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:

what is the relationship/linkage among the balance sheet, Income statement and statement of cash flows? (How these 3 fiancial statements linked?)

write a paragraph

Question 1 (1 point)

Quick Sale Real Estate Company is planning to invest in a new development. The cost of the project will be $23 million and is expected to generate cash flows of $14,000,000, $11,750,000, and $6,350,000 over the next three years. The company's cost of capital is 20 percent. What is the internal rate of return on this project? (Round to the nearest percent.)

Question 1 options:

Question 2 (1 point)

Muncy, Inc., is looking to add a new machine at a cost of $4,133,250. The company expects this equipment will lead to cash flows of $815,322, $863,275, $937,250, $1,017,612, $1,212,960, and $1,225,000 over the next six years. If the appropriate discount rate is 15 percent, what is the NPV of this investment? Round to two decimal places.

Your Answer:

Question 2 options:

Question 3 (1 point)

Given the following cash flows for a capital project, calculate the IRR using a financial calculator

Question 3 options:

Question 4 (1 point)

An investment of $83 generates after-tax cash flows of $40.00 in Year 1, $64.00 in Year 2, and $129.00 in Year 3. The required rate of return is 20 percent. The net present value is

Round to two decimal places.

Your Answer:

Question 4 options:

Question 5 (1 point)

Cortez Art Gallery is adding to its existing buildings at a cost of $2 million. The gallery expects to bring in additional cash flows of $520,000, $700,000, and $1,000,000 over the next three years. Given a required rate of return of 10 percent, what is the NPV of this project?

Question 5 options:

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:

Lucinda Diamanti is 10 years old today (August 15th) and while all she’s interested in is her new bike, her parents Mr. & Mrs. Diamanti are considering how they will pay for her college education beginning in 8 years. They decide to set up a meeting with their financial adviser Cindy Morgan to discuss an education savings plan. During the meeting, the Diamanti’s inform Cindy that they have $8,000 they can use to begin the savings plan, and from what they can determine, Lucinda will require 4 years to complete her undergraduate degree in molecular biology. Cindy consults a reputable college reference to see that tuition costs are currently estimated at $32,000 per year and are expected to grow at 4% each year for the foreseeable future. The Diamanti’s are concerned that they won’t have enough money and ask Cindy how to make sure they have enough to completely pay for Lucinda’s undergraduate education. The Diamanti’s inform Cindy that they want to make deposits into the education savings plan on an annual basis until Lucinda’s first year in college at which point they will stop making contributions. Cindy tells them they can earn 8% annual interest on their savings plan. Your job to answer the following two questions (You may assume there are 8 years between today and the beginning of Lucinda’s first day in college): Assuming the estimates on tuition costs are correct, how much money needs to be in the account when Lucinda begins college in 8 years to fund 4 years of college?

You own a bond that pays ​$100 in annual​ interest, with a ​$ 000 par value. It matures in 15 years. Your required rate of return is 12 percent.

a. Calculate the value of the bond.

b. How does the value change if your required rate of return​ (1) increases to 15 percent or​ (2) decreases to 6 ​percent? c. Explain the implications of your answers in part b as they relate to interest rate​ risk, premium​ bonds, and discount bonds.

d. Assume that the bond matures in 5 years instead of 15 years. Recompute your answers in part b.

e. Explain the implications of your answers in part d as they relate to interest rate​ risk, premium​ bonds, and discount bonds.

f. If your required rate of return is 12 percent, what is the value of the​ bond?

Please describe the meaning of diversification. How does diversification reduce risk for the investor?

What is the opportunity cost of capital? How can a company measure opportunity cost of capital for a project that is considered to have average risk?