In: Finance
A portfolio manager wants to exchange one bond in a portfolio for another. The old bond position has a market value of 6.5 million, a price of $81.90 per $100 of par value, and a duration of 4.33. The new bond has a duration of 4.33 and a price of $85.52 per $100 of par value.
What is the total market value of the new bond that the portfolio manager must buy in order to keep the same portfolio duration?
Correct Answer: 6,500,000
In: Finance
Dixon Weed Seeds Inc. is considering expanding. An outlay of $205 million is required for equipment for the expansion, and additional net working capital of $23 million is required to support the expansion. The equipment is expected to have a productive life of 10 years, and will be depreciated over 10 years to $19.04 million. It is expected to be sold at the end of its life for $24.6 million. Revenues minus expenses are expected to be $44.834 million per year for the life of the equipment. The corporation's marginal tax rate is 24% and the cost of capital for this investment is 10.3%. Compute the NPV of Dixon's proposed expansion. (In $millions with 3 decimals.)
In: Finance
|
Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,580,000; the new one will cost, $1,897,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $375,000 after five years. |
|
The old computer is being depreciated at a rate of $320,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $513,000; in two years, it will probably be worth $147,000. The new machine will save us $326,000 per year in operating costs. The tax rate is 21 percent, and the discount rate is 8 percent. |
| a-1. |
Calculate the EAC for the the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| a-2. |
What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
How do you figure out a-2?
In: Finance
In: Finance
Doak Corp. is evaluating a project with the following cash flows: Year Cash Flow 0 –$ 15,700 1 6,800 2 8,000 3 7,600 4 6,400 5 – 3,800 The company uses an interest rate of 12 percent on all of its projects. Calculate the MIRR of the project using all three methods.
In: Finance
Assume that sales will grow at 5.00%. The following accounts (cash, accounts receivable, inventory, net fixed assets, accounts payable and accruals, as well as operating costs) are assumed to change with sales and will maintain their current percentage of sales rates into 2016. The dividend payout ratio will remain the same. Long-term debt and notes payable will remain constant into 2016 as will interest expense, as a result. The firm also does not plan to issue any additional common stock or conduct any share repurchases. The firm’s tax rate is 40%. Any additional funds needed will be sourced through a line-of-credit (LOC) and surpluses will be paid out through a special dividend.
| 2015 | |
|---|---|
| Sales | $1,450.00 |
| Operating Costs: | $1,265.00 |
| EBIT | $185.00 |
| Interest | $35.00 |
| Earnings Before Taxes | $150.00 |
| Taxes (40%) | $60.00 |
| Net Income | $90.00 |
| Dividends | $45.00 |
| Addition to Retained Earnings | $45.00 |
BALANCE SHEET AS OF 12/31/2015:
| ASSETS | 2015 |
|---|---|
| Cash | $72.50 |
| Accounts Receivable | $145.00 |
| Inventory | $290.00 |
| Current Assets | $507.50 |
| Net Fixed Assets (Net PPE) | $362.50 |
| Total Assets (TA) | $870.00 |
| LIABILITIES & SHAREHOLDER EQUITY | 2015 |
|---|---|
| Accounts Payable and Accruals | $36.25 |
| Notes Payable | $40.00 |
| Current Liabilities | $76.25 |
| Long Term Debt | $310.00 |
| Total Liabilities | $386.25 |
| Common Stock | $300.00 |
| Retained Earnings | $183.75 |
| Owners' Equity | $483.75 |
| Total Liabilities and Shareholder Equity | $870.00 |
Using the percent-of-sales forecast approach, forecast the 2016 income statement and balance sheet. Be sure the balance sheet balances.
What is the Projected Special Dividend (if any)?
Enter 0 if none.
Submit
Answer format: Currency: Round to: 2 decimal places.
In: Finance
You have found the following historical information for the Daniela Company:
| year 1 | year 2 | year 3 | year 4 | |
| stock price | $46.48 | $61.43 | $65.39 | $63.59 |
| EPS | 2.47 | 2.53 | 2.70 | 2.69 |
Earnings are expected to grow at 8 percent for the next year. Using the company's historical average PE as a benchmark, what is the target stock price in one year?
In: Finance
|
NPV AND IRR A store has 5 years remaining on its lease in a mall. Rent is $2,000 per month, 60 payments remain, and the next payment is due in 1 month. The mall's owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "great deal" (owner's words) on a new 5-year lease. The new lease calls for no rent for 9 months, then payments of $2,500 per month for the next 51 months. The lease cannot be broken, and the store's WACC is 12% (or 1% per month).
|
In: Finance
Calculating Project NPV Down Under Boomerang Inc. is considering a new three-year expansion project that requires an initial fixed asset investment of $3,950,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $3,175,000 in annual sales, with costs of $1,455,000. The tax rate is 35 percent and the required return is 10 percent. What is the project’s NPV?
In: Finance
What is financial capital?Why is it vital to decision making and the success of an enterprise?Why aren’t profits alone sufficient?
In: Finance
Calisto Launch Services is an independent space corporation and
has been contracted to develop and launch one of two different
satellites. Initial equipment will cost $740,000 for the first
satellite and $810,000 for the second. Development will take 5
years at an expected cost of $150,000 per year for the first
satellite; $80,000 per year for the second. The same launch can be
used for either satellite and will cost $225,000 at the time of the
launch 5 years from now. At the conclusion of the launch, the
contracting company will pay Calisto $2,350,000 for either
satellite.
Calisto is also considering whether they should consider launching
both satellites. Because Calisto would have to upgrade its
facilities to handle two concurrent projects, the initial costs
would rise by $190,000 in addition to the first costs of each
satellite. Calisto would need to hire additional engineers and
workers, raising the yearly costs to a total of $380,000. An
additional compartment would be added to the launch vehicle at an
additional cost of $35,000. As an incentive to do both, the
contracting company will pay for both launches plus a bonus of
$800,000. Using a present worth analysis (PW) with a MARR
of 7.00 percent/year, what should Calisto Launch Services do?
(Do all calculations to 5 decimal places and round final answer to 2 decimal places in terms of k (1 k = 1,000). Tolerance is +/- 1.00.
(I) Calculate PW of first satellite
$
(in thousands)
(II) Calculate PW of second satellite
$
(in thousands)
(III) Calculate PW of both satellites
$
(in thousands)
In: Finance
Microsoft has an equity value of $250B, but has only $10B in debt. Management decides they’d like to increase the D/(D+E) ratio to 40% and use the proceeds to repurchase shares of equity, i.e. a leveraged recapitalization.
a) Before the recapitalization, the debt is considered risk-free
and the equity has a beta of 1.13; afterwards, the debt beta
becomes 0.3. How much debt does Microsoft issue? By how much has
this restructuring changed the riskiness of equity in Microsoft,
i.e. what is
the equity beta after the recapitalization?
b. If the risk-free rate is 3% and the expected market return is
9%, what are the expected
returns to equity holders before and after the
recapitalization?
Please answer all parts of this question.
In: Finance
In: Finance
Perini Corp is considering a project that has been assigned a discount rate of 14 percent. If the company starts the project today, it will incur an initial cost of $860,000 and will receive cash inflows of $287,000 a year for five years. If the company waits one year to start the project, the initial cost will rise to $988,000 and the cash flows will increase to $341,000 a year for five years. What is the value of the option to wait?
$42,616.74
$38,702.16
$34,951.91
$30,373.29
$26,800.35
In: Finance