“By applying capital to investments with long-term benefits, the company is attempting to produce value. This value is dependent on expected future cash flows as well as on the cost of funds.” Explain this statement with regards to the role of cost of capital in financial management decisions
In: Finance
| Problem 1: | You are considering investing in a 10-year bond issued by NewEnergy Inc. This bond has $1000 face value, 4% coupon rate. | |||||||||
| The bond pays coupons semi-annually and is currently selling at $920. The bond can be called at a $1,040 in 3 years. | ||||||||||
| 1.c. (6 points) | What is the yield to maturity if you purchase the bond at the current price of $920? (Use RATE function) | |||||||
| N= | ||||||||
| FV= | ||||||||
| PMT= | ||||||||
| PV= | ||||||||
| PMT Type= | ||||||||
| Periodic Discount Rate= | ||||||||
| Yield to Maturity = | ||||||||
In: Finance
(Forecasting net income) In November of each year, the CFO of Barker Electronics begins the financial forecasting process to determine the firm's projected needs for new financing during the coming year. Barker is a small electronics manufacturing company located in Moline, Illinois, which is best known as the home of the John Deere Company. The CFO begins the process with the most recent year's income statement, projects sales growth for the coming year, and then estimates net income and finally the additional earnings he can expect to retain and reinvest in the firm. The firm's income statement for 2015 follows:
|
Income Statement |
||
|
12/31/2015 |
||
|
Sales |
$1,400,000 |
|
|
Cost of goods sold |
980,000 |
|
|
Gross profit |
$420,000 |
|
|
Operating costs |
210,000 |
|
|
Depreciation expense |
50,000 |
|
|
Net operating profit |
$160,000 |
|
|
Interest expense |
11,000 |
|
|
Earnings before taxes |
$149,000 |
|
|
Taxes |
44,700 |
|
|
Net income |
$104,300 |
|
|
Dividends |
$20,000 |
|
|
Addition to retained earnings |
$84,300 |
The electronics business has been growing rapidly over the past 18 months as the economy recovers, and the CFO estimates that sales will expand by 18 percent in the next year. In addition, he estimates the following relationships between each of the income statement expense items and sales:
|
COGS/sales |
70% |
||
|
Operating expenses/sales |
15% |
||
|
Depreciation expense |
|
$50,000 |
|
|
Interest expense |
|
$11,000 |
|
|
Tax rate |
30% |
Note that for the coming year both depreciation expense and interest expense are projected to remain the same as in 2015.
a. Estimate Barker's net income for 2016 and its addition to retained earnings under the assumption that the firm leaves its dividends paid at the 2015 level.
What is the estimate of Barker's net income for 2016?
b. Reevaluate Barker's net income and addition to retained earnings if sales grow at 36 percent over the coming year. However, this scenario requires the addition of new plant and equipment in the amount of $110,000, which increases annual depreciation to $56,000 per year, and interest expense rises to $16,000.
In: Finance
| Problem 1: | You are considering investing in a 10-year bond issued by NewEnergy Inc. This bond has $1000 face value, 4% coupon rate. | |||||||||
| The bond pays coupons semi-annually and is currently selling at $920. The bond can be called at a $1,040 in 3 years. | ||||||||||
Draw a chart to show the relationship between bond yield and bond price.
| Yield versu Price Data | |
| Yield | Price |
| 0% | |
| 1% | |
| 2% | |
| 3% | |
| 4% | |
| 5% | |
| 6% | |
| 7% | |
| 8% | |
| 9% | |
| 10% | |
| 11% | |
| 12% | |
| 13% | |
| 14% | |
| 15% | |
In: Finance
Provide a Capital Investment Appraisals (CIA) analysis of the the costs of using debt and equity financing (include definitions).
Also evaluate the criteria used when making financing decisions.
In: Finance
You have a $20,000 balance on your credit card, which has an interest rate of 21% compounded quarterly. How many years will it take you to pay off the balance by making monthly payments of $800?
show alll work of have to isolate t
In: Finance
In: Finance
The Scenario:
After recently graduating from KSU, you begin a career as an
product investment analyst with Hormel Foods. As the newest Skippy
P.B. analyst, your first assignment is to evaluate the following
enterprise.
The Skippy P.B. Fruit Bites machine will initially cost $200,000. Hormel expects to use the machine for 10 years. After 10 years, the machine will be worth $20,000 in today’s prices. The machine will be depreciated using straight‐line depreciation over 8 years and the salvage value for depreciation is $5,000.
Hormel is in the 30% tax bracket and the company requires a 10% real after‐tax return on its investments. You expect inflation to be 3%. There is no investment tax credit associated with the machine. You expect maintenance of the machine to cost $4,000 a year and to increase at the general inflation rate.
(4 points) Evaluate the interest rate level used in this problem (i.e., is it high, low, acceptable). Justify your answer with an explanation.
(16 points) Using the scenario and interest rate information above, prepare a net present cost (NPC) budget for the machine. A NPC budget only includes the items associated with owning the equipment (purchase, terminal value, depreciation, maintenance in this problem). Calculate the after‐tax and pre‐tax capital recovery charges.
(26 points) Hormel Foods will use the machine to produce strawberry and grape Skippy P.B. Fruit
Bites. You project selling 160,000 packets of Skippy P.B. Fruit Bites per year at $3.49 (real dollars) per packet in years 1 and 2. You then expect to sell 190,000 packets for $3.49 (real dollars) per packet in years in years 3‐10. The real operating costs are expected to be as follows:
Variable costs (materials, etc) of $20,000/year for years
1‐10;
Ingredient costs of $50,000/year for years 1‐2 and $60,000/year for
years 3‐10; Marketing costs of $50,000/year for years 1‐10;
Labor costs of $60,000/year for years 1‐10 expected to increase at
5% per year; Management cost of $80,000/year for years 1‐10
expected to increase at 7% per year.
Prepare a NPV budget for this investment. Use the information provided here in question #3. Also include the Net Present Cost (NPC) for the machine (that you found as your final answer in question #2) as an item (that is as a line item component) in this NPV budget (this cost should be entered as a negative value in this NPV budget).
In: Finance
1. Sjcam used a penetration pricing strategy to introduce its Legend action camera to compete with the latest GoPro offering. Which of the following conditions would argue for using a penetration pricing strategy when introducing this new camera?
a. A large potential market exists, even at a high price.
b. Technological problems still exist for competitors, prohibiting their entry into the market for at least six months.
c. Increasing volume substantially reduces production costs.
d. Consumers perceive a price-quality relationship.
e. The product is relatively price insensitive (price inelastic).
2. Apple offers its iPhone XS for $999, under the presumption that consumers see the smartphone as priced at “something over $900” rather than “about $1,000.” This is an application of what pricing strategy?
a. prestige pricing
b. below-market pricing
c. odd-even pricing
d. target pricing
e. customary pricing
3. Which of the following would be an example of a variable cost for a hotel like the Marriott Marquis Hotel, which caters to an upscale clientele?
a. the average daily rate paid by women in targeted demographics staying at the hotel
b. cleaning supplies and housekeeping wages
c. the salary of the hotel manager
d. the rent for a parking garage used by employees
e. the price charged for renting a ballroom in the hotel
4. Uber and Lyft customers often complain about the practice of “surge” or “prime-time” pricing used by these companies during periods of peak demand. This is an example of a __________ pricing policy.
a. promotional
b. competitive
c. discount
d. dynamic
e. customer
In: Finance
In: Finance
Do you believe McDonald's would be able to compete with Starbucks if they came up with more products to sell under their McCafe line?
In: Finance
A U.S. importer has agreed to purchase 500 bottles of cachaça (a type of rum) from Brazil at a price of 75 BRL (Brazilian reals) each. The cachaça will take five months to bottle, label, and ship, and payment is due before the wine is shipped.
In: Finance
Given:
| E(R1) = 0.11 | |
| E(R2) = 0.17 | |
| E(σ1) = 0.01 | |
| E(σ2) = 0.04 |
Calculate the expected returns and expected standard deviations of a two-stock portfolio in which Stock 1 has a weight of 70 percent under the conditions given below. Do not round intermediate calculations. Round your answers for the expected returns of a two-stock portfolio to three decimal places and answers for expected standard deviations of a two-stock portfolio to four decimal places.
Expected return of a two-stock portfolio:
Expected standard deviation of a two-stock portfolio:
Expected return of a two-stock portfolio:
Expected standard deviation of a two-stock portfolio:
Expected return of a two-stock portfolio:
Expected standard deviation of a two-stock portfolio:
Expected return of a two-stock portfolio:
Expected standard deviation of a two-stock portfolio:
Expected return of a two-stock portfolio:
Expected standard deviation of a two-stock portfolio:
Expected return of a two-stock portfolio:
Expected standard deviation of a two-stock portfolio:
Expected return of a two-stock portfolio:
Expected standard deviation of a two-stock portfolio:
In: Finance
Compare a forensic audit with a financial audit. Give specific examples of the differences between the two audits.
In: Finance
A U.S. importer has agreed to purchase 500 bottles of cachaça (a type of rum) from Brazil at a price of 75 BRL (Brazilian reals) each. The cachaça will take five months to bottle, label, and ship, and payment is due before the wine is shipped.
In: Finance