Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $330,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,700,000. The cost of the machine will decline by $102,000 per year until it reaches $1,190,000, where it will remain.

a. If your required return is 14 percent, calculate the NPV if you purchase the machine today.

b. If your required return is 14 percent, calculate the NPV if you wait to purchase the machine until the indicated year.
  

a. You have an unpaid credit card debt of $2756. Your interest rate is 20.44%. Use Excel to determine how much you would have to pay each month in order to pay the debt back in 2 years. You will need to program a version of the present value of annuity formula, solving for PMT.

b. Using the information above show the paying down of the account until there is a zero balance. in other words make a table showing payment number, monthly payment, balance less payment, plus interest, and remaining balance. Assume no new charges have been made to the credit card.

c. Now assume you are starting as you were in part b. You make 6 of the same monthly payments and then decide to transfer the balance to another card. There is a one time transfer fee of 3% of the transferred balance. You resume the same monthly payments for 6 months, during which time you enjoy a 2.35% teaser rate. After these 6 months you continue making the same monthly payments at a 26.4% interest rate until the balance is paid off.

d. Use excel to determine the total interest paid back in both situations (part b & c). Was it worth it to transfer the balance to the other card? Why or why not?

In our discussion of efficient portfolios, we saw the we can directly find the optimal portfolio of risky assets (at least for an investor whose entire preference is defined by mean and variance) by maximizing the so-called Sharpe ratio. Explain why this optimization procedure works – that is, why is a maximum Sharpe ratio considered optimal. (Hints: Think about what a combination of the risk-free asset and any risky portfolio selected from the efficient frontier would look like. In other words, how would the set of combinations of the risky and the risk-free plot visually in our risk-return space? Consider the fact that a risk-free asset, of course, has zero variance and, thus, has zero-covariance with any other asset or portfolio.)

Discuss about that with approximately 400 words.

We are evaluating a project that costs $756,000, has a six-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 67,000 units per year. Price per unit is $60, variable cost per unit is $25, and fixed costs are $693,000 per year. The tax rate is 35 percent, and we require a return of 20 percent on this project.

a. Calculate the accounting break-even point.

b-1 Calculate the base-case cash flow and NPV.

b-2 What is the sensitivity of NPV to changes in the sales figure? ΔNPV/ΔQ

b-3 Calculate the change in NPV if sales were to drop by 500 units.

c. What is the sensitivity of OCF to changes in the variable cost figure? ΔOCF/ΔVC $

Shao Airlines is considering the purchase of two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce net cash flows of $30 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce net cash flows of $25 million per year. Shao plans to serve the route for only 10 years. Inflation in operating costs, airplane costs, and fares are expected to be zero, and the company's cost of capital is 12%. By how much would the value of the company increase if it accepted the better project (plane)? Do not round intermediate calculations. Enter your answer in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answer to three decimal places.

$   million

What is the equivalent annual annuity for each plane? Do not round intermediate calculations. Enter your answers in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answers to three decimal places.

Plane A: $   million

Plane B: $   million

Bellinger Industries is considering two projects for inclusion in its capital budget, and you have been asked to do the analysis. Both projects' after-tax cash flows are shown on the time line below. Depreciation, salvage values, net operating working capital requirements, and tax effects are all included in these cash flows. Both projects have 4-year lives, and they have risk characteristics similar to the firm's average project. Bellinger's WACC is 9%.

What is Project A's payback? Do not round intermediate calculations. Round your answer to four decimal places.

years

What is Project A's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.

years

What is Project B's payback? Do not round intermediate calculations. Round your answer to four decimal places.

years

What is Project B's discounted payback? Do not round intermediate calculations. Round your answer to four decimal places.

years

NPVs and IRRs for Mutually Exclusive Projects

Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $23,000, whereas the gas-powered truck will cost $17,100. The cost of capital that applies to both investments is 11%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,500 per year, and those for the gas-powered truck will be $4,750 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck, and decide which to recommend. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places.

Your division is considering two investment projects, each of which requires an up-front expenditure of $15 million. You estimate that the investments will produce the following net cash flows: Year Project A Project B 1 $ 5,000,000 $20,000,000 2 10,000,000 10,000,000 3 20,000,000 6,000,000 What are the two projects' net present values, assuming the cost of capital is 5%? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $ Project B: $ What are the two projects' net present values, assuming the cost of capital is 10%? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $ Project B: $ What are the two projects' net present values, assuming the cost of capital is 15%? Do not round intermediate calculations. Round your answers to the nearest dollar. Project A: $ Project B: $ What are the two projects' IRRs at these same costs of capital? Do not round intermediate calculations. Round your answers to two decimal places. Project A: % Project B: %

You deposited $50,000 in your mutual fund account today. You make no more deposits into your account, but 12 years from today your mutual fund account balance is $200,000. What annually compounded rate of return have you earned on your mutual fund over this time period? Enter your answer rounded to two decimal places.

Of the following companies, which has virtually little or no overseas exposure?

                                    A.  Ford

                                    B.  Wal Mart

                                    C.  CVS

                                    D.  Delta Airlines

                                    E.   Walgreens

Sales                                           153,000

Costs                                            81,900

Other Expenses                        5,200

Depreciation                           10,900

Interest Expense                      8,400

Taxes                                            16,330

Dividends                                    7,200

New Equity                                 2,600

Redeemed LT Debt                 3,900

What is the operating cash flow?

What is the cash flow to creditors?

What is the cash flow to stockholders?

If net fixed assets increased by $20,250 during the year, what was the addition to NWC?

Name the three financial statements and answer both questions below for all three financial statements.

What is the goal of each statement? What can you tell from it?

How does each statement help tell the story?

Happy Hospital has the following financial statements:

Using the information given above, calculate the following ratios:

[Round your numbers to TWO decimal places]

(A) Return on Equity:

(B) Total Margin:

(C) Total Asset Turnover: .

(D) Equity Multiplier:

Suppose you are given the yield curve as follows:

i₁ = 2%; i₂ = 3%; i₃ = 4%; i₄ = 5%. i₅ = 7%, i₁₀ = 10%. These represent the 1-year, 2-year, 3-year and 4-year, 5-year, 10-year bond yields today. Under the pure expectations theory, find a) the expected future one-year rates that will prevail from year 1 to year 2 b) from year 2 to year 3; & c) from year 3 to year 4.

Discuss how financial advisors use the shape of the curve in above questions as part of investment advice.

?

FOREIGN CAPITAL BUDGETING Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine’s financial planners are considering undertaking a 1-year project in the United States. The project’s expected dollar-denominated cash flows consist of an initial investment of $2,000 and a cash inflow the following year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 10%. Currently, 1 U.S. dollar will buy 0.96 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 3%, while similar securities in Switzerland are yielding 1.50%. a. If this project was instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project? b. What is the expected forward exchange rate 1 year from now? c. If Sandrine undertakes the project, what is the net present value and rate of return of the project for Sandrine? below is the table given by instructor to use for this problems.

Class: A direct quote is the foreign exchange rate stated in terms of the domestic currency per unit of the foreign currency. In the U.S., a direct quote for the Canadian dollar would be US$0.82 = C$1. Conversely, in Canada, a direct quote for U.S. dollars would be C$1.22 = US$1.

Using the interest rate parity theorem, the one-period forward exchange rate is calculated using the spot rate (stated as a direct quote) and the interest rate forecasted for the two countries in the period ahead.

If the Japanese yen is the home currency and the U.S. dollar is the foreign currency and the one-year interest rate in Japan is 1% and in U.S. is 2%, the one-year forward exchange rate (direct quote) in Japan is given by

The spot rate (yen/$1) x [(1 + Japanese interest rate)/(1 + U.S. interest rate)]

If the spot rate is 100 yen/ US $ then we have 100yen/$1 x [(1+1%)/(1+2%)

= 100 x [(1.01)/(1.02)] = 100 x 0.9902 = 99.02 yen/$ 1

An initial investment in the U.S. of $100,000 = 100,000 x 100 yen = 10,000,000 yen

If the one-year cash inflow is $125,000

The yen equivalent is 125,000 x 99.02 = 12,377,500 yen

You can then calculate the NPV and rate of return with the information of cash outflows and inflows in yen.