Problem 1: You just borrowed a 15-year fixed rate loan of $200,000 to buy a two-bed room apartment. Your annual rate of interest is 4%, and the mortgage will be paid annually at the end of each year.
Set up an amortization schedule
Show your work.
| Year | Beg. Of Year Balance | Payment | Interest | Principal Repayment | End of Year Balance |
| 1 | |||||
| 2 | |||||
| 3 | |||||
| 4 | |||||
| 5 | |||||
| 6 | |||||
| 7 | |||||
| 8 | |||||
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| 15 |
In: Finance
(3 of 10)
A new piece of specialty equipment costs $2,000,000 and will be depreciated to an expected salvage value of $250,000 on a straight-line basis over its 5-year life. Assuming a tax rate of 40%, what is its after-tax salvage value if the equipment is actually sold after 3 years for $1,250,000?
$180,000
$500,000
$500,000
$1,130,000
$1,250,000
In: Finance
You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2016. The bonds have a par value of $1,000.
| Rate | Maturity Mo/Yr |
Bid | Asked | Chg | Ask Yld |
| ?? | May 26 | 103.5462 | 103.5340 | +.3015 | 5.999 |
| 6.252 | May 31 | 104.4952 | 104.6409 | +.4293 | ?? |
| 6.163 | May 41 | ?? | ?? | +.5405 | 4.031 |
In the above table, find the Treasury bond that matures in May
2041. What is the asked price of this bond in dollars? (Do
not round intermediate calculations and round your answer to 2
decimal places, e.g., 32.16.)
Asked price
$
If the bid-ask spread for this bond is .0654, what is the bid price
in dollars? (Do not round intermediate calculations and
round your answer to 2 decimal places, e.g.,
32.16.)
Bid price
$
In: Finance
You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2016. The bonds have a par value of $2,000. Company (Ticker) Coupon Maturity Last Price Last Yield EST $ Vol (000’s) Xenon, Inc. (XIC) 6.200 Jan 15, 2028 94.263 ?? 57,370 Kenny Corp. (KCC) 7.200 Jan 15, 2027 ?? 5.30 48,949 Williams Co. (WICO) ?? Jan 15, 2034 94.815 7.00 43,810 What price would you expect to pay for the Kenny Corp. bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Price $ What is the bond’s current yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Current yield %
In: Finance
You find the following Treasury bond quotes. To calculate the number of years until maturity, assume that it is currently May 2016. The bonds have a par value of $1,000. Rate Maturity Mo/Yr Bid Asked Chg Ask Yld ?? May 19 103.5371 103.6249 +.3209 2.189 5.901 May 24 104.4861 104.6318 +.4209 ?? 6.128 May 34 ?? ?? +.5314 3.891 In the above table, find the Treasury bond that matures in May 2019. What is the coupon rate for this bond? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Coupon rate %
In: Finance
3. The SSR Co., currently all-equity firm, is planning to build a factory. The beta, systematic risk, of this project alone is 15% less than they currently manage. The beta of the assets currently managed is 1.5. The corporate tax rate the firm faces is 34%. The company has a target debt-to-equity ratio of 3/7. The initial investment cost is $30 million and the expected operating after-tax cash flows are $10 million per year for five years. The risk-free rate is 3% and the historical market risk premium of 8% is a reasonable estimate.
a. What is the all-equity value of this investment?
b. If the company finances it with a five-year non-amortizing loan with 11% interest, should it accept the project (USE APV approach)?
c. If the local government approaches the SSR Co. with an offer to loan the needed amount in b at 8%, should the company accept this offer?
In: Finance
(Cost of a short-term bank loan) Jimmy Hale is the owner and operator of the grain elevator in Brownfield, Texas, where he has lived for most of his 62 years. The rains during the spring have been the best in a decade, and Mr. Hale is expecting a bumper wheat crop. This has prompted him to rethink his current financing sources. He now believes he will need an additional $220,000 for the 3-month period ending with the close of the harvest season. After meeting with his banker, Mr. Hale is puzzling over what the additional financing will actually cost. The banker quoted him a rate of 2 percent over prime (which is currently 8 percent) and also requested that the firm increase its current bank balance of $4,000 up to 22 percent of the loan.
a. If interest and principal are all repaid at the end of the 3-month loan term, what is the annual percentage rate on the loan offer made by Mr. Hale's bank?
b. If the bank were to offer to lower the rate to prime if interest is discounted, should Mr. Hale accept this alternative? Note: Assume a 30-day month and 360-day year.
In: Finance
Explain financial strategies that you would advise a mature company to adopt
In: Finance
The Optical Scam Company has forecast a sales growth rate of 20
percent for next year. Current assets, fixed assets, and short-term
debt are proportional to sales. The current financial statements
are shown here:
| INCOME STATEMENT | |||||
| Sales | $ | 31,600,000 | |||
| Costs | 26,675,500 | ||||
| Taxable income | $ | 4,924,500 | |||
| Taxes | 1,723,575 | ||||
| Net income | $ | 3,200,925 | |||
| Dividends | $ | 1,280,370 | |||
| Addition to retained earnings | 1,920,555 | ||||
| BALANCE SHEET | |||||||
| Assets | Liabilities and Equity | ||||||
| Current assets | $ | 7,320,000 | Short-term debt | $ | 5,688,000 | ||
| Long-term debt | 6,636,000 | ||||||
| Fixed assets | 20,172,000 | ||||||
| Common stock | $ | 1,594,000 | |||||
| Accumulated retained earnings | 13,574,000 | ||||||
| Total equity | $ | 15,168,000 | |||||
| Total assets | $ | 27,492,000 | Total liabilities and equity | $ | 27,492,000 | ||
a. Calculate the external funds needed for next
year using the equation from the chapter. (Do not round
intermediate calculations.)
External financing needed
$
b-1. Prepare the firm’s pro forma balance sheet
for next year. (Do not round intermediate
calculations.)
| BALANCE SHEET | |||||||
| Assets | Liabilities and equity | ||||||
| Current assets | $ | Short-term debt | $ | ||||
| Fixed assets | Long-term debt | ||||||
| Common stock | $ | ||||||
| Accumulated retained earnings | |||||||
| Total equity | $ | ||||||
| Total assets | $ | Total liabilities and equity | $ | ||||
b-2. Calculate the external funds needed.
(Do not round intermediate calculations.)
External financing needed
$
c. Calculate the sustainable growth rate for the
company based on the current financial statements. (Do not
round intermediate calculations. Enter your answer as a percent
rounded to 2 decimal places, e.g., 32.16.)
Sustainable growth rate
%
In: Finance
How's a bond's duration determined? How can a bond's duration be useful in managing a bond portfolio?
What are the various features of a typical corporate bond?
In: Finance
Moon Software Inc. is planning to issue a 10-year, noncallable bonds to raise a total of $3 million. The bond is with a 10-year maturity and a $1000 par value. The bond has a coupon rate of 6.25% and is compounded annually.
In addition, following information is collected:
1) A share of 5 year 4.25% coupon Treasury note is sold at $1028.58.
2) A share of 10 year 4.25% coupon Treasury note is sold at $1022.1.
3) Moon software Inc. has an outstanding 5-year noncallable bond, with a coupon rate of 10%, compounded semi-annually. The bond is valued at par.
Q: How many 10-year bonds must the firm issue to raise $3,00,000? Assume Moon's default risk remains unchanged, and round your final answer up to a whole number of bonds.
In: Finance
The focus of the last discussion assignment was Boeing Inc. and how some of the company's financial ratios may be affected by the 737 MAX disasters. Now direct the discussion to the company's stock valuation and how it is being affected. In your discussion (in one or two paragraphs) include how the events affect each of the three variables in general stock valuation models: Dividends, growth of the dividends and earnings, and the required return on the stock.
For reference, this was the last discussion prompt:
The Boeing Company is under heavy investigation into the disastrous 737 Max events. The company is part of the Aerospace and Defense Industry.
Currently it appears that some key financial ratios are very close to industry norms or averages.
Current Ratio 1.03 times; Return on Assets 2.69%; Long-term Debt Ratio 17%.
As learned in Ch 3, Return on Assets (ROA) reflects both profit margin and the company's operational efficiency.
In: Finance
Anthony and Michelle Constantino just got married and received $20,000 in cash gifts for their wedding. How much will they have on their twenty-fifth anniversary if they place half of this money in a fixed-rate investment earning 10 percent compounded annually? Would the future value be larger or smaller if the compounding period was 6 months? How much more or less would they have earned with this shorter compounding period?
In: Finance
Multiple Versus Single Overhead Rates, Activity Drivers
Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year:
| Activity | Expected Cost | Activity Driver | Activity Capacity |
| Setting up equipment | $466,260 | Number of setups | 570 |
| Ordering costs | 369,600 | Number of orders | 17,600 |
| Machine costs | 702,100 | Machine hours | 41,300 |
| Receiving | 414,000 | Receiving hours | 9,200 |
Deoro produces two models of dishwashers with the following expected prime costs and activity demands:
| Model A | Model B | |
| Direct materials | $574,000 | $790,000 |
| Direct labor | $469,000 | $463,000 |
| Units completed | 15,000 | 8,300 |
| Direct labor hours | 6,400 | 1,900 |
| Number of setups | 380 | 190 |
| Number of orders | 6,200 | 11,400 |
| Machine hours | 24,300 | 17,000 |
| Receiving hours | 2,300 | 6,900 |
The company's normal activity is 8,300 direct labor hours.
Required:
1. Determine the unit cost for each model using direct labor hours to apply overhead. Round intermediate calculations and final answers to nearest cent.
| Unit Cost | |
| Model A | $ |
| Model B | $ |
2. Determine the unit cost for each model using the four activity drivers. Round your answers to nearest cent.
| Unit Cost | |
| Model A | $ |
| Model B | $ |
3. Which method produces the more accurate cost assignment?
In: Finance