the stock market are as follows:
State of the Economy | Probability | HPR | |
Boom | 0.2 | 43% | |
Normal growth | 0.4 | 14 | |
Recession | 0.4 | -17 | |
Use above equations to compute the mean and standard deviation of
the HPR on stocks. (Do not round intermediate calculations.
Round your answers to 2 decimal places.)
In: Finance
The stock of Bruin, Inc., has an expected return of 22 percent and a standard deviation of 37 percent. The stock of Wildcat Co. has an expected return of 12 percent and a standard deviation of 52 percent. The correlation between the two stocks is .49. Calculate the expected return and standard deviation of the minimum variance portfolio. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
In: Finance
You are going to invest in Asset J and Asset S. Asset J has an expected return of 14.4 percent and a standard deviation of 55.4 percent. Asset S has an expected return of 11.4 percent and a standard deviation of 20.4 percent. The correlation between the two assets is .50. What are the standard deviation and expected return of the minimum variance portfolio? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
In: Finance
Using a particular industry as a focus, find an industry report that covers several ventures having various levels of maturity and/or performance. Compare their performances in recent years. Develop a model of how you would conduct a multiple-scenario valuation for a newcomer in that industry. What type of discount rate would be appropriate for your approach?
In: Finance
New-Project Analysis
The president of your company, MorChuck Enterprises, has asked you to evaluate the proposed acquisition of a new chromatograph for the firm's R&D department. The equipment's basic price is $64,000, and it would cost another $19,500 to modify it for special use by your firm. The chromatograph, which falls into the MACRS 3-year class, would be sold after 3 years for $27,500. The MACRS rates for the first three years are 0.3333, 0.4445 and 0.1481. (Ignore the half-year convention for the straight-line method.) Use of the equipment would require an increase in net working capital (spare parts inventory) of $3,000. The machine would have no effect on revenues, but it is expected to save the firm $22,840 per year in before-tax operating costs, mainly labor. The firm's marginal federal-plus-state tax rate is 25%. Cash outflows and negative NPV value, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to the nearest dollar.
What is the Year-0 net cash flow?
$
What are the net operating cash flows in Years 1, 2, and 3? (Note: Do not include recovery of NWC or salvage value in Year 3's calculation here.)
Year 1: | $ |
Year 2: | $ |
Year 3: | $ |
What is the additional (nonoperating) cash flow in Year 3?
$
If the project's cost of capital is 11%, what is the NPV of the project?
$
Should the chromatograph be purchased?
-Select-YesNoItem
In: Finance
Item | Firm a | Firm B |
outstanding shares | 2000 | 1000 |
price per share | US$40 | US$20 |
Consider the following information above for Firms A and B.
Firm A is considering taking over Firm B.The synergy benefits from the takeover are estimated at US $5000
(A) At a cash consideration of US$22 per share, what is the NPV of acquisition to firm A?
(B) Assuming the cash consideration in part (A) above ,what will be post merger price per share?
(C) Considering the cash consideration in part (A),what is the amount of merger premium
(D) if the terms of merger provide for a stock consideration,with an exchange ratio of 1:2,what will be the NPV of acquisition to Firm A?what will be the post-Merger Price ?
(E)If an amount of US$22000 is used as the consideration amount but the terms of merger provide for a stock consideration ,how will your answer to part (D)above change?comment on the difference in your answers(if any ).
(F) What will be the NPV of Acquisition for Firm B in parts (A) , (D) and (E)
In: Finance