Mom’s Cookies, Inc., is considering the purchase of new cookie oven. The original cost of the old oven was $30,000; it is now five years old; and has a current market value of $5,000. The old oven is being depreciated over a 10 year life towards a zero estimated salvage value on a straight line basis, resulting in a current book value of $15,000 and an annual depreciation expense of $3,000. Management is contemplating the purchase of a new oven whose cost is $25,000 and whose estimated salvage value is zero. Expected before-tax cash saving from the new oven are $2,000 a year. Depreciation is computed using MACRS 5 year life, and cost of capital is 12 percent. Assume 40 percent tax rate. What is the net present value of the new oven?

what is the firm's cash flow from operations?

what is the firm's cash flow from financing?

what is the firm's total change in cash from the prior year to the current year?

Mills Mining is considering an expansion project. The proposed project has the following features: • The project has an initial cost of $500,000--this is also the amount which can be depreciated using the three year MACRS depreciation schedule. • If the project is undertaken, at t = 0 the company will need to increase its inventories by $50,000, and its accounts payable will rise by $10,000. This net operating working capital will be recovered at the end of the project’s life (t = 4).

• If the project is undertaken, the company will realize an additional $600,000 in sales over each of the next four years (t = 1, 2, 3, 4). The company’s operating cost (not including depreciation) will equal $400,000 a year.

• The company’s tax rate is 40 percent. • At t = 4, the project’s economic life is complete, but it will have a salvage value of $50,000.

• The project’s WACC = 12 percent.

Assume that the economy has three types of people. 15% are fad followers, 75% are passive investors, and 10% are informed traders. The portfolio consisting of all informed traders has a beta of 1.3 and an alpha of 2.21%. The market has an expected return of 12% and the risk-free rate is 4 %. What is the alpha for the fad followers? Enter your answer as a percentage to two decimal places (i.e. 0.12% rather than 0.0012; the percent sign is not necessary).

You are considering moving your money to new bank offering a​ one-year GIC that pays an

5 %

APR with monthly compounding. Your current​ bank's manager offers to match the rate you have been offered. The account at your current bank would pay interest every six months. How much interest will you need to earn every six months to match the​ GIC?

First convert APR into a monthly discount​ rate:

The monthly discount rate is

​%.

A collection of financial assets and securities is referred to as a portfolio. Most individuals and institutions invest in a portfolio, making portfolio risk analysis an integral part of the field of finance. Just like stand-alone assets and securities, portfolios are also exposed to risk. Portfolio risk refers to the possibility that an investment portfolio will not generate the investor’s expected rate of return.

Analyzing portfolio risk and return involves the understanding of expected returns from a portfolio.

Consider the following case:

Andre is an amateur investor who holds a small portfolio consisting of only four stocks. The stock holdings in his portfolio are shown in the following table:

What is the expected return on Andre’s stock portfolio?

13.10%

9.70%

7.28%

14.55%

Suppose each stock in Andre’s portfolio has a correlation coefficient of 0.4 (ρ = 0.4) with each of the other stocks. If the weighted average of the risk of the individual securities (as measured by their standard deviations) included in the partially diversified four-stock portfolio is 36%, the portfolio’s standard deviation (σpσp) most likely is ---- 36%.

Using the financial calculator and the diagramming techniques, please answer the questions and include the diagrams Part A You wish to purchase a home and have been very successful in saving $12,000 for a down payment. You can get a 30 year mortgage at a fixed rate of 11.5%. The most you can afford is $630 / month for payment. What's the maximum you can pay for a house? Part B You plan to be married soon and your partner can contribute $250/month toward the monthly payment, but nothing toward the down payment. Now what price can you afford to pay? Part C You have learned of a special bank offer to first-time home buyers. Interest rates will be dropped to 9% for the life of the mortgage. Now, what can you afford to pay?

1.Suppose that you will receive annual payments of $14,000 for a period of 10 years. The first payment will be made 5 years from now. If the interest rate is 5%, what is the present value of this stream of payments?

a.What is the present value?

2.A store offers two payment plans. Under the installment plan, you pay 25% down and 25% of the purchase price in each of the next 3 years. If you pay the entire bill immediately, you can take a discount of 8% from the purchase price. Assume the product sells for $100.

a-1. Calculate the present value of the payments if you can borrow or lend funds at an interest rate of 5 percent.

b-1. Calculate the present value if the payments on the 4-year installment plan do not start for a full year.

On page 248 (438) of your textbook under "Cyberlaw in Action", the case of the $24.98 tickets to Paris is discussed. Make an argument for either United Airlines in declining to honor the price in the e-ad or a counter argument for the consumer that the price should be honored. You can put yourself in the position of a consumer who bought the ticket, or in the position of United Airlines. Be sure to use legal theories from the textbook. Make sure you respond to the question: "Is it ethical for a customer to insist on a contract that is based on a mistaken price?" and "Is it ethical for an e-tailer to refuse to honor a contract that is based on a mistaken price?" Even though I usually request that you use an objective standard and not insert your personal opinion, in this case you should state what you think is right or wrong from an ethical standpoint, not necessarily what the outcome would be under the law.

1. From the following balance sheet accounts,

1. Construct a balance sheet for 2013 and 2014
2. List all the working capital accounts
3. Find the net working capital for the years ending 2013 and 2014
4. Calculate the change in net working capital for the year 2014

Year Return

2013 0.24

2014 0.14

2015 0.16

2016 0.08

Find the geometric expected return for this asset.

There is a riskless asset with a return of 0.020, and a risky asset with an expected return of 0.363 and standard deviation of 0.301. If you were building a portfolio for an investor with a risk aversion of A=2.6, what proportion of their assets would you invest in the risky asset?