Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $3 million of retained earnings with a cost of r_s = 13%. New common stock in an amount up to $10 million would have a cost of r_e = 16%. Furthermore, Olsen can raise up to $2 million of debt at an interest rate of r_d = 10% and an additional $6 million of debt at r_d = 11%. The CFO estimates that a proposed expansion would require an investment of $6.4 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.

If one calculated a standard deviation of 18.38% for a security with an expected return of 9.19%, how would one explain the importance and message of these statistical moments to an political science major? What does skew and kurtosis add, if anything, to the distribution discussion?

Consider the following abbreviated financial statements for Weston Enterprises: (Do not round intermediate calculations.) WESTON ENTERPRISES 2014 and 2015 Partial Balance Sheets Assets Liabilities and Owners’ Equity 2014 2015 2014 2015 Current assets $ 926 $ 1,007 Current liabilities $ 370 $ 416 Net fixed assets 3,947 4,560 Long-term debt 2,009 2,147 WESTON ENTERPRISES 2015 Income Statement Sales $ 11,390 Costs 5,570 Depreciation 1,050 Interest paid 150 a. What is owners' equity for 2014 and 2015? Owners' equity 2014 $ Owners' equity 2015 $ b. What is the change in net working capital for 2015? Change in NWC $ c-1. In 2015, the company purchased $1,825 in new fixed assets. How much in fixed assets did the company sell? Fixed assets sold $ c-2. In 2015, what is the cash flow from assets for the year? (The tax rate is 35 percent.) Cash flow from assets $ d-1. During 2015, the company raised $370 in new long-term debt. How much long-term debt must the company have paid off during the year? Debt retired $ d-2. What is the cash flow to creditors? Cash flow to creditors $

Problem 11-06
New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,050,000, and it would cost another $16,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $666,000. The machine would require an increase in net working capital (inventory) of $8,500. The sprayer would not change revenues, but it is expected to save the firm $368,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 35%.

1. What is the Year 0 net cash flow?
   $
2. 
   
3. 
   
4. 
   
5. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.

   Year 1	$
   Year 2	$
   Year 3	$

6. 
   
7. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $
8. 
   
9. 
   
10. 
    
11. If the project's cost of capital is 14 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.
    $
    
    Should the machine be purchased?

What changes in the investor’s circumstances cause the rebalancing of the investment portfolio? Explain why.

(All figures in thousands) The Accessories Outlet has total equity of $286,000 sales of $508,000, and a profit margin of 4.5%. It pays $9,144 in dividends. Equity multiplier of 1.6. What is the return on equity, ROA, TAT and ROE for this company?

1. Evaluate how some of the tried-and-true strategies for merging companies will get the job done.

2. In applying advanced analytics, asset effectiveness will achieve a level that is unachievable with traditional levers. Explain the term “asset effectiveness” and evaluate the traditional levels in asset effectiveness. (both question subject is related to Corporate Finance).

. An investor can design a risky portfolio based on two stocks, A and B. Stock A has an

expected return of 18% and a standard deviation of return of 20%. Stock B has an expected

return of 14% and a standard deviation of return of 5%. The correlation coefficient between the

returns of A and B is 0.50. The risk free rate of return is 10%.

What is the Sharpe ratio of the optimal risky portfolio

You have just received a job offer at an investment bank, an dare offered the 2 salary options.Both are for 2 years, with the salary to be paid in equal amounts at the end of the month.

Option 1 is $75,000 per year for 2 years. Option 2 is $64,000 per year for 2 years, and a signing bonus of $20,000 to be paid immediately.

The appropriate interest rate is 7% per year.

Which option should you choose.

Please show the calculate inputs.

Which stock, A or B, or both of them, is preferable to add to the diversified portfolio, and why? if the information about each stock as follows:

stock A: Average annual return-117.4, Average return 11.7%, Standard deviation 8.9, Coefficient of variation 0.8, Required return 11.8, beta 1.6

stock B: Average annual return-111.4, Average return 11.1%, Standard deviation 2.7, Coefficient of variation 0.2, Required return 10.3, beta 1.1

Risk free rate 7%

Market return 10%

Covariance 11.95

Correlation coefficient 0.48

Return on a portfolio (with both stocks A and B) 11.44

Standard deviation of a portfolio 5.26

3

. An investor can design a risky portfolio based on two stocks, A and B. Stock A has an

expected return of 18% and a standard deviation of return of 20%. Stock B has an expected

return of 14% and a standard deviation of return of 5%. The correlation coefficient between the

returns of A and B is 0.25. The risk free rate of return is 10%.

What proportion of the optimal risky portfolio should be invested in stock? (please no answers in excel, only typed out)

Respond to the following scenario: A prospective client comes into your office looking for investment advice. The client feels that she or he is appropriately diversified because the portfolio currently holds six different growth mutual funds, hence a large variety of equity securities.

a. Is this diversification?

b. How would you measure diversification between funds?

c. If this prospective client was 32 years old, and the funds in question were part of retirement savings, what would you advise the client regarding having an adequately diversified mutual fund portfolio?

You are evaluating two different silicon wafer milling machines. The Techron I costs $297,000, has a three-year life, and has pretax operating costs of $82,000 per year. The Techron II costs $515,000, has a five-year life, and has pretax operating costs of $55,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $59,000. If your tax rate is 23 percent and your discount rate is 11 percent, compute the EAC for both machines. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Techron I

Techron II

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $332,233 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 $1,760,000. The cost of the machine will decline by $110,000 per year until it reaches $1,320,000, where it will remain. The required return is 15%.

What is the NPV if the company decides to wait 2 years to purchases the machine? (Round answer to 2 decimal places. Do not round intermediate calculations)