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Consider a project to supply Detroit with 25,000 tons of machine screws annually for automobile production. You will need an initial $2,200,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $700,000 and that variable costs should be $380 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value of $300,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $480 per ton. The engineering department estimates you will need an initial net working capital investment of $220,000. You require a return of 12 percent and face a marginal tax rate of 22 percent on this project. |
| a-1 |
What is the estimated OCF for this project? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| a-2 |
What is the estimated NPV for this project? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |
| b. |
Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ±15 percent; the marketing department’s price estimate is accurate only to within ±10 percent; and the engineering department’s net working capital estimate is accurate only to within ±5 percent. What is the worst-case NPV for this project? The best-case NPV? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |
In: Finance
Has Sarbanes-Oxley been effective in mitigating auditor complicity in management frauds? Why, or why not?
In: Finance
In: Finance
Investment A
You are 25 years old, having just started working. You are considering a retirement plan for a retirement at the age of 65. You want to be able to withdraw $73,000 from your savings account on each birthday for 20 years following your retirement at the age of 65. Your first withdrawal will be on your 66th birthday. To achieve your goal, you intend to make equal annual deposits in a pension scheme which offers 7% interest per year.
According to the Investment A, you expect a lump sum of $ 100,000 from a family inheritance fund that you will receive on your 50th birthday. You will put this fund into the retirement savings account. Furthermore, you have invested in a portfolio what will be giving you $ 1,300 per year (from age 25 through age 65) which are to be added the retirement savings account as well.
If you begin making these deposits on your 25nd birthday and continue to make deposits until you are 65 (your last deposit will be made on your 65th birthday), what is the amount you are required to deposit annually to be able to make the desired withdrawals at retirement?
Investment B
Here you still have the same retirement plan in mind, in other words you want to be able to withdraw $73,000 from your savings account on each birthday for 20 years following your retirement at the age of 65. However, the investment criteria are different:
You have invested in a business which gives an annual net profit
of $ 2,300 per year.
Furthermore, your employer will contribute $ 550 to the account per
year as part of the company’s
profit-sharing plan starting from age 45 to 65. What amount must you deposit annually now to be able to make the desired withdrawals at retirement? Which investment will you choose and why?
In: Finance
HW2: Interest Rate Parity with bid-ask spreads
Suppose:
Spot rate St = $1.5080 - $1.5095 / £
Six month Forward rate Ft,t+6 = $1.5280 – 1.5292/£
Interest rate in US = 4.6% – 4.8%
Interest rate in UK = 3.0% – 3.3%
With bid-ask rates and borrowing-lending rates, is arbitrage profit possible if you start with $1 million in part (a) and £ 1 million in part (b) ? Do it both ways :
(a) borrow $ 1 million in US and invest overseas and
(b) borrow £ 1 million in UK and invest in US.
In: Finance
XYZ used an investment bank to do IPO. In IPO, XYZ sold 1 million shares at $66.52 each. The investment bank charged 7% spread. At the end of the 1st day of trading, XYZ stock price closed at $72.63. Calculate the total cost of IPO. That is, what is the sum of direct and indirect cost?
In: Finance
Dana Company projects a sales revenue of $150,000 during the calendar year 2014. Using the income statement provided below, prepare a pro-forma income statement using the percent-of-sales method.
Income Statement
Dana Dairy Products
For the Year Ended December 31, 2013
| Sales Revenue | 100,000 |
| Less: Cost of Good Sold | 87,000 |
| Gross Profits | 13,000 |
| Less: Operating Expenses | 11,000 |
| Operating Profits | 2,000 |
| Less: Interest Expense | 500 |
| Net Profits before taxes | 1500 |
| Less: Taxes (40%) | 600 |
| Net Profits after taxes | 900 |
In: Finance
|
ANNUAL BALANCE SHEET |
||||||
|
($ MILLIONS) |
||||||
|
BOEING CO |
||||||
|
Dec09 |
Dec08 |
Dec07 |
Dec06 |
Dec05 |
||
|
ASSETS |
||||||
|
Cash & Short-Term Investments |
11,223 |
3,279 |
9,308 |
6,386 |
5,966 |
|
|
Net Receivables |
6,153 |
6,027 |
6,068 |
5,655 |
5,613 |
|
|
Inventories |
16,933 |
15,612 |
9,563 |
8,105 |
7,940 |
|
|
Other Current Assets |
966 |
1,046 |
2,341 |
2,837 |
2,449 |
|
|
------------------ |
------------------ |
------------------ |
------------------ |
-------------- |
||
|
Total Current Assets |
35,275 |
25,964 |
27,280 |
22,983 |
21,968 |
|
|
Gross Plant, Property & Equipment |
21,579 |
21,042 |
20,180 |
19,310 |
19,692 |
|
|
Accumulated Depreciation |
12,795 |
12,280 |
11,915 |
11,635 |
11,272 |
|
|
------------------ |
------------------ |
------------------ |
------------------ |
-------------- |
||
|
Net Plant, Property & Equipment |
8,784 |
8,762 |
8,265 |
7,675 |
8,420 |
|
|
Investments at Equity |
974 |
942 |
1,085 |
964 |
84 |
|
|
Other Investments |
5,522 |
6,243 |
9,803 |
11,641 |
12,407 |
|
|
Intangibles |
7,196 |
6,332 |
5,174 |
4,745 |
2,799 |
|
|
Deferred Charges |
- |
- |
- |
- |
13,251 |
|
|
Other Assets |
4,302 |
5,536 |
7,379 |
3,786 |
1,129 |
|
|
------------------ |
------------------ |
------------------ |
------------------ |
-------------- |
||
|
TOTAL ASSETS |
62,053 |
53,779 |
58,986 |
51,794 |
60,058 |
|
|
LIABILITIES |
||||||
|
Long Term Debt Due In One Year |
707 |
560 |
762 |
1,381 |
1,189 |
|
|
Accounts Payable |
7,096 |
5,871 |
5,714 |
5,643 |
5,124 |
|
|
Taxes Payable |
182 |
41 |
253 |
670 |
556 |
|
|
Accrued Expenses |
12,822 |
6,169 |
6,637 |
6,106 |
6,590 |
|
|
Other Current Liabilities |
12,076 |
18,284 |
18,172 |
15,901 |
14,729 |
|
|
------------------ |
------------------ |
------------------ |
------------------ |
-------------- |
||
|
Total Current Liabilities |
32,883 |
30,925 |
31,538 |
29,701 |
28,188 |
|
|
Long Term Debt |
12,217 |
6,952 |
7,455 |
8,157 |
9,538 |
|
|
Deferred Taxes |
- |
- |
1,190 |
- |
2,067 |
|
|
Minority Interest |
97 |
|||||
|
Other Liabilities |
14,728 |
17,196 |
9,799 |
9,197 |
9,206 |
|
|
------------------ |
------------------ |
------------------ |
------------------ |
-------------- |
||
|
TOTAL LIABILITIES |
59,925 |
55,073 |
49,982 |
47,055 |
48,999 |
|
|
EQUITY |
||||||
|
Common Stock |
5,061 |
5,061 |
5,061 |
5,061 |
5,061 |
|
|
Capital Surplus |
3,724 |
3,456 |
4,757 |
4,655 |
4,371 |
|
|
Retained Earnings |
10,869 |
9,150 |
16,780 |
10,236 |
15,498 |
|
|
Less: Treasury Stock |
17,526 |
18,961 |
17,594 |
15,213 |
13,871 |
|
|
------------------ |
------------------ |
------------------ |
------------------ |
-------------- |
||
|
TOTAL EQUITY |
2,128 |
(1,294) |
9,004 |
4,739 |
11,059 |
|
|
------------------ |
------------------ |
------------------ |
------------------ |
-------------- |
||
|
TOTAL LIABILITIES & EQUITY |
62,053 |
53,779 |
58,986 |
51,794 |
60,058 |
|
|
Common Shares Outstanding |
726.291 |
698.138 |
736.681 |
757.836 |
760.577 |
|
|
ANNUAL INCOME STATEMENT |
||||||
|
Dec09 |
Dec08 |
Dec07 |
Dec06 |
Dec05 |
||
|
Sales |
68,281 |
60,909 |
66,387 |
61,530 |
54,845 |
|
|
Cost of Goods Sold |
55,092 |
48,950 |
51,977 |
48,926 |
44,757 |
|
|
------------------- |
------------------ |
------------------ |
------------------ |
--------------- |
||
|
Gross Profit |
13,189 |
11,959 |
14,410 |
12,604 |
10,088 |
|
|
Selling, General, & Administrative Exp. |
9,870 |
6,852 |
7,381 |
7,428 |
6,433 |
|
|
------------------- |
------------------ |
------------------ |
------------------ |
--------------- |
||
|
Operating Income Before Deprec. |
3,319 |
5,107 |
7,029 |
5,176 |
3,655 |
|
|
Depreciation,Depletion,&Amortization |
1,273 |
1,179 |
1,130 |
1,158 |
1,092 |
|
|
------------------- |
------------------ |
------------------ |
------------------ |
--------------- |
||
|
Operating Profit |
2,046 |
3,928 |
5,899 |
4,018 |
2,563 |
|
|
Interest Expense |
604 |
524 |
608 |
657 |
713 |
|
|
Non-Operating Income/Expense |
289 |
591 |
827 |
709 |
391 |
|
|
Special Items |
(876) |
578 |
||||
|
------------------- |
------------------ |
------------------ |
------------------ |
--------------- |
||
|
Pretax Income |
1,731 |
3,995 |
6,118 |
3,194 |
2,819 |
|
|
Total Income Taxes |
396 |
1,341 |
2,060 |
988 |
257 |
|
|
------------------- |
------------------ |
------------------ |
------------------ |
--------------- |
||
|
Income Before Extraordinary |
||||||
|
Items & Discontinued Operations |
1,335 |
2,654 |
4,058 |
2,206 |
2,562 |
|
|
Discontinued Operations |
(23) |
18 |
16 |
9 |
(7) |
|
|
------------------- |
------------------ |
------------------ |
------------------ |
--------------- |
||
|
Adjusted Net Income |
1,312 |
2,672 |
4,074 |
2,215 |
2,555 |
|
|
A. What percentage decline in earnings before interest and taxes could Boeing have sustained in these years before failing to cover |
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|
i. Interest and principal repayment requirements, |
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|
ii. Interest, principal and common dividend payments? |
||||
|
B. What do these calculations suggest about Boeing’s financial leverage during this period? |
||||
Please Answer question in detailed and as soon as possible. Thank you!
In: Finance
Compute the payback period, Internal Rate of Return and Net. Present Value. Assume a Discount Rate of 4%, Ivt. in Project is $1,500,000 Year Return ($) 1 300k 2 500k 3 400k 4 300k 5 200k 6 100k
In: Finance
n = 35 yrs
PV = 50,000
PMT = 15,000
I = 8%
FV in 35 years = ?
FV if I is 3% = ?
In: Finance
You are 20 years old. You plan to work until you are 80 years old. When you turn 80 you will retire. You expect to live until an age of 95. You have forecasted that you will need $50,000 a year in income for your retirement.Your current salary is $45,000 per year. You expect your salary to grow by 0% per year.You will save 5% of your gross income each year.You will invest your savings in risk free treasury notes that are expected to yield 3% each year.Based on this information you will have accumulated enough wealth to finance your retirement.
True or False?
In: Finance
ABCD Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $100. The company feels that sales will be 12,500, 13,000, 14,000, 13,200, and 12,500 units per year for the next 5 years. Variable costs will be 25% of sales, and fixed costs are $300,000 per year. The firm hired a marketing team to analyze the viability of the product and the marketing analysis cost $1,500,000. The company plans to use a vacant warehouse to manufacture and store the calculators. Based on a recent appraisal the warehouse and the property is worth $2.5 million on an after-tax basis. If the company does not sell the property today then it will sell the property 5 years from today at the currently appraised value. This project will require an injection of net working capital at the onset of the project in the amount of $100,000. This networking capital will be fully recovered at the end of the project. The firm will need to purchase some equipment in the amount of $1,200,000 to produce the new calculators. The machine has a 7-year life and will be depreciated using the straight-line method. At the end of the project, the anticipated market value of the machine is $150,000. The firm requires a 10% return on its investment and has a tax rate of 21%.
Calculate the book value of the machine at the end of year 5
Calculate the depreciation expense at the end of year 2
Calculate the after tax salvage value at the end of year 5
Calculate the cash flow from assets at the end of year 5
Calculate the net present value for the project
Round to two decimals
In: Finance
Problem #5: A loan of $44,000 is paid off in 36 payments at the end of each month in the following way: Payments of $1100 are made at the end of the month for the first 12 months. Payments of $1100 + x are made at the end of the month for the second 12 months. Payments of $1100 + 2x are made at the end of the month for the last 12 months. What should x be if the nominal monthly rate is 12.4%?
In: Finance
23- Celsius Corp. is conducting a capital budgeting analysis to decide whether to invest in a new project which has an expected life of 5 years. The following information is available:
What are the after-tax net proceeds from the sale of the equipment in year 5? (Round to the nearest dollar)
Select one:
a. $0
b. $11,962
c. $63,200
d. $68,038
e. $80,000
In: Finance
Mid-Michigan Manufacturing Inc. (MMMI) wishes to determine whether it would be advisable to replace an existing production machine with a new one. The have hired your firm as a consultant to determine whether the new machine should be purchased. The data you will need is as follows:
MMMI has decided to set a project timeline of 4
years.
The new machine will cost $1,100,000. It will be
depreciated (straight line) over a five-year period (its estimated
useful life), assuming a salvage value of $100,000.
The old machine, which has been fully depreciated, could be sold today for $253,165. The company has received a firm offer for the machine from Williamston Widgets, and will sell it only if they purchase the new machine.
Additional Sales generated by the superior products made by the new machine would be $665,000 in Year 1. In Years 2 & 3 sales are projected to grow by 8.5% per year. However, in Year 4, sales are expected to decline by 5% as the market starts to become saturated.
Total expenses have been estimated at 60.75% of Sales.
The firm is in the 21% marginal tax bracket and requires a minimum return on the replacement decision of 9%.
A representative from Stockbridge Sprockets has told MMMI that they will buy the machine from them at the end of the project (the end of Year 4) for $100,000. MMMI has decided to include this in the terminal value of the project.
The project will require $100,000 in Net Working Capital, 54% of which will be recovered at the end of the project.
The calculations are done on excel.
1. What is the year 4 total cash flow?
2. What is the year 3 operating cash flow?
In: Finance