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 $135,000. 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 $250,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC. 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. $ 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 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 $ $ $ $ $ Should the firm purchase the new machine? Support your answer. The input in the box below will not be graded, but may be reviewed and considered by your instructor. 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. The input in the box below will not be graded, but may be reviewed and considered by your instructor. 2. The WACC is not constant, but is increasing as Bigbee adds more projects into its capital budget for the year. The input in the box below will not be graded, but may be reviewed and considered by your instructor.

A pension fund manager is considering three investment options. The first is a stock fund, the second is a corporate bond fund, and the third is a T-bill money market fund (the risk-free asset) that yields a sure rate of 5.5%. The probability distributions of the risky funds are:

                                        Expected return (%)           Standard Deviation (%)

Stock fund (S)                          15                                  32

Bond fund (B)                           9                                    23

The correlation between the fund returns is 0.15.

a. What is the portfolio weight for the stock fund in the minimum-risk portfolio?

b.What is the portfolio weight for the stock fund in the optimal risky portfolio?

c. What is the standard deviation of the optimal risky portfolio?

d.What is the Sharpe ratio for the best feasible CAL?

e.Suppose now that you have a risk aversion coefficient A=3 and want to construct a complete portfolio on the best feasible CAL.

f. For the complete portfolio you derived part e, what is the standard deviation of the complete portfolio?

g. For the complete portfolio you derived in part e, what is the proportion invested in the stock fund?

Critically assess why a business may hedge their exposure to changing interest rates

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.7%. The probability distributions of the risky funds are:

The correlation between the fund returns is 0.1065.

What is the Sharpe ratio of the best feasible CAL? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

Long-Term Financing Needed

At year-end 2016, Wallace Landscaping’s total assets were $1.7 million, and its accounts payable were $345,000. Sales, which in 2016 were $2.9 million, are expected to increase by 20% in 2017. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $450,000 in 2016, and retained earnings were $290,000. Wallace has arranged to sell $60,000 of new common stock in 2017 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2017. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 4%, and 45% of earnings will be paid out as dividends.

1. What was Wallace's total long-term debt in 2016? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $
   What were Wallace's total liabilities in 2016? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $
   
2. How much new long-term debt financing will be needed in 2017? (Hint: AFN - New stock = New long-term debt.) Do not round intermediate calculations. Round your answer to the nearest dollar.
   $

Show work in excel please

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.8%. The probability distributions of the risky funds are:

b. The correlation between the fund returns is .1313. Suppose now that your portfolio must yield an expected return of 15% and be efficient, that is, on the best feasible CAL. a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

An office building is expected to create operating cash flows of $26,500 a year for three years, based on tenants' rental income. The purchase of the fixed assets for this building will cost $55,000. These assets will have no value at the end of the project. An additional $5,000 of net working capital will be required throughout the life of the project. Calculate the net present value of this project if the required rate of return is 15 percent?

Multiple Choice

• $8,793.05

• $3,793.05

• $1,566.67

• $505.47

• $-1,206.95

Titan Mining Corporation has 9.8 million shares of common stock outstanding and $420,000 5.2% semiannual bonds outstanding, par value $1000 each. The common stock currently sells for $46 per share and has a beta of 1.3; the bonds have 15 years to maturity and sell for 117 percent of par. The market risk premium is 8.6%, T-bills are yielding 4%, and the company's tax rate is 23%.

a. What is the firm's market value capital structure (debt and equity)?

b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows?

In doing a five-year analysis of future dividends, the Dawson Corporation is considering the following two plans. The values represent dividends per share. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. How much in total dividends per share will be paid under each plan over five years? (Do not round intermediate calculations and round your answers to 2 decimal places.)

b-1. Mr. Bright, the Vice-President of Finance, suggests that stockholders often prefer a stable dividend policy to a highly variable one. He will assume that stockholders apply a lower discount rate to dividends that are stable. The discount rate to be used for Plan A is 10 percent; the discount rate for Plan B is 14 percent. Compute the present value of future dividends. (Do not round intermediate calculations and round your answers to 2 decimal places.)

b-2. Which plan will provide the higher present value for the future dividends?

Kansas Corp, an American company, has a payment of 5 million euros due to Tuscany Corp. one year from today. At the prevailing spot rate of 0.90 euro/dollar, this would cost Kansas $5,555,556, but Kansas faces the risk that the euro/dollar rate will fall in the coming year, so that it will fall in the coming year, so that it will end up paying a higher amount in dollar terms. To hedge this risk, Kansas has two possible strategies. Strategy 1 is to buy 5 million euros forward today at a one-year forward rate of 0.80 euro/dollar. Strategy 2 is to pay a premium of $100,000 for a one-year call option on 5 million euros at an exchange rate of 0.88 euro/dollar. a. Suppose that in one year the spot exchange rate is 0.85 euro/dollar. What would be Kansas' net dollar cost for the payable under each strategy? b. Suppose that in one year the spot exchange rate is 0.95 euro/dollar. What would be Kansas' net dollar cost for the payable under each strategy? c. Which hedging strategy would you recommend to Kansas Corp? Why?

Determine why it is sometimes misleading to compare a company’s financial ratios with those of other firms that operate within the same industry. Support your response with one (1) example from your research.

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 $575,000 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 $250,000. The old machine is being depreciated by $115,000 per year, using the straight-line method.

The new machine has a purchase price of $1,125,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $155,000. 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 $250,000 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?
   -Select-YesNoItem 22
   
   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.

   The input in the box below will not be graded, but may be reviewed and considered by your instructor.

   2. The WACC is not constant, but is increasing as Bigbee adds more projects into its capital budget for the year.

   The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Turn to the Right Drilling Co. (“TTR Drilling”) operates an aging fleet of offshore drilling rigs that are contracted to major integrated oil companies for exploration and production. Since the recent Deepwater Horizon disaster in the Gulf of Mexico, the majors have shown a strong preference for the safer, more technologically-advanced newbuild rigs and are willing to lease these rigs at higher rates than the older ones. Consequently, TTR Drilling is considering replacing their older rigs to take advantage of the higher potential dayrates for their contracts over the next five years. TTR’s current fleet produces annual revenues of $35 M per rig with cash costs of $16 M per rig. The older rigs also currently have $5 M tied up in NWC per rig. The CFO of the company has estimated annual revenues for newbuild rigs at $185 M per rig with cash costs of $30 M per rig. The new rigs would require $15 M in NWC each. The purchase price of a new rig is $750 M. They expect to depreciate this on a straight-line basis to zero over the next five years. However, the company estimates that a new rig could be sold for $400 M at the end of the project. If they purchased a new rig today, they could sell an old one on the open market for $30 M. The old rigs are currently carried on the books at $35 M each and are being depreciated on a straight-line basis by $5 M per year. If they decided to stick with the old rigs, they expect them to have a market value of only $15 M in five years. Assume that TTR Drilling faces a 40% corporate tax rate and an 19% cost of capital. What is the NPV of the decision (in $M per rig) to replace the old vessels with the new ones? (Hint: There is a very similar HW problem in your text.)

. Assume the following information:

What is your percentage return from covered interest arbitrage with $550,000 for one year?