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

1. The face value for Karen’s Limited bonds is $100,000 and has a 2 percent annual coupon. The percent annual coupon bonds matures in 2022, and it is now 2012. Interest on these bonds is paid annually on December 31 of each year, and new annual coupon bonds with similar risk andmaturity are currently yielding 12 percent. How much should Karen sell her bonds today?  

2. What is the semi-annual coupon bond’s nominal yield to maturity (YTM), if the years to maturity is 15 years, and sells for 119% with coupons rate of 10%? Assume the par value of the bond is $1,000.

3. MJI Corporation bonds mature in 6 years and have a yield to maturity of 8.5 percent. The par value of the bonds is $1,000. The bonds have a 10 percent coupon rate and pay interest on a semi-annual basis. Assuming there are no changes to interest rates during the course of the year, what are the current yield and capital gains yield on the bonds for this year?

In what ways is IRR more useful than NPV? In what ways is NPV more useful than IRR? Or you could view this question as asking for the pros and cons of each calculation.

We decided that we need to specify the type of retirement income we want and make plans to accomplish our goal. Our goal is to plan for 25 years of retirement, at $150,000 per year, but we want to receive the

$150,000 at the beginning of each year of our retirement. So, to reach our objective, for the next 30 years, we need to set aside the right amount of money as an annual constant contribution into a retirement fund at the end of each of those years. So in total, there will be 25 annual payments (withdrawals) of 150,000 each received at the beginning of each month, preceded by 30 annual contributions made at the end of each period. (The last contribution time may correspond with that of the first withdrawal time).

We discussed this in general terms with another pension adviser, and she advised us to assume an average nominal annual rate of return of 8.50%, compounded annually, for the entire 55-year period.

Ques 1) How much money would we need in our pension plan when we retire after 30 years of work to make our pension dream come true? Please use (display + name) the excel function/ formula used for each yellow cell.

Ques 2) In order to accumulate this amount of money, how much would we need to deposit in our pension plan at the end of each year, for each of the next 30 years of work, if we contributed a constant amount each year? Please use (display + name) the excel function/ formula used for each yellow cell.

Ques 3) If the inflation rate for the next 30 years were to be 2% per year (assuming country’s Bank manages to meet its target inflation of about 2%), what annual income now would provide the same purchasing power as a $150,000 annual income in 30 years? Please use (display + name) the excel function/ formula used for each yellow cell.