In a fast changing and increasingly complex world, there is more that interests shareholders, CEOs, managers and stock owners. Discuss the truth in this statement in view of business globalization.
In: Finance
Your company is considering a new 4-year project that requires an initial fixed asset investment of $3.25 million. The fixed asset is eligible for 100 percent bonus depreciation in the first year (which means can all be depreciated in year 1). At the end of the project, the asset can be sold for $440,000. The project is expected to generate $3.05 million in annual sales, with annual expenses of $955,000. The project will require an initial investment of $490,000 in NWC that will be returned at the end of the project. The corporate tax rate is 22 and the project has a required return of 11 percent.
What is the NPV of the project?
|
2,522,705.29 |
||
|
2,349,100.04 |
||
|
342,000 |
||
|
96,800 |
In: Finance
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You are evaluating two different silicon wafer milling machines. The Techron I costs $282,000, has a 3-year life, and has pretax operating costs of $77,000 per year. The Techron II costs $490,000, has a 5-year life, and has pretax operating costs of $44,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $54,000. If your tax rate is 23 percent and your discount rate is 10 percent, compute the EAC for both machines. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| Which machine do you prefer? |
|
In: Finance
Stan is going to work for the next 30 years and then retire. Starting the day he retires, he would like to withdraw $90,000 per year (in monthly installments) from an investment account for a twenty-five year retirement. At the end of his retirement, he would like to leave a bequest of $100,000 to his heirs. He currently has $10,000 in his investment account for these purposes. Stan plans to save for retirement by making monthly deposits into the investment account, beginning two years from now and ending the month before he retires. The investment account pays 9 percent compounded monthly. Construct a flexible spreadsheet model to answer the following questions:
1. How much must Stan invest each month to accomplish his retirement goals?
2. If Stan's employer will contribute $0.50 for every $1.00 he invests, how much of the deposit in #1 will Stan have to contribute?
| Inputs: | ||
| Years to retirement | ||
| Length of retirement (in years) | ||
| Years until the first deposit | ||
| Desired annual retirement income | ||
| Desired bequest to his heirs | ||
| Amount already invested | ||
| Annual interest rate | ||
| Compounding periods per year |
| Ouputs: | ||
| At retirement: | ||
| Value of retirement income: | ||
| Value of bequest: | ||
| Total needed at retirement | ||
| Funds available at retirement | ||
| Additional Funds needed | ||
| 1. | Required monthly payment | |
| 2. | Stan's contribution | |
| Company contribution | ||
| Total |
In: Finance
|
Guthrie Enterprises needs someone to supply it with 200,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost $2,550,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $210,000. Your fixed production costs will be $695,000 per year, and your variable production costs should be $9.43 per carton. You also need an initial investment in net working capital of $365,000. If your tax rate is 25 percent and you require a 12 percent return on your investment, what bid price per carton should you submit? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
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Ghost, Inc., has no debt outstanding and a total market value of $450,000. Earnings before interest and taxes, EBIT, are projected to be $57,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 16 percent higher. If there is a recession, then EBIT will be 24 percent lower. The company is considering a $215,000 debt issue with an interest rate of 8 percent. The proceeds will be used to repurchase shares of stock. There are currently 9,000 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant. |
| a-1. |
Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| a-2. | Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b-1. | Assume the firm goes through with the proposed recapitalization. Calculate the return on equity (ROE) under each of the three economic scenarios. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b-2. | Assume the firm goes through with the proposed recapitalization. Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| -1. | Recession ROE | % | |
| Normal ROE | % | ||
| Expansion ROE | % | ||
| a-2. | Recession percentage change in ROE | % | |
| Expansion percentage change in ROE | % | ||
| b-1. | Recession ROE | % | |
| Normal ROE | % | ||
| Expansion ROE | % | ||
| b-2. | Recession percentage change in ROE | % | |
| Expansion percentage change in ROE | % |
| Assume the firm has a tax rate of 25 percent. |
| c-1. | Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c-2. | Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c-3. | Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c-4. | Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
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In: Finance
Suppose we are given the following info:
| Expected Return | Standard Deviation | |
| T-Bills | rf = 4% | σf = 0 |
| S&P 500 (asset P) | E[rP] = 12% | σP = 20% |
Consider an investor, David, whose risk aversion (Coefficient A) is assumed to be 3.5
Compute his optimal (complete) portfolio, round answer to 3 decimal places
In: Finance
Your firm has identified three potential investment projects. The projects and their cash flows are shown here:
|
Project |
Cash Flow Today (millions) |
Cash Flow in One Year (millions) |
|||
|
A |
−$7 |
$17 |
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|
B |
$6 |
$6 |
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|
C |
$15 |
−$14 |
|||
Suppose all cash flows are certain and the risk-free interest rate is
7%.
a. What is the NPV of each project?
b. If the firm can choose only one of these projects, which should it choose?
c. If the firm can choose any two of these projects, which should it choose?
In: Finance
Assume that sales will grow at 5.00%. The following accounts (cash, accounts receivable, inventory, net fixed assets, accounts payable and accruals, as well as operating costs) are assumed to change with sales and will maintain their current percentage of sales rates into 2016. The dividend payout ratio will remain the same. Long-term debt and notes payable will remain constant into 2016 as will interest expense, as a result. The firm also does not plan to issue any additional common stock or conduct any share repurchases. The firm’s tax rate is 40%. Any additional funds needed will be sourced through a line-of-credit (LOC) and surpluses will be paid out through a special dividend.
| 2015 | |
|---|---|
| Sales | $1,445.00 |
| Operating Costs: | $1,245.00 |
| EBIT | $200.00 |
| Interest | $35.00 |
| Earnings Before Taxes | $165.00 |
| Taxes (40%) | $66.00 |
| Net Income | $99.00 |
| Dividends | $49.50 |
| Addition to Retained Earnings | $49.50 |
BALANCE SHEET AS OF 12/31/2015:
| ASSETS | 2015 |
|---|---|
| Cash | $72.25 |
| Accounts Receivable | $144.50 |
| Inventory | $289.00 |
| Current Assets | $505.75 |
| Net Fixed Assets (Net PPE) | $361.25 |
| Total Assets (TA) | $867.00 |
| LIABILITIES & SHAREHOLDER EQUITY | 2015 |
|---|---|
| Accounts Payable and Accruals | $36.13 |
| Notes Payable | $40.00 |
| Current Liabilities | $76.13 |
| Long Term Debt | $310.00 |
| Total Liabilities | $386.13 |
| Common Stock | $300.00 |
| Retained Earnings | $180.88 |
| Owners' Equity | $480.88 |
| Total Liabilities and Shareholder Equity | $867.00 |
Using the percent-of-sales forecast approach, forecast the 2016 income statement and balance sheet. Be sure the balance sheet balances.
What are the Projected Regular Dividends for 2016?
What is the Projected Special Dividend (if any)?
What is the Projected LOC (if any)?
In: Finance
Post Card Depot, an large retailer of post cards, orders 7,955,726 post cards per year from its manufacturer. Post Card Depot plans on ordering post card 24 times over the next year. Post Card Depot receives the same number of post cards each time it orders. The carrying cost is $0.26 per post card per year. The ordering cost is $396 per order. What is the annual total inventory management costs of post card inventory?
In: Finance
Consider a European call option and a put option on a stock each with a strike price of K = $22 and each expires in six months. The price of call is C = $3 and the price of put is P = $4. The risk free interest rate is 10% per annum and current stock price is S0 = $20. Show how to create an arbitrage strategy and calculate the arbitrage traders profit.
In: Finance
|
You are planning to save for retirement over the next 30 years. To save for retirement, you will invest $1,100 per month in a stock account in real dollars and $535 per month in a bond account in real dollars. The effective annual return of the stock account is expected to be 12 percent, and the bond account will earn 8 percent. When you retire, you will combine your money into an account with an effective return of 9 percent. The returns are stated in nominal terms. The inflation rate over this period is expected to be 4 percent. |
| a. |
How much can you withdraw each month from your account in real terms assuming a 25-year withdrawal period? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | What is the nominal dollar amount of your last withdrawal? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
BETHESDA MINING COMPANY
Bethesda Mining is a midsized coal mining company with 20 mines
located in Ohio, Pennsylvania, West Virginia,
and Kentucky. The company operates deep mines as well as strip
mines. Most of the coal mined is sold under
contract, with excess production sold on the spot market.
The coal mining industry, especially high-sulfur coal operations
such as Bethesda, has been hard-hit by
environmental regulations. Recently, however, a combination of
increased demand for coal and new pollution
reduction technologies has led to an improved market demand for
high-sulfur coal. Bethesda has just been approached by Mid-Ohio
Electric Company with a request to supply coal for its electric
generators for the next
four years. Bethesda Mining does not have enough excess capacity at
its existing mines to guarantee the
contract. The company is considering opening a strip mine in Ohio
on 5,000 acres of land purchased 10 years
ago for $5.4 million. Based on a recent appraisal, the company
feels it could receive $7.3 million on an aftertax
basis if it sold the land today.
Strip mining is a process where the layers of topsoil above a coal
vein are removed and the exposed coal
is removed. Some time ago, the company would simply remove the coal
and leave the land in an unusable
condition. Changes in mining regulations now force a company to
reclaim the land; that is, when the mining
is completed, the land must be restored to near its original
condition. The land can then be used for other
purposes. As they are currently operating at full capacity,
Bethesda will need to purchase additional equipment,
which will cost $49 million. The equipment will be depreciated on a
seven-year MACRS schedule. The contract
only runs for four years. At that time the coal from the site will
be entirely mined. The company feels that the
equipment can be sold for 60 percent of its initial purchase price.
However, Bethesda plans to open another
strip mine at that time and will use the equipment at the new
mine.
The contract calls for the delivery of 500,000 tons of coal per
year at a price of $70 per ton. Bethesda Mining
feels that coal production will be 750,000 tons, 810,000 tons,
830,000 tons, and 720,000 tons, respectively,
over the next four years. The excess production will be sold in the
spot market at an average of $64 per ton,
Variable costs amount to $29 per ton and fi xed costs are $4.2
million per year. The mine will require a net working
capital investment of 5 percent of sales. The NWC will be built up
in the year prior to the sales.
Bethesda will be responsible for reclaiming the land at termination
of the mining. This will occur in Year 5.
The company uses an outside company for reclamation of all the
company’s strip mines. It is estimated the
cost of reclamation will be $3.9 million. After the land is
reclaimed, the company plans to donate the land to the
state for use as a public park and recreation area as a condition
to receive the necessary mining permits. This
will occur in Year 5 and result in a charitable expense deduction
of $7.3 million. Bethesda faces a 38 percent
tax rate and has a 12 percent required return on new strip mine
projects. Assume a loss in any year will result
in a tax credit.
You have been approached by the president of the company with a
request to analyze the project. Calculate
the payback period, profi tablitity index, net present value, and
internal rate of return for the new strip mine.
Should Bethesda Mining take the contract and open the mine?
In: Finance
Please show work and explain. Also, can I use TVM in the TI-83+ to solve?
5-8: Thatcher Corporation’s bonds will mature in 10 years. The bonds have a face value of $1,000 and an 8% coupon rate, paid semiannually. The price of the bonds is $1,100. The bonds are callable in 5 years at a call price of $1,050.
What is their yield to maturity?
What is their yield to call?
In: Finance
|
Bond P is a premium bond with a coupon rate of 8 percent. Bond D has a coupon rate of 3 percent and is currently selling at a discount. Both bonds make annual payments, have a YTM of 5 percent, and have seven years to maturity. |
| a. |
What is the current yield for Bond P and Bond D? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | If interest rates remain unchanged, what is the expected capital gains yield over the next year for Bond P and Bond D? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance