The Bigbee Bottling Company is contemplating the replacement of one of its bottling machines with a newer and more efficient one. The old machine has a book value of $625,000 and a remaining useful life of 5 years. The firm does not expect to realize any return from scrapping the old machine in 5 years, but it can sell it now to another firm in the industry for $265,000. The old machine is being depreciated by $125,000 per year, using the straight-line method. The new machine has a purchase price of $1,150,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $155,000. The applicable depreciation rates are 20%, 32%, 19%, 12%, 11%, and 6%. It is expected to economize on electric power usage, labor, and repair costs, as well as to reduce the number of defective bottles. In total, an annual savings of $225,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.

What initial cash outlay is required for the new machine? Round your answer to the nearest dollar. Negative amount should be indicated by a minus sign. $

Calculate the annual depreciation allowances for both machines and compute the change in the annual depreciation expense if the replacement is made. Round your answers to the nearest dollar. Year Depreciation Allowance, New Depreciation Allowance, Old Change in Depreciation 1 $ $ $ 2 3 4 5

What are the incremental net cash flows in Years 1 through 5? Round your answers to the nearest dollar. Year 1 Year 2 Year 3 Year 4 Year 5 $ $ $ $ $

Should the firm purchase the new machine?

In general, how would each of the following factors affect the investment decision, and how should each be treated?

1. The expected life of the existing machine decreases.

2. The WACC is not constant, but is increasing as Bigbee adds more projects into its capital budget for the year. The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Use the following table to answer questions 1 - 6:

1. What is the expected return for asset A?

2. What is the expected return for asset B?

3. What is the standard deviation for asset A?

4. What is the standard deviation for asset B?

5. What is the expected return of a portfolio that has 70% in Asset A and 30% in Asset B?

6. The standard deviation of the 70% A and 30% B portfolio most likely should:

Answer the following questions in an Excel file. Each questions with multiple parts requires a separate answer. Label your steps and show each answer (1, 2, 3, and 4) in a separate Excel tab. For problems that require a written answer, use a text box in Excel to record the text.

1. Calculate the PV of $5,000 received 10 years from now compounded annually at discount rates of:
   1. 1%
   2. 4%
   3. 12%
2. Calculate the FV of $5,000 invested for 20 years using annual interest rates of
   1. 3%
   2. 7%
   3. 10%
3. Prepare a bond amortization table using the following information. Using this information, calculate the duration of this bond.
   1. Principal: $1,000,000
   2. Face rate: 8%
   3. Yield: 7%
   4. Semiannual payments made over 5 years
4. For the following questions, use information from your company’s financial statements
   1. How much total long-term debt does your company report?
   2. What is the maturity of the longest-term debt your company has?
   3. Is the debt reported at face value on the balance sheet?
   4. Calculate the present value of the longest term debt on your financials considering:
      1. A discount rate of 4%
      2. Annual payments made on the debt
      3. Term debt (rather than serial)
      4. A maturity date equal to the reported maturity date on the financials.

One year​ ago, your company purchased a machine used in manufacturing for $ 120,000. You have learned that a new machine is available that offers many​ advantages; you can purchase it for $ 140,000 today. It will be depreciated on a​ straight-line basis over ten​ years, after which it has no salvage value. You expect that the new machine will contribute EBITDA​ (earnings before​ interest, taxes,​ depreciation, and​ amortization) of $ 55,000 per year for the next ten years. The current machine is expected to produce EBITDA of $ 23,000 per year. The current machine is being depreciated on a​ straight-line basis over a useful life of 11​ years, after which it will have no salvage​ value, so depreciation expense for the current machine is $ 10,909 per year. All other expenses of the two machines are identical. The market value today of the current machine is $ 50,000. Your​ company's tax rate is 40 %​, and the opportunity cost of capital for this type of equipment is 12 %. Is it profitable to replace the​ year-old machine?

You are a manager at Percolated​ Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your​ office, drops a​ consultant's report on your​ desk, and​ complains, "We owe these consultants $ 1.1 million for this​ report, and I am not sure their analysis makes sense. Before we spend the $19 million on new equipment needed for this​ project, look it over and give me your​ opinion." You open the report and find the following estimates​ (in millions of​ dollars):

All of the estimates in the report seem correct. You note that the consultants used​ straight-line depreciation for the new equipment that will be purchased today​ (year 0), which is what the accounting department recommended. The report concludes that because the project will increase earnings by $5.057 million per year for ten​ years, the project is worth $ 50.57 million. You think back to your halcyon days in finance class and realize there is more work to be​ done!  

​First, you note that the consultants have not factored in the fact that the project will require $12 million in working capital upfront​ (year 0), which will be fully recovered in year 10.​ Next, you see they have attributed $ 1.52 million of​ selling, general and administrative expenses to the​ project, but you know that $ 0.76 million of this amount is overhead that will be incurred even if the project is not accepted.​ Finally, you know that accounting earnings are not the right thing to focus​ on!

a. Given the available​ information, what are the free cash flows in years 0 through 10 that should be used to evaluate the proposed​ project?

b. If the cost of capital for this project is 8%​ what is your estimate of the value of the new​ project?

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 7%. The probability distribution of the risky funds is as follows: Expected Return Standard Deviation Stock fund (S) 22 % 32 % Bond fund (B) 12 19 The correlation between the fund returns is 0.11. You require that your portfolio yield an expected return of 11%, and that it be efficient, on the best feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) b. What is the proportion invested in the T-bill fund and each of the two risky funds? (Round your answers to 2 decimal places.)

National Business Machine Co. (NBM) has $4.4 million of extra cash after taxes have been paid. NBM has two choices to make use of this cash. One alternative is to invest the cash in financial assets. The resulting investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in Treasury bills yielding 2.2 percent or a 4.6 percent preferred stock. IRS regulations allow the company to exclude from taxable income 50 percent of the dividends received from investing in another company’s stock. Another alternative is to pay out the cash now as dividends. This would allow the shareholders to invest on their own in Treasury bills with the same yield, or in preferred stock. The corporate tax rate is 24 percent. Assume the investor has a 38 percent personal income tax rate, which is applied to interest income and preferred stock dividends. The personal dividend tax rate is 10 percent on common stock dividends. Suppose the company reinvests the $4.4 million and pays a dividend in three years. What is the total aftertax cash flow to shareholders if the company invests in T-bills?

Assume that your father is now 50 years old, plans to retire in 10 years, and expects to live for 25 years after he retires - that is, until age 85. He wants his first retirement payment to have the same purchasing power at the time he retires as $50,000 has today. He wants all his subsequent retirement payments to be equal to his first retirement payment. (Do not let the retirement payments grow with inflation: Your father realizes that if inflation occurs the real value of his retirement income will decline year by year after he retires). His retirement income will begin the day he retires, 10 years from today, and he will then receive 24 additional annual payments. Inflation is expected to be 5% per year from today forward. He currently has $50,000 saved and expects to earn a return on his savings of 8% per year with annual compounding. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet How much must he save during each of the next 10 years (with equal deposits being made at the end of each year, beginning a year from today) to meet his retirement goal? (Note: Neither the amount he saves nor the amount he withdraws upon retirement is a growing annuity.) Do not round intermediate calculations. Round your answer to the nearest dollar.

You are considering a 20-year, $1,000 par value bond. Its coupon rate is 11%, and interest is paid semiannually. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

Open spreadsheet

If you require an "effective" annual interest rate (not a nominal rate) of 7.63%, how much should you be willing to pay for the bond? Do not round intermediate steps. Round your answer to the nearest cent.

The Miller Corporation is considering a new product. An outlay of ​$255 million is required for equipment to produce the new product and additional net working capital of ​$31 million is required to support production. The equipment will be depreciated on a​ straight-line basis to a zero book value over 10 years. Although the depreciable life is 10 ​years, the project is expected to have a productive life of only 8 ​years, and it is expected to have a zero salvage value at that time​ (scrap value​ = removal​ cost). Revenues minus expenses are expected to be ​$61.761 million per year for the productive life of the project. The​ corporation's marginal tax rate is 23​% and the cost of capital for this investment is 8.3​%. Compute the NPV of​ Miller's potential new product. ​ (In $millions with 3​ decimals.)

Cusic Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $24,300, and the company expects to sell 1,600 per year. The company currently sells 1,950 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,620 units per year. The old board retails for $22,700. Variable costs are 55 percent of sales, depreciation on the equipment to produce the new board will be $1,275,000 per year, and fixed costs are $3,150,000 per year. If the tax rate is 25 percent, what is the annual OCF for the project?

(Bond valuation) A bond that matures in 17years has a ​$1 comma 000par value. The annual coupon interest rate is 8percent and the​ market's required yield to maturity on a​ comparable-risk bond is 16 percent. What would be the value of this bond if it paid interest​ annually? What would be the value of this bond if it paid interest​ semiannually?

a.  The value of this bond if it paid interest annually would be

​

.

​(Round to the nearest​ cent.)

Sarah is buying a home. Her loan will be $100,000. She will make annual payments for the next 30 years to retire this loan. The interest rate on the loan is 4 %.

A. How much will her annual payments be?

B. How much interest will she pay over the life of the loan?

C. How much of her first payment will be applied to principal?

D. How much will she still owe on the loan after 10 years?

NOTE*** answer is not 91309.2 or 109154.41 or 110898.7 or 119875.42 or 117742.56