You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $90,000, and it would cost another $13,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $27,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $11,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $50,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent. $ 114500 What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest cent. Year 1: $ Year 2: $ Year 3: $ If the WACC is 12%, should the spectrometer be purchased?

The following table gives the current balance sheet for Travellers Inn Inc. (TII), a company
that was formed by merging a number of regional motel chains.
Travellers Inn (Millions of Dollars)
Cash $ 10 Accounts payable $ 10
Accounts receivable 20 Accruals 15
Inventories 20 Short-term debt 0
Current assets $ 50 Current liabilities $ 25
Net fixed assets 50 Long-term debt 30
Preferred stock (50,000 shares) 5
Common equity
Common stock (3,800,000 shares $ 10
Retained earnings 30
Total common equity $ 40
Total assets $100 Total liabilities and equity $100
The following facts also apply to TII.
(1) The long-term debt consists of 29,412 bonds, each having a 20-year maturity, semiannual
payments, a coupon rate of 7.6%, and a face value of $1,000. Currently, these
bonds provide investors with a yield to maturity of 11.8%. If new bonds were sold,
they would have an 11.8% yield to maturity.
(2) TII’s perpetual preferred stock has a $100 par value, pays a quarterly dividend per
share of $2, and has a yield to investors of 10%. New perpetual preferred stock would
have to provide the same yield to investors, and the company would incur a 3.85%
flotation cost to sell it.
(3) The company has 3.8 million shares of common stock outstanding, a price per share 5
P0 5 $20, dividend per share 5 D0 5 $1, and earnings per share 5 EPS0 5 $5. The
return on equity (ROE) is expected to be 10%.
(4) The stock has a beta of 1.6%. The T-bond rate is 6%, and RPM is estimated to be 5%.
(5) TII’s financial vice president recently polled some pension fund investment managers
who hold TII’s securities regarding what minimum rate of return on TII’s common
would make them willing to buy the common rather than TII bonds, given that
the bonds yielded 11.8%. The responses suggested a risk premium over TII bonds of
3 percentage points.
(6) TII is in the 25% federal-plus-state tax bracket.
Assume that you were recently hired by TII as a financial analyst and that your boss,
the treasurer, has asked you to estimate the company’s WACC under the assumption
that no new equity will be issued. Your cost of capital should be appropriate for use in

on your analysis, answer the following questions.
a. What are the current market value weights for debt, preferred stock, and common
stock? (Hint: Do your work in dollars, not millions of dollars. When you calculate
the market values of debt and preferred stock, be sure to round the market price per
bond and the market price per share of preferred to the nearest penny.)
b. What is the after-tax cost of debt?
c. What is the cost of preferred stock?
d. What is the required return on common stock using CAPM?
e. Use the retention growth equation to estimate the expected growth rate. Then use
the expected growth rate and the dividend growth model to estimate the required
return on common stock.
f. What is the required return on common stock using the own-bond-yield-plusjudgmental-
risk-premium approach?
g. Use the required return on stock from the CAPM model, and calculate the WACC.

If we hold 44% in the risky market portfolio, M, and 56% in the risk-free
an asset with a risk-free rate of 2%, the expected return on the market of
10% and the standard deviation of the market is 3%. Find the expected
return on the portfolio ( ERp) and the standard deviation of the portfolio (σp)

the answer is ERp=5.52%, σp= 1.32%. Could you please in solution (How to Solve)????

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 $550,000 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 $295,000. The old machine is being depreciated by $110,000 per year, using the straight-line method.

The new machine has a purchase price of $1,200,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $145,000. 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 $230,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 12% WACC.

1. 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.
   $
   
2. 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

3. 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
   $	$	$	$	$

4. Should the firm purchase the new machine?
   -Select-YesNo

***Please show the math! Thank you!

Assume that security returns are generated by the single-index model,

R_i = α_i + β_iR_M + e_i
where R_i is the excess return for security i and R_M is the market’s excess return. The risk-free rate is 3%. Suppose also that there are three securities A, B, and C, characterized by the following data:

a. If σ_M = 20%, calculate the variance of returns of securities A, B, and C.

b. Now assume that there are an infinite number of assets with return characteristics identical to those of A, B, and C, respectively. What will be the mean and variance of excess returns for securities A, B, and C? (Enter the variance answers as a percent squared and mean as a percentage. Do not round intermediate calculations. Round your answers to the nearest whole number.)

Yumi's grandparents presented her with a gift of $20,000 when she was 9 years old to be used for her college education. Over the next 8 years, until she turned 17, Yumi's parents had invested her money in a tax-free account that had yielded interest at the rate of 3.5%/year compounded monthly. Upon turning 17, Yumi now plans to withdraw her funds in equal annual installments over the next 4 years, starting at age 18. If the college fund is expected to earn interest at the rate of 4%/year, compounded annually, what will be the size of each installment? (Assume no interest is accrued from the point she turns 17 until she makes the first withdrawal

Consider the following scenario analysis: Rate of Return Scenario Probability Stocks Bonds Recession 0.20 −4 % 19 % Normal economy 0.40 20 % 9 % Boom 0.40 26 % 8 % a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms? No Yes b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

Consider the following scenario analysis:

a. Is it reasonable to assume that Treasury bonds will provide higher returns in recessions than in booms?

• No

• Yes

b. Calculate the expected rate of return and standard deviation for each investment. (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal place.)

Fincher Manufacturing (FM) is considering two mutually exclusive capital investments to
utilize an idle factory owned by the firm. The first alternative calls for manufacturing tundratorque drill bits required for the extraction of rare earth metals from the frozen tundra of
Greenland. This proposal would generate after-tax cash inflows of $12 million per year
beginning in one year (at date 1). Due to the current scarcity of rare earth metals, the yearly
cash flows for this project are expected to grow by 5 percent per year in perpetuity from date
1 on. The second alternative calls for producing the Polycrystalline Diamond Compact bits
frequently used in horizontal drilling operations. Alternative two will generate constant
yearly after-tax cash flows of $20 million beginning in one year (at date 1) and remaining
constant in perpetuity. Assuming each project requires an initial investment of $120 million:
a. Which capital investment project has the greater IRR?

b. Which project has a greater NPV if Fincher’s cost of capital is 10 percent.

c. Determine the range of estimates for Fincher’s cost of capital for which investing in the
project having the greater IRR maximizes the value of the firm.

Quincy Durant, who had his 75th birthday last month, has been offered a reverse mortgage by the Selleck National Bank. The terms of the reverse mortgage call for Mr. Durant to receive a fixed monthly income payment over his remaining 10-year life expectancy, with the monthly income payment being determined by setting the future value of the monthly payments to be received by Mr. Durant equal to 90 percent of the current $400,000 value of his home. At the end of 10 years Mr. Durant expects to sell his home and repay these monthly payments along with the accrued interest on his monthly borrowings over the previous 10 years. Assuming that that the interest rate on the reverse mortgage is 4.20 percent, compare the monthly amount that Mr. Durant will receive from the reverse mortgage with the monthly payment for a conventional 10-year mortgage loan in the amount of $360,000 with a monthly compounded interest rate of 4.20 percent.?

Explain how increased technology has aided sports organizations in minimizing expenses.

The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $16 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 40%. The CFO has estimated next year's EBIT for three possible states of the world: $4.4 million with a 0.2 probability, $3.2 million with a 0.5 probability, and $0.3 million with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places at the end of the calculations.

Debt/Capital ratio is 0.

RÔE = % ? = % CV =

Debt/Capital ratio is 10%, interest rate is 9%.

RÔE = % ? = % CV =

Debt/Capital ratio is 50%, interest rate is 11%.

RÔE = % ? = % CV =

Debt/Capital ratio is 60%, interest rate is 14%.

RÔE = % ? = % CV =