1. Jaster Jets has $15 billion in total assets. Its balance sheet shows $1.5 billion in current liabilities, $10.5 billion in long-term debt, and $3 billion in common equity. It has 600 million shares of common stock outstanding, and its stock price is $48 per share. What is Jaster's market/book ratio? Round your answer to two decimal places.

2. A company has an EPS of $2.10, a book value per share of $20.16, and a market/book ratio of 2.4x. What is its P/E ratio? The stock price should be rounded to the nearest cent. Round your answer to two decimal places.
   
3. Ebersoll Mining has $4 million in sales, its ROE is 15%, and its total assets turnover is 3.2x. Common equity on the firm’s balance sheet is 60% of its total assets. What is its net income? Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest cent. Do not round intermediate steps.

2. [6 pts] A borrower is faced with choosing between two fully amortizing level-payment loans. Loan A is available for $75,000 at 10% MEY for 30 years, with 6 points included in the closing costs. Loan B would be made for the same amount, but at 11% MEY for 30 years, with 2 points included in the closing costs. Neither loan defaults/is curtailed. a. [4] If the loan is to be repaid after 15 years, which is the better choice? b. [2] If the loan is repaid after 5 years, which is the better choice?

Hint: Use the effective cost of borrowing to make the decision. Show work.

Pharoah, Inc., has four-year bonds outstanding that pay a coupon rate of 7.10 percent and make coupon payments semiannually. If these bonds are currently selling at $917.89.

What is the yield to maturity that an investor can expect to earn on these bonds? (Round answer to 1 decimal place, e.g. 15.2%.)

What is the effective annual yield? (Round answer to 1 decimal place, e.g. 15.2%.)

Cost of Capital is 8%. Acceptable payback period is 3 1/2 years. Acceptable discounted payback period is 4 1/2 years. Based on the above data, calculate payback, discounted payback, net present value, internal rate of return and modified rate of return.

Based on the above data, calculate payback, discounted payback, net present value, internal rate of return and modified rate of return for each project.

Sheridan Chiropractic Clinic produces $200,000 of cash flow each year. The firm has no debt outstanding, and its cost of equity capital is 20 percent. The firm’s management would like to repurchase $680,000 of its equity by borrowing $680,000 at a rate of 10 percent per year. If we assume that the debt will be perpetual, find the cost of equity capital for Sheridan after it changes its capital structure. Assume that Modigliani and Miller Proposition 1 assumptions hold. (Round answer to 2 decimal places, e.g. 17.54%.) Cost of equity capital enter the cost of equity capital in percentages rounded to 2 decimal places %

REPLACEMENT ANALYSIS

The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $550,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $265,000. The old machine is being depreciated by $110,000 per year, using the straight-line method.

The new machine has a purchase price of $1,150,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $160,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $200,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.

1. What initial cash outlay is required for the new machine? Round your answer to the nearest dollar. Negative amount should be indicated by a minus sign.
   $_____?
   
2. Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers to the nearest dollar.

   Year	Depreciation Allowance, New	Depreciation Allowance, Old	Change in Depreciation
   1	$	$	$
   2
   3
   4
   5

3. What are the incremental net cash flows in Years 1 through 5? Round your answers to the nearest dollar.

   Year 1	Year 2	Year 3	Year 4	Year 5
   $	$	$	$	$

4. Should the firm purchase the new machine?
   =YES/ NO??
   
   Support your answer. The input in the box below will not be graded but may be reviewed and considered by your instructor.
   
5. In general, how would each of the following factors affect the investment decision, and how should each be treated?
   1. The expected life of the existing machine decreases. 2. The WACC is not constant but is increasing as Bigbee adds more projects into its capital budget for the year.

Johnson & Merk, Inc’s 20x4 income statement listed:
Sales = $12.5 million,
EBIT = $5.6 million,
Net Income = $3.25 million, and
Common stock dividends = $1.2 million.
The 20x4 year-end balance sheet listed:
Total assets = $52.5 million, and
Common stockholders’ equity = $21 million with 2 million shares outstanding.
(Part 1)What is Johnson & Merk, Inc’s 20x4 Return on Asset (ROA)?
a.12%
b.6%
c.5%
d.9%

Bluetooth, Inc’s 20x4 income statement listed:
Sales = $12.5 million,
EBIT = $5.6 million,
Net Income = $3.25 million, and
Common stock dividends = $1.2 million.
The 20x4 year-end balance sheet listed:
Total assets = $52.5 million, and
Common stockholders’ equity = $21 million with 2 million shares outstanding.
(Part 2)What is Bluetooth, Inc’s 20x4 Return on Equity (ROE)?
a.12.3%
b.16.7%
c.15.4%
d.9.4%

(Part 3)In 2012 Bard, Inc. (BCR) had sales per share of $36.21, net profit margin of 19.1%, and paid $1.39 dividend per share. The Dividend Payout Ratio and Retention Rate are:
a.21% and 86%
b.32% and 74%
c.20% and 80%
d.50% and 50%

Here are the returns on two stocks.

Digital Cheese Executive Fruit

January +14 +7

February −3 +1

March +5 +4

April +7 +12

May −4 +2

June +3 +7

July −2 −3

August −8 −2

Required: a-1. Calculate the variance and standard deviation of each stock. a-2. Which stock is riskier if held on its own? b. Now calculate the returns in each month of a portfolio that invests an equal amount each month in the two stocks. c. Is the variance more or less than halfway between the variance of the two individual stocks?

Carla Vista Security Company produces a cash flow of $160 per year and is expected to continue doing so in the infinite future. The cost of equity capital for Carla Vista is 16 percent, and the firm is financed entirely with equity. Management would like to repurchase $100 in shares by borrowing $100 at a 10 percent annual rate (assume that the debt will also be outstanding into the infinite future). Using Modigliani and Miller’s Proposition 1 answer the following questions.

What is the value of the firm today?

What is the value of equity after the repurchase?

What will be the rate of return on common stock required by investors after the stock repurchase? (Round answer to 2 decimal places, e.g. 17.54%.)

2) Vega Inc. expects earnings/dividends to grow at an annual rate of 20 percent for the next 2 years. This growth rate is expected to drop to 10 percent a year for a further three years after which the company settles into a constant growth pattern of 4 percent per year indefinitely. If current dividend is $1.10 per share and investors require a 15 percent annual return on Vega stock, what is a fair price for a share of Vega's stock today?

(Part 1)Which of the following IS NOT a way Management can control Return on Equity (ROE)?
a.Earnings produced out of each dollar of sales (Profit Margin)
b.How well a company is able to meet its current obligations (Current Ratio)
c.Sales generated from each dollar of assets employed (Asset Turnover)
d.Amount of equity used to finance the assets (Financial Leverage)

(Part 2)Which of the following ratios measure the amount of a company's operations that are financed from debt versus financed from equity?
a.Leverage ratios
b.Profitability ratios
c.Liquidity ratios
d.Operating ratios

St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. The new welder will cost $184,000 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $28,000 to $72,500 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 40%, and the project cost of capital is 11%. Should the old welder be replaced by the new one? Do not round intermediate calculations. Round your answer to the nearest cent. Negative value, if any, should be indicated by a minus sign. The NPV of the project is $ Old welder be replaced.

Problem 12-09
Financing Deficit

Garlington Technologies Inc.'s 2016 financial statements are shown below:

Balance Sheet as of December 31, 2016

Income Statement for December 31, 2016

Suppose that in 2017 sales increase by 20% over 2016 sales and that 2017 dividends will increase to $200,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 9%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.