The 1-week call options on the Alibaba stock with strike prices of $185, $190, and $195 are $10, $7, and $5.5, respectively. An investor longs a butterfly spread using these three options. Specifically, he longs 100 call options with the strike price $185, shorts 200 call options with the strike price $190, and longs 100 call options with the strike price 195. What is the investor's maximum gain from this strategy? Please provide your answer in unit of dollars

DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $450,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $135,000. The old machine is being depreciated by $90,000 per year for each year of its remaining life.

The new machine has a purchase price of $800,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, annual pre-tax savings of $175,000 will be realized if the new machine is installed. The company's marginal tax rate is 35% and the project cost of capital is 15%.

1. What is the initial net cash flow if the new machine is purchased and the old one is replaced? Round your answer to the nearest dollar. Cash outflow, if any, 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. Do not round intermediate calculations. Round your answers to the nearest dollar. Negative values, if any, should be indicated by a minus sign.

   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? Do not round intermediate calculations. Round your answers to the nearest dollar. Cash outflows, if any, should be indicated by a minus sign.

   CF1	$
   CF2	$
   CF3	$
   CF4	$
   CF5	$

4. Should the firm purchase the new machine? Support your answer. Do not round intermediate calculations. Round your answer to the nearest dollar. Negative value, if any, should be indicated by a minus sign.

   NPV: $  

   The firm -Select-shouldshould notItem 23 purchase the new machine.

5. 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.

      If the expected life of the old machine decreases, the new machine will look -Select-betterworseItem 24 as cash flows attributable to the new machine would -Select-decreaseincreaseItem 25 .

   2. The cost of capital is not constant but is increasing as DeYoung adds more projects into its capital budget for the year.

      The -Select-higherlowerItem 26 capital cost should be used in the analysis.

Currently, Forever Flowers Inc. has a capital structure consisting of 20% debt and 80% equity. Forever's debt currently has an 9% yield to maturity. The risk-free rate (rRF) is 6%, and the market risk premium (rM - rRF) is 8%. Using the CAPM, Forever estimates that its cost of equity is currently 12%. The company has a 40% tax rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations.

What is Forever's current WACC? Round your answer to two decimal places.

_________%

What is the current beta on Forever's common stock? Round your answer to two decimal places.

_____________%

What would Forever's beta be if the company had no debt in its capital structure? (That is, what is Forever's unlevered beta, b_U?) Round your answer to two decimal places.

_______________%

Forever's financial staff is considering changing its capital structure to 40% debt and 60% equity. If the company went ahead with the proposed change, the yield to maturity on the company's bonds would rise to 9.5%. The proposed change will have no effect on the company's tax rate.

What would be the company's new cost of equity if it adopted the proposed change in capital structure? Round your answer to two decimal places.

_____________%

What would be the company's new WACC if it adopted the proposed change in capital structure? Round your answer to two decimal places.

_____________%

Based on your answer to part e, would you advise Forever to adopt the proposed change in capital structure?

A. Yes

B. No

You have looked at the current financial statements for Reigle Homes, Co. The company has an EBIT of $3,230,000 this year. Depreciation, the increase in net working capital, and capital spending were $244,000, $109,000, and $510,000, respectively. You expect that over the next five years, EBIT will grow at 13 percent per year, depreciation and capital spending will grow at 18 percent per year, and NWC will grow at 8 percent per year. The company has $18,900,000 in debt and 395,000 shares outstanding. You believe that sales in five years will be $22,100,000 and the price-sales ratio will be 3.2. The company’s WACC is 9.4 percent and the tax rate is 25 percent. What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Share Price?

5. Stock dividends and stock splits

Companies sometimes consider stock splits to bring down the price so that the stock attracts more purchases.

Consider the following case:

Happy Monkey Manufacturing currently has 15,000 shares of common stock outstanding. Its management believes that its current stock price of $110 per share is too high. The company is planning to conduct stock splits in the ratio of 2 for 1 as described in the animation.

If Happy Monkey Manufacturing declares a 2-for-1 stock split, the price of the company’s stock after the split, assuming that the total value of the firm’s stock remains the same after the split, will be ___________.

A. 36.67

B. 330.00

C. 27.50

D. 55.00

E. 22.00

Fuzzy Muffin Manufacturing Company is one of Happy Monkey’s leading competitors. Fuzzy Muffin’s market intelligence research team shares Happy Monkey’s plans of announcing a stock split, influencing the distribution policy makers. Consequently, executives at Fuzzy Muffin decide to offer stock dividends to its shareholders.

Fuzzy Muffin currently has 2,300,000 shares of common stock outstanding.

If the firm pays a 5% stock dividend, what will be the total number of shares outstanding after the stock dividend?

A. 2,173,500 shares

B. 3,018,750 shares

C. 2,415,000 shares

D. 2,898,000 shares

One year​ ago, your company purchased a machine used in manufacturing for

$ 90 comma 000$90,000.

You have learned that a new machine is available that offers many advantages and you can purchase it for

$ 140 comma 000$140,000

today. It will be depreciated on a​ straight-line basis over 10 years and has no salvage value. You expect that the new machine will produce a gross margin​ (revenues minus operating expenses other than​ depreciation) of

$ 35 comma 000$35,000

per year for the next 10 years. The current machine is expected to produce a gross margin of

$ 24 comma 000$24,000

per year. The current machine is being depreciated on a​ straight-line basis over a useful life of 11​ years, and has no salvage​ value, so depreciation expense for the current machine is

$ 8 comma 182$8,182

per year. The market value today of the current machine is

$ 65 comma 000$65,000.

Your​ company's tax rate is

45 %45%​,

and the opportunity cost of capital for this type of equipment is

10 %10%.

Should your company replace its​ year-old machine?

1. What are some of the reasons firms use WACC when evaluating potential projects?
2. Why not simply use cost of debt or just cost of equity?

QUESTION 57

1. What is the duration of a 7-year zero coupon bond priced to yield 10%?

   		a. 5.55.
   		b. 5.93.
   		c. 6.34.
   		d. 7.00.

QUESTION 58

1. Which of the following statements is correct about duration?

   		a. Duration will always be less than the maturity for a bond.
   		b. The duration of a bond increases as YTM increases.
   		c. Modified duration is a precise measure of the change in the price of a bond based on a change in interest rates.
   		d. The duration of a portfolio equals the sum of the weighting of each portfolio component multiplied by its duration.

The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $65,000. It had an expected life of 10 years when it was bought and its remaining depreciation is $6,500 per year for each year of its remaining life. As older flange-lippers are robust and useful machines, this one can be sold for $20,000 at the end of its useful life.

A new high-efficiency digital-controlled flange-lipper can be purchased for $160,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $25,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%.

The old machine can be sold today for $30,000. The firm's tax rate is 35%, and the appropriate cost of capital is 15%.

1. If the new flange-lipper is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest dollar. Cash outflow, if any, should be indicated by a minus sign.

   $  

2. What are the incremental net cash flows that will occur at the end of Years 1 through 5? Do not round intermediate calculations. Round your answers to the nearest dollar. Cash outflows, if any, should be indicated by a minus sign.

   CF1	$
   CF2	$
   CF3	$
   CF4	$
   CF5	$

3. What is the NPV of this project? Do not round intermediate calculations. Round your answer to the nearest whole dollar. Negative value, if any, should be indicated by a minus sign.

   $  

   Should Everly replace the flange-lipper?

   -Select-YesNoItem 8

The Bartram-Pulley Company (BPC) must decide between two mutually exclusive investment projects. Each project costs $5,000 and has an expected life of 3 years. Annual net cash flows from each project begin 1 year after the initial investment is made and have the following probability distributions:

BPC has decided to evaluate the riskier project at a 11% rate and the less risky project at a 10% rate.

1. What is the expected value of the annual cash flows from each project? Do not round intermediate calculations. Round your answers to the nearest dollar.

   	Project A	Project B
   Net cash flow	$	$

   What is the coefficient of variation (CV)? (Hint: σ_B=$6,890 and CV_B=$0.84.) Do not round intermediate calculations. Round σ values to the nearest cent and CV values to two decimal places.

   	σ	CV
   Project A	$
   Project B	$

2. What is the risk-adjusted NPV of each project? Do not round intermediate calculations. Round your answers to the nearest cent.

   Project A		$
   Project B		$

3. If it were known that Project B is negatively correlated with other cash flows of the firm whereas Project A is positively correlated, how would this affect the decision?

   This would tend to reinforce the decision to -Select-acceptrejectItem 9 Project B.

   If Project B's cash flows were negatively correlated with gross domestic product (GDP), would that influence your assessment of its risk?

   -Select-YesNoItem 10

A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,371.00 to install, $5,188.00 to operate per year for 7 years at which time it will be sold for $7,079.00. The second, RayCool 8, costs $41,074.00 to install, $2,101.00 to operate per year for 5 years at which time it will be sold for $8,973.00. The firm’s cost of capital is 6.60%. What is the equivalent annual cost of the RayCool8? Assume that there are no taxes.

I am not sure where to post this complain. My situation is that I keep paying for help but having incorrect answers. This will be the 3rd time Ill be paying for these problems and keep have incorrect answers. Please help me with it.

7)

You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.3 million. Investment A will generate $1.95 million per year? (starting at the end of the first? year) in perpetuity. Investment B will generate $1.47

million at the end of the first? year, and its revenues will grow at 2.2% per year for every year after that.

a. Which investment has the higher? IRR?

b. Which investment has the higher NPV when the cost of capital is 7.8%??

c. In this? case, for what values of the cost of capital does picking the higher IRR give the correct answer as to which investment is the best? opportunity?

a. Which investment has the higher? IRR?

The IRR of investment A is -------?%. (Round to the nearest? integer.)

9)

Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $17 million upfront investment and will generate $20 million in savings for Facebook each year for the next 3 years. The second bid from Cisco requires a $82 million upfront investment and will generate $60 million in savings each year for the next 3 years. a. What is the IRR for Facebook associated with each bid? b. If the cost of capital for each investment is 12%, what is the net present value (NPV) for Facebook of each bid? Suppose Cisco modifies its bid by offering a lease contract instead. Under the terms of the lease, Facebook will pay $24 million upfront, and $35 million per year for the next 3 years. Facebook's savings will be the same as with Cisco's original bid. c. Including its savings, what are Facebook's net cash flow under the lease contract? What is the IRR of the Cisco bid now? d. Is this new bid a better deal for Facebook than Cisco's original bid? Explain. a. What is the IRR for AOL associated with each bid? The IRR associated with the first bid from Huawei is --------%.(Round to one decimal place.)

10)

Pisa Pizza, a seller of frozen pizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $21 million per year. While many of these sales will be to new customers, Pisa Pizza estimates that 45% will come from customers who switch to the new, healthier pizza instead of buying the original version.?? a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? b. Suppose that 44% of the customers who will switch from Pisa Pizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in this case? a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the new pizza? The incremental sales are $ -------- million. (Round to two decimal places.)

11) Cellular Access Inc., is a cellular telephone service provider that reported net operating profit after tax (NOPAT) of $241 million for the most recent fiscal year. The firm had depreciation expenses of $102 million, capital expenditures of $220 million, and no interest expenses. Working capital increased by $13 million. Calculate the free cash flow for Cellular Access for the most recent fiscal year. The free cash flow is $ --- million. (Round to the nearest integer.)

12) A bicycle manufacturer currently produces 255,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $2.10 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct in-house production costs are estimated to be only $1.50 per chain. The necessary machinery would cost $253,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $27,000 of inventory and other working capital upfront (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $18,975. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the chains in-house instead of purchasing them from the supplier? Project the annual free cash flows (FCF) of buying the chains. The annual free cash flows for years 1 to 10 of buying the chains is $ ------. (Round to the nearest dollar. Enter a free cash outflow as a negative number.)