A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: (PLEASE ANSWER FULL QUESTIONS)
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 |
| Project A | -$300 | -$387 | -$193 | -$100 | $600 | $600 | $850 | -$180 |
| Project B | -$400 | $131 | $131 | $131 | $131 | $131 | $131 | $0 |
What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Project A: $
Project B: $
What is each project's IRR? Round your answer to two decimal places.
Project A: %
Project B: %
What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Do not round your intermediate calculations.
Project A: %
Project B: %
From your answers to parts a-c, which project would be selected?
_________Project AProject B
If the WACC was 18%, which project would be selected?
_________Project AProject B
Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign.
| Discount Rate | NPV Project A | NPV Project B |
| 0% | $ | $ |
| 5 | $ | $ |
| 10 | $ | $ |
| 12 | $ | $ |
| 15 | $ | $ |
| 18.1 | $ | $ |
| 23.54 | $ | $ |
Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. Do not round your intermediate calculations.
%
What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places. Do not round your intermediate calculations.
Project A: %
Project B: %
In: Finance
Suppose Capital One is advertising a
6060-month,
5.25 %5.25%
APR motorcycle loan. If you need to borrow
$ 8 comma 700$8,700
to purchase your dream Harley-Davidson, what will be your monthly payment? (Note: Be careful not to round any intermediate steps less than six decimal places.)
In: Finance
NPV AND IRR
A store has 5 years remaining on its lease in a mall. Rent is $2,100 per month, 60 payments remain, and the next payment is due in 1 month. The mall's owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "great deal" (owner's words) on a new 5-year lease. The new lease calls for no rent for 9 months, then payments of $2,500 per month for the next 51 months. The lease cannot be broken, and the store's WACC is 12% (or 1% per month).
In: Finance
Describe the concept of variance analysis. Explain the importance of variance analysis. Provide specific examples of how variance analysis is beneficial to the organization.
In: Finance
Paymaster Enterprises has arranged to finance its seasonal working-capital needs with a short-term bank loan. The loan will carry a rate of
14 percent per annum with interest paid in advance (discounted). In addition, Paymaster must maintain a minimum demand deposit with the bank of 11 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $120,000 for a period of 6 months, what is the annualized cost of the bank loan?
The annualized cost of the bank loan is ______%.
(Round to two decimal places.)
In: Finance
Consider the following financial information pertaining to a firm in a particular year:
|
Rev |
1,000 |
|
COGS |
400 |
|
R&D |
50 |
|
SGA (excl. Depr) |
100 |
|
Depreciation |
60 |
|
Interest Exp |
20 |
|
Taxes |
110 |
|
Dividends |
130 |
|
Change in Inventory |
-25 |
|
Change in Acct. Pay. |
15 |
|
Change in Acct. Rec. |
30 |
|
Change in Cash/Secu. |
0 |
|
Plant & Equip (new) |
225 |
|
Shares Issued |
N/A |
|
Change in Debt |
N/A |
|
Gross Profit |
|
|
EBIT |
|
|
NI |
|
|
Operating CF |
|
|
Investing CF |
|
|
Free CF |
|
Answer |
In: Finance
Explain how the KMV model predicts bankruptcy probability?
In: Finance
|
Chiptech, Inc., is an established computer chip firm with several profitable existing products as well as some promising new products in development. The company earned $1 per share last year and just paid out a dividend of $.50 per share. Investors believe the company plans to maintain its dividend payout ratio at 50%. ROE equals 20%. Everyone in the market expects this situation to persist indefinitely. |
| a. |
What is the market price of Chiptech stock? The required return for the computer chip industry is 15%, and the company has just gone ex-dividend (i.e., the next dividend will be paid a year from now, at t = 1). (Round your answer to 2 decimal places.) |
| Market price | $ |
| b. |
Suppose you discover that Chiptech’s competitor has developed a new chip that will eliminate Chiptech’s current technological advantage in this market. This new product, which will be ready to come to the market in two years, will force Chiptech to reduce the prices of its chips to remain competitive. This will decrease ROE to 15%, and, because of falling demand for its product, Chiptech will decrease the plowback ratio to .40. The plowback ratio will be decreased at the end of the second year, at t = 2: The annual year-end dividend for the second year (paid at t = 2) will be 60% of that year’s earnings. What is your estimate of Chiptech’s intrinsic value per share? (Hint: Carefully prepare a table of Chiptech’s earnings and dividends for each of the next three years. Pay close attention to the change in the payout ratio in t = 2.) (Round your answer to 2 decimal places.) |
| Book value per share | $ |
|
No one else in the market perceives the threat to Chiptech’s market. In fact, you are confident that no one else will become aware of the change in Chiptech’s competitive status until the competitor firm publicly announces its discovery near the end of year 2. (Hint: Pay attention to when the market catches on to the new situation. A table of dividends and market prices over time might help.) |
| c-1. |
What will be the rate of return on Chiptech stock in the coming year (i.e., between t = 0 and t = 1)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Rate of return | % |
| c-2. |
What will be the rate of return on Chiptech stock in the second year (i.e., between t = 1 and t = 2)? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Rate of return | % |
| c-3. |
What will be the rate of return on Chiptech stock in the third year (i.e., between t = 2 and t = 3)? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
| Rate of return | % |
In: Finance
In: Finance
Assume that stock market returns have the market index as a common factor, and that all stocks in the economy have a beta of 1 on the market index. Firm-specific returns all have a standard deviation of 30%.
Suppose that an analyst studies 20 stocks, and finds that one-half have an alpha of 2%, and the other half an alpha of −2%. Suppose the analyst buys $1 million of an equally weighted portfolio of the positive alpha stocks, and shorts $1 million of an equally weighted portfolio of the negative alpha stocks.
a. What is the expected profit (in dollars) of overall portfolio and standard deviation of the analyst's overall portfolio return?
b. How does your answer on variance and standard deviation of overall portfolio return if the analyst examines 50 stocks instead of 20 stocks?
In: Finance
One-year Treasury bills currently earn 4.00 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 4.20 percent. The liquidity premium on 2-year securities is 0.06 percent. If the liquidity theory is correct, what should the current rate be on 2-year Treasury securities? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
In: Finance
Route Canal Shipping Company has the following schedule for aging of accounts receivable:
|
Age of Receivables |
|||||
| (1) | (2) | (3) | (4) | ||
|
Month of Sales |
Age of Account |
Amounts |
Percent of Amount Due |
||
| April | 0–30 | $ | 189,000 | _______ | |
| March | 31–60 | 135,000 | _______ | ||
| February | 61–90 | 162,000 | _______ | ||
| January | 91–120 | 54,000 | _______ | ||
| Total receivables | $ | 540,000 | 100% | ||
a. Calculate the percentage of amount due for
each month.
b. If the firm had $1,620,000 in credit sales
over the four-month period, compute the average collection period.
Average daily credit sales should be based on a 120-day
period.
c. If the firm likes to see its bills collected
in 45 days, should it be satisfied with the average collection
period?
d. Disregarding your answer to part c and
considering the aging schedule for accounts receivable, should the
company be satisfied?
In: Finance
Johnson Industries finances its projects with 40 percent debt, 10 percent preferred stock, and 50 percent common stock. · The company can issue bonds at a yield to maturity of 8.8 percent. · The cost of preferred stock is 8 percent. · The company's common stock currently sells for $30 a share. · The company's dividend has just paid $2.00 a share (D0 = $2.00), and is expected to grow at a constant rate of 7 percent per year. · Assume that the flotation cost on debt and preferred stock is zero, and no new stock will be issued. · The company's tax rate is 30 percent. What is the company's weighted average cost of capital (WACC)? Express your answer in percentage (without the % sign) and round it to two decimal places.
In: Finance
|
A company has a single zero coupon bond outstanding that matures in five years with a face value of $38 million. The current value of the company’s assets is $28 million and the standard deviation of the return on the firm’s assets is 40 percent per year. The risk-free rate is 3 percent per year, compounded continuously. |
| a. |
What is the current market value of the company’s equity? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |
| b. | What is the current market value of the company’s debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |
| c. | What is the company’s continuously compounded cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| d. | The company has a new project available. The project has an NPV of $2,700,000. If the company undertakes the project, what will be the new market value of equity? Assume volatility is unchanged. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |
| e. |
Assuming the company undertakes the new project and does not borrow any additional funds, what is the new continuously compounded cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
Note: a is not 8.27, b is not 19.73, and d is not 9.97
c is 13.11 and e is 12.12
I just need a, b, and d answered
In: Finance
Purpose of Assignment
The purpose of this assignment is to allow the students to
understand and practice the measurement of present value, future
value, and interest rate using
Microsoft® Excel®.
Assignment Steps
Resources: Microsoft® Office® 2013 Accessibility Tutorials, Microsoft® Excel®, Time Value of Money Calculations Template
Calculate the following time value of money problems using Microsoft® Excel®:
If we place $8,592.00 in a savings account paying 7.5
percent interest compounded annually, how much will our account
accrue to in 9.5 years?
What is the present value of $992 to be received in
13.5 years from today if our discount rate is 3.5
percent?
If you bought a stock for $45 dollars and could sell
it fifteen years later for three times what you originally paid.
What was your return on owning this stock?
Suppose you bought a house for $3,250,000 to make it a
nursing home in the future. But you have not committed to the
project and will decide in nine years whether to go forward with it
or sell off the house. If real estate values increase annually at
1.5%, how much can you expect to sell the house for in nine years
if you choose not to proceed with the nursing home
project?
If your daughter wants to earn $215,000 within the
next twenty-three years and the salaries grow at 4.45% per year.
What salary should she start to reach her goal?
In: Finance