PIB wants to offer a $40 million, 6-months Eurodollar deposit to one of its major clients at 6-months LIBOR less 2.5%. 6-month LIBOR is 5.3%. The bank intends to use the proceeds of this deposit to buy a 5.0% 3-months grade AAA commercial paper and to rollover the investment for another three months at the end of the first three months cycle. To protect itself from interest rate exposure, the bank also buys a “3 against 6” $40 million, FRA for a three month period beginning three months from the day of receipt of the deposit and ending six months from the day of receipt of the deposit. The agreement rate with the seller is 5.0%. There are 94 days in the first three months and 92 days in the remaining three months period.

a. Calculate the banks interest expense on the 6-month Eurodollar deposit.

b. Calculate the bank interest income on the first three month commercial paper loan.

c. Calculate the value of the FRA from the last three months of the investment period if 3-months LIBOR (SR) for that period is 5.3%.

Sutter Lakeside Hospital, a taxpaying entity, is considering a new ambulatory surgical center (ASC). The building and equipment for the new ASC will cost $5,500,000. The equipment and building will be depreciated on a straight-line basis over the project’s five-year life to a $2,500,000 salvage value. The new ASC’s projected net revenue and expenses are as follows. Net revenues are expected to be $5,000,000 the first year and will grow by 9 percent each year thereafter. The operating expenses, which exclude interest and depreciation expenses, will be $4,500,000 the first year and are expected to grow annually by 3 percent for every year after that. Interest expense will be $700,000 per year, and principal payments on the loan will be $1,000,000 a year. In the first year of operation, the new ASC is expected to generate additional after-tax cash flows of $600,000 from radiology and other ancillary services, which will grow at an annual rate of 5 percent per year for every year after that. Starting in year 1, net working capital will increase by $350,000 per year for the first four years, but during the last year of the project, net working capital will decrease by $250,000. The tax rate for the hospital is 40 percent, and its cost of capital is 15 percent. Use both the NPV and IRR approaches to determine if this project should be undertaken. (Hint: see Appendices C, D, and E.)

1. A rapidly growing firm is currently paying a dividend of $2.20. The dividend growth rate is expected to be 9% for the next 8 years. The dividend growth rate after the first 8 years is expected to be 4% annually. The expected return on the market is 7%, the risk free rate is 4% and the firm’s Beta is 0.84.
   1. Calculate the estimated price (intrinsic value) for a share of this firm’s stock.
   2. What does this firm’s Beta measure?
   3. Use Goal Seek to determine what the current dividend would need to be to yield an estimated price (intrinsic value) of $150.

Masters Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $415,000 is estimated to result in $163,000 in annual pretax cost savings. The press falls in the MACRS five-year class, and it will have a salvage value at the end of the project of $63,000. The press also requires an initial investment in spare parts inventory of $26,000, along with an additional $3,400 in inventory for each succeeding year of the project. The shop’s tax rate is 21 percent and its discount rate is 8 percent. (MACRS schedule) Calculate the NPV of this project.

Smallville Bank has the following balance sheet, rates earned on its assets, and rates paid on its liabilities.

If the bank earns $125,000 in noninterest income, incurs $85,000 in noninterest expenses, and pays $2,550,000 in taxes, what is its net income? (Enter your answer in dollars, not thousands of dollars.)

Explain clearly the negative externalities in banking using your case studies to support your answer.

Orange County Bankruptcy case 1994

How the Fed action affects the interest rate in 1994?

Describe the crisis following the Fed action

Describe the outcomes?

Q1. Cost of home today (Yr 2019) = $760,000

Down payment today (Yr 2019) = $120,000

Currently Chosen financing option: a 25-year mortgage/loan, with semi-monthly payments (at the end of each period). The interest rate on the mortgage is 3.26% APR (annual percentage rate) compounded semi-annually.

After 5 years (2024), what will the outstanding balance on the mortgage with the same financing "option" given above??

Hint: you only need to consider the PV of the remaining mortgage payments at the same mortgage rate.

Please use (display + name) the excel function/ formula used for each coloured cell.

Ques 8) In 2024 (5 yrs from now) we will receive $200,000 from ancestral property and would like to deposit one-time payment against our mortgage at that time, if we renew the mortgage in 2024 at the same interest rate and same time left to repayment, what will our new semi-monthly payment be? Please use (display + name) the excel function/ formula used for coloured cell.

Wuttke Corp. wants to raise $4.1 million via a rights offering. The company currently has 510,000 shares of common stock outstanding that sell for $40 per share. Its underwriter has set a subscription price of $30 per share and will charge the company a spread of 2 percent.

If you currently own 6,000 shares of stock in the company and decide not to participate in the rights offering, how much money can you get by selling your rights?

A storage facility can be purchased for $120,000.  The maintenance and taxes are estimated to be $8,000 per year.  Alternatively, you can rent the facility for $11,000 per year.  Assume that in ten years, the facility can be sold for $100,000.  Determine the IRR or cost of renting the facility, by interpolating the compound interest factors.

Max Wholesaler borrowed $13,500 on a 11%, 120-day note. After 45 days, Max paid $4,725 on the note. Thirty days later, Max paid an additional $4,050. Use ordinary interest.

a. Determine the total interest using the U.S. Rule. (Round your intermediate balances and interest amounts to the nearest cent. Round your final answer to the nearest cent.) Total interest amount $

b. Determine the ending balance due using the U.S. Rule. (Round your intermediate balances and interest amounts to the nearest cent. Round your final answer to the nearest cent.) Ending balance due $

​(Calculating free cash flows​) At​ present, Solartech Skateboards is considering expanding its product line to include​ gas-powered skateboards;​ however, it is questionable how well they will be received by skateboarders. Although you feel there is a 40 percent chance you will sell 10,000 of these per year for 10 years​ (after which time this project is expected to shut down because​ solar-powered skateboards will become more​ popular), you also recognize that there is a 30 percent chance that you will only sell 1,000 and also a 30 percent chance you will sell 17,000. The gas skateboards would sell for $100 each and have a variable cost of $40 each. Regardless of how many you​ sell, the annual fixed costs associated with production would be $130,000. In​ addition, there would be an initial expenditure of $1,200,000 associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified​ straight-line method down to zero over 10 years. Because of the number of stores that will need​ inventory, the working capital requirements are the same regardless of the level of sales. This project will require a​ one-time initial investment of $60,000 in net working​ capital, and that​ working-capital investment will be recovered when the project is shut down.​ Finally, assume that the​ firm's marginal tax rate is 31 percent.

a. What is the initial outlay associated with the​ project?

b. What are the annual free cash flows associated with the project for years 1 through 9 under each sales​ forecast? What are the expected annual free cash flows for years 1 through​ 9?

c. What is the terminal cash flow in year 10​ (that is, what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the​ project)?

d. Using the expected free cash​ flows, what is the​ project's NPV given a required rate of return of 11 ​percent? What would the​ project's NPV be if 10,000 skateboards were​ sold?

***PLEASE, be as detailed as possible, I couldn't figure this problem out so please only answer if you know how to do this!***

Explain why in the long-run the rate of return on investments reflects the riskiness of those investments?

300 words long!!! Do not plagiarize!! Follow directions!!!

Slinger Supply is looking at developing a new line of industrial slings. The initial marketing study cost $50,000 and determined they should proceed with the next stage of analysis. The marketing department determined the expected unit sales for the next 5 years are 3000, 5000, 6000, 5000, 3000 respectively. Unit selling price $60 and is expected to increase by 3% after the first year. Unit cost $36 is expected to increase by 5% after the first year.

1. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.

What is the CF0?

2. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.

What is the depreciation expense for year 2?

3. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.

What is the OCF for year 3?

4. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.

The OCF for year 4 is between $94,000-96,000.

True

False

5. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.

What is the terminal (salvage) value for the equipment?

6. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.

What is CF5 (not just OCF) that is used in investment analysis?

7. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.

The NPV for this project is positive .

True

False

8. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.

What is the IRR for the project?

9. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.

If it is determined that additional project risk demands the cost of capital for this project to increase to 12%, the project has a positive NPV.

True

False

10. The discounted payback for Slinger Supply is slightly under 5 years.

True

False

11. The regular payback for Slinger Supply is over 5 years.

True

False

Question 6 (1 point)

Which ONE of the following statements about the payback method is true?

Question 6 options:

Question 7 (1 point)

McKenna Sports Authority is getting ready to produce a new line of gold clubs by investing $1.85 million. The investment will result in additional cash flows of $525,000, $847,500, and $1,215,000 over the next three years. What is the payback period for this project? Round to four decimal places.

Your Answer:

Question 7 options:

Question 8 (1 point)

Monroe, Inc., is evaluating a project. The company uses a 13.8 percent discount rate for this project. Cost and cash flows are shown in the table. What is the NPV of the project?

Year Project

0 ($11,368,000)

1 $ 2,157,589

2 $ 3,787,552

3 $  3,125,650

4 $ 4,115,899

5 $ 4,556,424

Round to two decimal places.

Your Answer:

Question 8 options: