Assume sales for Peach Street Industries are expected to increase by 8.00% from 2015 to 2016. Peach Street is operating at full capacity currently and expected assets-to-sales and spontaneous liabilities-to-sales to remain the same. Additionally, the firm is looking to maintain their 2015 net profit margin and dividend payout ratios for 2016. The firm’s tax rate is 38.00% and selected income statement and balance sheet information for 2015 is provided below:

What is the firm’s net income for 2015?

The owner of a development site is considering an offer from a parking lot operator to rent the parcel for the next five years, while the development is being planned and approved. The operator has offered to pay $65,000 today or an annuity of $20,000 at the end of each of the next 5 years. Which payment method should the site owner accept if her required rate of return is 15 percent?

Upton Umbrellas has a cost of equity of 11.9 percent, the YTM on the company's bonds is 6.4 percent, and the tax rate is 40 percent. The company's bonds sell for 103.5 percent of par. The debt has a book value of $417,000 and total assets have a book value of $955,000. If the market-to-book ratio is 2.83 times, what is the company's WACC?

Multiple Choice: 8.31% 5.62% 10.12% 9.84% 8.44%

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.)

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.

BALANCE SHEET AS OF 12/31/2015:

In the following questions, determine the percentage-of-sale forecast factors:

WHAT IS ACCOUNTS PAYABLE AND ACCRUALS???

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.

BALANCE SHEET AS OF 12/31/2015:

Using the percent-of-sales forecast approach, forecast the 2016 income statement and balance sheet. Be sure the balance sheet balances.

What are the Projected Regular Dividends for 2016?

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.

BALANCE SHEET AS OF 12/31/2015:

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 LOC (if any)?

Enter 0 if none.

Consider the following information for three stocks, Stocks A, B, and C. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.)

Fund P has one-third of its funds invested in each of the three stocks. The risk-free rate is 5.5%, and the market is in equilibrium. (That is, required returns equal expected returns.) The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

1. What is the market risk premium (r_M - r_RF)? Round your answer to two decimal places.

   %

2. What is the beta of Fund P? Do not round intermediate calculations. Round your answer to two decimal places.

3. What is the required return of Fund P? Do not round intermediate calculations. Round your answer to two decimal places.

   %

4. Would you expect the standard deviation of Fund P to be less than 15%, equal to 15%, or greater than 15%?

   1. less than 15%
   2. greater than 15%
   3. equal to 15%

   _____IIIIII

How can I find out the tangency portfolio base on the info state.

Rini Airlines is considering two alternative planes. Plane A has an expected life of 5 years, will cost $100 million, and will produce after-tax cash flows of $35 million per year. Plane B has a life of 10 years, will cost $132 million, and will produce after-tax cash flows of $35 million per year. Rini plans to serve the route for 10 years. The company’s WACC is 15%. If Rini needs to purchase a new Plane A, the cost will be $110 million, but cash inflows will remain the same. Should Rinie acquire Plane A or Plane B? Explain your answer. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answer to two decimal places.

Plane -Select- (A, B) is the better project and will increase the company's value by $   millions.

Brandon is an analyst at a wealth management firm. One of his clients holds a $7,500 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 0.878 and the portfolio’s expected return as 8.8290%.

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 Transfer Fuels 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.)

0.5566 percentage points

0.3775 percentage points

0.4840 percentage points

0.6002 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 6.85% 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?

Fairly valued

Overvalued

Undervalued

Suppose instead of replacing Atteric Inc.’s stock with Transfer Fuels 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 required return from the portfolio would _________ .