The proposed costs to operate this new facility are as follows:

Expected Monthly Revenue (Membership Fee): $125 per person

Monthly Fixed Costs

• Utilities: $590

• Health/Wellness Staff: $2,500

• Arts/Crafts Staff: $2,000

• Supplies: $800

• Fitness Equipment Maintenance Contract: $200

Variable Costs

• Monthly Lunch Cost: $25

• Monthly Breakfast Cost: $15

Based on the information above, once the minimum threshold of participants is reached, the initial investment to establish the center is $317,880. The organization anticipates that it will generate $46,920 of net revenues in the first year, $68,166 in the second year, $93,404 in the third year, $123,287 in the fourth year, and $158,573 in the fifth year.

1. Calculate the payback period to determine how long it will take for the organization to recover its initial investment of establishing the senior multipurpose center.

Cuda Marine Engines, Inc. must develop the relevant cash flows for a replacement capital investment proposal. The proposed asset costs $50,000 and has installation costs of $3,000. The asset will be depreciated using a five-year recovery schedule. The existing equipment, which originally cost $25,000 and will be sold for $10,000, has been depreciated using an MACRS five- year recovery schedule and three years of depreciation has already been taken. The new equipment is expected to result in incremental before-tax net profits of $15,000 per year. The firm has a 40 percent tax rate.

a. The book value of the existing asset is ________.
b. The tax effect on the sale of the existing asset results in ________.
c. The initial outlay equals ________.
d. The incremental depreciation expense for year 1 is ________.
e. The annual incremental after-tax cash flow from operations for year 1 is ________.

PLEASE SHOW WORK thank you

Stock A has an expected return of 18% and a standard deviation of 26%. Stock B has an expected return of 13% and a standard deviation of 20%. The risk-free rate is 6.7% and the correlation between Stock A and Stock B is 0.6. Build the optimal risky portfolio of Stock A and Stock B. What is the standard deviation of this portfolio?

In 1971, the American firm Lockheed found itself in Congressional hearings seeking a $250- million federal guarantee to secure bank credit required for the completion of the L-1011 Tri Star program. The L-1011 Tri Star Airbus is a wide-bodied commercial jet aircraft with a capacity of up to 400 passengers, competing with the DC-10 trijet and the A-300B airbus.

Spokesmen for Lockheed claimed that the Tri Star program was economically sound and that their problem was merely a liquidity crisis caused by some unrelated military contracts. Opposing the guarantee, other parties argued that the Tri Star program had been economically unsound and doomed to financial failure from the very beginning.

The debate over the viability of the program centered on estimated “break-even sales” the number of jets that would need to be sold for total revenue to cover all accumulated costs. Lockheed’s CEO, in his July 1971 testimony before Congress, asserted that this break-even point would be reached at sales somewhere between 195 and 205 aircraft. At this point, Lockheed had secured only 103 firm orders plus 75 options-to-buy, but they testified that sales would eventually exceed the break-even point and that the project would thus become “a commercially viable endeavor.”

Costs

The preproduction phases of the Tri Star project began at the end of 1967 and lasted four years, after running about six months behind schedule. Various estimates of the up-front costs ranged between $800 million and $1 billion. A reasonable approximation of these cash outflows would be $900 million, occurring as follows:

According to Lockheed testimony, the production phase was to run from the end of 1971 to the end of 1977, with about 210 Tri Stars as the planned output. At that production rate, the average unit production cost2 would be about $14 million per aircraft. The inventory-intensive production costs would be relatively front-loaded, so that the $490 million ($14 million per plane, 35 planes per year) annual production costs can be assumed to occur in six equal increments at the end of years 1971-1976 (t=4 through t=9).

Revenues

In 1968, the expected price to be received for the L-1011 Tri Star was about $16 million per aircraft. These revenue flows would be characterized by a lag of a year to the production cost outflows; annual revenues of $560 million can be assumed to occur in six equal increments at the end of years 1972-1977 (t=5 through t=10). Inflation-escalation terms in the contracts ensured that any future inflation-based cost and revenue increases offset each other nearly exactly, thus providing no incremental net cash flows.

Deposits toward future deliveries were received from Lockheed customers. Roughly one- quarter of the price of the aircraft was actually received two years early. For example, for a single Tri Star delivered at the end of 1972, $4 million of the price is received at the end of 1970, leaving $12 million of the $16 million price as cash flow at the end of 1972. So, for the 35 planes built (and presumably, sold) in a year, $140 million of the $560 million in total annual revenue is actually received as a cash flow two years earlier.

Discount Rate

Experts estimated that the cost of capital applicable to Lockheed’s assets (prior to Tri Star) was in the 9%-10% range. Since the Tri Star project was quite a bit riskier (by any measure) than the typical Lockheed operation, the appropriate discount rate was almost certainly higher than that. Using 10% should give a reasonable (although possibly generous) estimate of the project’s value.

Break-Even Revisited

In an August 1972 Time magazine article, Lockheed (after receiving government loan guarantees) revised its break-even sales volume: “[Lockheed] claims that it can get back its development costs [about $960 million] and start making a profit by selling 275 Tri Stars.”3 Industry analysts had predicted this (actually, they had estimated 300 units to be the break-even volume) even prior to the Congressional hearings.4 Based on a “learning curve” effect, production costs at these levels would average only about $12.5 million per unit, instead of $14 million as above. Had Lockheed been able to produce and sell as many as 500 aircraft, this average cost figure may have been even as low as $11 million per aircraft.

Lockheed had testified that it had originally hoped to capture 35%-40% of the total free-world market of 775 wide bodies over the next decade (270-310 aircraft). This market estimate had been based on a wildly optimistic assumption of 10% annual growth in air travel; at a more realistic 5% growth rate, the total world market would have been only 323 aircraft. The Tri Star’s actual sales performance never approached Lockheed’s high expectations. Lockheed’s share price plummeted from a high of about $70 to around $3 during this period. There were about 11.3 million shares of Lockheed common outstanding during this period.

• At what sales volume did the Tri Star program reach true economic (as opposed to accounting) break-even? Show your work in excel.

The stock of Arbor Pet Trees (APT) is priced based on the given systematic risk factors. Estimated sensitivities to these risk factors are given by the betas of the regression

R_APT – R_rf = β_creditR_credit + β_value R_value + α + ε

What is the expected return on the stock of Arbor Pet Trees if the stock is fairly valued?

Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $10 million. The system will last 5 years. Do-It-Right sells a sturdier but more expensive system for $16 million; it will last for 8 years. Both systems entail $1 million in operating costs; both will be depreciated straight-line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm’s tax rate is 30%, and the discount rate is 15%. Either machine will be replaced at the end of its life.

a. What is the equivalent annual cost of investing in the cheap system? (Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions rounded to 2 decimal places.)

b. What is the equivalent annual cost of investing in the more expensive system? (Do not round intermediate calculations. Enter your answer as a positive value. Enter your answer in millions rounded to 2 decimal places.)

Abe's Steakhouse is the largest upscale steakhouse company in the United States, based on total company- and franchisee-owned restaurants. The company's menu features a broad selection of high-quality steaks and other premium offerings. Assume the information below is from a recent annual report:

a. Common stock, $0.01 par value; 100,090,000 shares authorized; 23,563,356 issued and outstanding at the end of the current year, 23,385,356 issued and outstanding at the end of last year.

b. Additional paid-in capital: $194,389,000 at the end of the current year and $169,431,000 at the end of last year.

c. Retained earnings / (accumulated deficit): ($82,397,000) at the end of last year.

d. In the current year, net income was $53,983,000 and a cash dividend of $7,138,000 was paid.

Required:

Prepare the stockholders’ equity section of the balance sheet to reflect the above information for the current year and last year. (Amounts to be deducted should be indicated with a minus sign.)

or 20Y8, Raphael Frame Company prepared the sales budget that follows.

At the end of December 20Y8, the following unit sales data were reported for the year:

For the year ending December 31, 20Y9, unit sales are expected to follow the patterns established during the year ending December 31, 20Y8. The unit selling price for the 8" × 10" frame is expected to increase to $27 and the unit selling price for the 12" × 16" frame is expected to increase to $29, effective January 1, 20Y9.

Required:

1. Compute the increase or decrease of actual unit sales for the year ended December 31, 20Y8, over budget. Use the minus sign to indicate a decrease in amount and percent. Round percents to the nearest whole percent.

2. Assuming that the increase or decrease in actual sales to budget indicated in part (1) is to continue in 20Y9, compute the unit sales volume to be used for preparing the sales budget for the year ending December 31, 20Y9. Use the minus sign to indicate a decrease in percent. Round budgeted units to the nearest whole unit.

3.  Prepare a sales budget for the year ending December 31, 20Y9.

After reviewing the topic of short selling in your text, and researching the topic of short selling on your favorite web browser or library, please respond to the following Discussion topics: What are the processes of buying a stock on margin and short selling? What are the advantages and benefits of buying stock on margin and short selling?

Are there any differences that you see in the companies listed on the NASDAQ from the companies listed on the NYSE? Post anything else you found of interest while exploring the NYSE and NASDAQ websites. Compare and Contrast the NYSE and the NASDAQ.

Based on the following information, determine the Return on Equity. Provide your answer in decimal form with three significant digits.

Brandon is an analyst at a wealth management firm. One of his clients holds a $5,000 portfolio that consists of four stocks. The investment allocation in the portfolio along with the contribution of risk from each stock is given in the following table:

Brandon calculated the portfolio’s beta as 0.818 and the portfolio’s expected return as 8.4990%.

Brandon thinks it will be a good idea to reallocate the funds in his client’s portfolio. He recommends replacing Atteric Inc.’s shares with the same amount in additional shares of Baque Co. The risk-free rate is 4%, and the market risk premium is 5.50%.

According to Brandon’s recommendation, assuming that the market is in equilibrium, how much will the portfolio’s required return change? (Note: Do not round your intermediate calculations.)

0.6778 percentage points

1.0776 percentage points

0.9994 percentage points

0.8690 percentage points

Analysts’ estimates on expected returns from equity investments are based on several factors. These estimations also often include subjective and judgmental factors, because different analysts interpret data in different ways.

Suppose, based on the earnings consensus of stock analysts, Brandon expects a return of 6.13% from the portfolio with the new weights. Does he think that the required return as compared to expected returns is undervalued, overvalued, or fairly valued?

Undervalued

Overvalued

Fairly valued

Suppose instead of replacing Atteric Inc.’s stock with Baque Co.’s stock, Brandon considers replacing Atteric Inc.’s stock with the equal dollar allocation to shares of Company X’s stock that has a higher beta than Atteric Inc. If everything else remains constant, the portfolio’s beta would _____Increase/decrease.

Grade It Now

Save & Continue

Continue without saving

Australian corporate bonds can now be issued with the same prospectus as for previous issues, simplifying the process.

As a result, the corporate bonds' yield __________ while the stock of bonds in the financial system ___________.

A.

increases; decreases

B.

increases; increases

C.

decreases; increases

D.

decreases; decreases

Superserv Inc. intends to acquire new equipment for $10 million and has an estimated life of 5 years and a salvage value of $800K.  The new equipment is expected to allow additional annual sales of $5 million over the next 5 years.  The associated additional annual operating costs are expected to be $3 million, while the interest on debt issued to finance the project is $1.5 million.   In addition, working capital will increase by $1.2 million at the outset. The project's cost of capital is 10%.  The firm's tax rate is 40%.  The annual depreciation charge on the new machine is $2 million.  What is the project's NPV? ($-2.5753m)

Solve this without excel, please.

Jason purchased 8% quarterly bonds that have a par value of $20,000 and a maturity date
8 years from now. What is the price that Jason can sell the bonds four years from now if
he wants to get a 12% rate compounded quarterly on his investment?