You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $111,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $59,000. The machine would require an $8,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $55,000 per year. The marginal tax rate is 25%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine.
In: Finance
|
Fair-to-Midland Manufacturing, Inc. (FMM), has applied for a loan at True Credit Bank. Jon Fulkerson, the credit analyst at the bank, has gathered the following information from the company’s financial statements: |
| Total assets | $81,000 |
| EBIT | 7,200 |
| Net working capital | 3,700 |
| Book value of equity | 22,000 |
| Accumulated retained earnings | 17,100 |
| Sales | 95,000 |
| The stock price of FMM is $24 per share and there are 5,300 shares outstanding. What is the Z-score for this company? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) |
Z-Score = ?
In: Finance
A bond with a $1,000 par, 7 years to maturity, a coupon rate of 6%, and annual payments has a yield to maturity of 3.9%. What will be the actual percentage change in the bond price if the yield changes instantaneously to 5.4%?
In: Finance
Windsor stock has produced returns of 13.8 percent, 11.7 percent, 2.3 percent, -21.4 percent, and 8.9 percent over the past five years, respectively. What is the variance of these returns?C) .020574
I need to know how to solve I have the answer
In: Finance
An asset used in a 4-year project falls in the 5-year MACRS class (refer to MACRS table on page 277), for tax purposes. The asset has an acquisition cost of $22,437,430 and will be sold for $5,064,805 at the end of the project. If the tax rate is 0.39, what is the aftertax salvage value of the asset (SVNOT)?
In: Finance
Broussard Skateboard's sales are expected to increase by 25%
from $7.8 million in 2016 to $9.75 million in 2017. Its assets
totaled $5 million at the end of 2016. Broussard is already at full
capacity, so its assets must grow at the same rate as projected
sales. At the end of 2016, current liabilities were $1.4 million,
consisting of $450,000 of accounts payable, $500,000 of notes
payable, and $450,000 of accruals. The after-tax profit margin is
forecasted to be 4%, and the forecasted payout ratio is 55%. What
would be the additional funds needed? Do not round intermediate
calculations. Round your answer to the nearest dollar.
$___________?
In: Finance
Consider the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
0 –$205,347 –$15,086
1 27,500 4,476
2 50,000 8,301
3 52,000 13,650
4 389,000 9,283
Whichever project you choose, if any, you require a 6 percent return on your investment.
a. What is the payback period for Project A?
b. What is the payback period for Project B?
c. What is the discounted payback period for Project A?
d. What is the discounted payback period for Project B?
e. What is the NPV for Project A?
f. What is the NPV for Project B ?
g. What is the IRR for Project A?
h. What is the IRR for Project B?
i. What is the profitability index for Project A?
j. What is the profitability index for Project B?
In: Finance
|
3. Analysis of an expansion project Companies invest in expansion projects with the expectation of increasing the earnings of its business. Consider the case of Yeatman Co.: Yeatman Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs:
This project will require an investment of $25,000 in new equipment. The equipment will have no salvage value at the end of the project’s four-year life. Yeatman pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project’s net present value (NPV) would be when using accelerated depreciation. Determine what the project’s net present value (NPV) would be when using accelerated depreciation. $10,468 $8,374 $12,562 $9,421 Now determine what the project’s NPV would be when using straight-line depreciation. ____________________ Using the _________________ depreciation method will result in the highest NPV for the project. No other firm would take on this project if Yeatman turns it down. How much should Yeatman reduce the NPV of this project if it discovered that this project would reduce one of its division’s net after-tax cash flows by $300 for each year of the four-year project? $931 $559 $698 $1,024 The project will require an initial investment of $25,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $14,000, after taxes, if the project is rejected. What should Yeatman do to take this information into account? Increase the amount of the initial investment by $14,000. The company does not need to do anything with the value of the truck because the truck is a sunk cost. Increase the NPV of the project by $14,000. |
In: Finance
How to calculate NPV, IRR, MIRR, and Ordinary Payback? Example please
In: Finance
Suppose that Xtel currently is selling at $54 per share. You buy 450 shares using $10,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 7%.
If the maintenance margin is 25%, how low can Xtel’s price fall before you get a margin call? (Round your answer to 2 decimal places.)
How would your answer to (b) change if you had financed the initial purchase with only $12,150 of your own money? (Round your answer to 2 decimal places.)
Continue to assume that a year has passed. How low can Xtel’s price fall before you get a margin call? (Round your answer to 2 decimal places.)
In: Finance
Terminal cash- Various lives and sale prices. Looner Industries is currently analyzing the purchase of a new machine that cost. $164,000 and requires $19,800
in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $30,100 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period .for the applicable depreciation percentages) and expects to sell the machine to net $10,300 before taxes at the end of its usable life. The firm is subject to a 40 % tax rate.
a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years.
b. Discuss the effect of usable life on terminal cash flows using your findings in part a.
c. Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $9,190 or (2) $169,600 (before taxes) at the end of 5 years.
d. Discuss the effect of sale price on terminal cash flow using your findings in part c.
|
Rounded Depreciation Percentages by Recovery Year Using MACRS
for First Four Property Classes |
||||
| Percentage by recovery year* | ||||
| Recovery year | 3 years | 5 years | 7 years | 10 years |
| 1 | 33% | 20% | 14% | 10% |
| 2 | 45% | 32% | 25% | 18% |
| 3 | 15% | 19% | 18% | 14% |
| 4 | 7% | 12% | 12% | 12% |
| 5 | 12% | 9% | 9% | |
| 6 | 5% | 9% | 8% | |
| 7 | 9% | 7% | ||
| 8 | 4% | 6% | ||
| 9 | 6% | |||
| 10 | 6% | |||
| 11 | 4% | |||
| Totals | 100% | 100% | 100% | 100% |
In: Finance
Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company’s CFO remembers that the internal rate of return (IRR) of Project Gamma is 13.2%, but he can’t recall how much Green Caterpillar originally invested in the project nor the project’s net present value (NPV). However, he found a note that detailed the annual net cash flows expected to be generated by Project Gamma. They are:
|
Year |
Cash Flow |
|---|---|
| Year 1 | $2,400,000 |
| Year 2 | $4,500,000 |
| Year 3 | $4,500,000 |
| Year 4 | $4,500,000 |
The CFO has asked you to compute Project Gamma’s initial investment using the information currently available to you. He has offered the following suggestions and observations:
| • | A project’s IRR represents the return the project would generate when its NPV is zero or the discounted value of its cash inflows equals the discounted value of its cash outflows—when the cash flows are discounted using the project’s IRR. |
| • | The level of risk exhibited by Project Gamma is the same as that exhibited by the company’s average project, which means that Project Gamma’s net cash flows can be discounted using Green Caterpillar’s 9% WACC. |
Given the data and hints, Project Gamma’s initial investment is _________ , and its NPV is ____________ (rounded to the nearest whole dollar).
A project’s IRR will _________ if the project’s cash inflows decrease, and everything else is unaffected.
In: Finance
Below are returns on the stock A and S&P500 index. All numbers are in decimals (-0.0222 is equivalent to -2.22%).
Stock A S_P500
-0.0222 0.0032
-0.0048 -0.0058
0.1333 0.0434
0.0765 0.1081
-0.0161 -0.0121
0.1250 0.1400
0.0145 0.0368
-0.0475 -0.0454
0.0430 0.0577
-0.0260 -0.1374
0.0071 0.0064
0.0249 0.0186
0.0850 0.0215
-0.0624 -0.0752
0.0933 0.0365
0.0456 0.0528
-0.0632 -0.0131
0.0450 0.0009
0.0200 0.0017
0.0280 0.0985
Suppose that the next S&P500 return will be 7%. Use the CAPM model to calculate the expected return on the stock A. Assume the risk-free rate of 1%.
Provide answer in decimals. For example, 12.34% would be 0.1234.
Also, round your answer to the fourth decimal.
Your Answer:
In: Finance
explain how to estimate the cost of capital.
How to adjust for the effect of leverage on the cost of equity (unlevered Beta)?
Should we use book or market value to determine the weights?
In: Finance
You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $2,850,000 this year. Depreciation, the increase in net working capital, and capital spending were $225,000, $90,000, and $415,000, respectively. You expect that over the next five years, EBIT will grow at 16 percent per year, depreciation and capital spending will grow at 21 percent per year, and NWC will grow at 11 percent per year. The company has $15,100,000 in debt and 345,000 shares outstanding. You believe that sales in five years will be $22,600,000 and the price-sales ratio will be 2.4. The company’s WACC is 8.5 percent and the tax rate is 21 percent. What is the price per share of the company's stock?
In: Finance