2.  Use the following balance sheet and simplified income statement in answering parts (a) – (c) below: BALANCE SHEET Cash $75,000 Accounts receivables100,000 Inventory95,000 Fixed assets$500,000 Total assets$770,000 Account payable$135,000 Other current liabilities50,000 Long-term debt150,000 Stockholders’ equity (75,000 shares)$435,000 Total liability and equity$770,000 INCOME STATEMENT Sales$1,250,000 Less:  Cost of goods sold635,000 Less:  All expenses (incl. taxes)370,000 Net Income$245,000 a.)  Based on the financial information above, conduct a liquidity analysis for this firm by determining the current ratio, net working capital, the ratio of current assets/total assets, and the cash conversion period. b.)  What is the current market price of the firm’s stock (P0) if the firm’s P/E ratio is 11.5?   Hint:  Note that a firm’s earnings per share = NI/S, where NI = earnings.  Therefore P0 = P/E x E/S c.)  A proposal is made by this firm’s CFO to increase the current ratio to 2x.  The CFO suggests that the firm issue 5,000 new shares of common stock (ignore any flotation costs) and the estimated price per share based on secondary market conditions will be $28.50.  The proceeds from the equity issue will be added to the firm’s cash account.  Assuming everything else remains the same, determine: i)  The impact on the firm’s liquidity position by re-calculating the current ratio, net working capital, the ratio of current assets/total assets, and the cash conversion period as you did in part (a) above. ii)  The new market price (assume the P/E ratio is constant at 11.5). iii)  Based on your estimate of the new price per share of this company’s stock, should the firm adopt the changes suggested by the CFO?  Briefly explain.

Swink Electric, Inc., has just developed a solar panel capable of generating

200 percent more electricity than any solar panel currently on the market. As a

result, Swink is expected to experience a 15 percent annual growth rate for the

next five years. When the five-year period ends, other firms will have developed

comparable technology, and Swink’s growth rate will slow to 5 percent per year

indefinitely. Stockholders require a return of 12 percent on Swink’s stock.

The firm’s most recent annual dividend (D0), which was paid yesterday, was

$1.75 per share.

The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $57,000. The annual cash flows have the following projections. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a.    If the cost of capital is 11 percent, what is the net present value of selecting a new machine? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

What is the Net present value? ________________

b..

what is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

What is the Internal rate of return? _______________%

c, Should the project be accepted? Yes or No.

Please give a calculated solution using a calculator. Thanks!

(Bond valuation​ relationships) The 18​-year, ​$1 comma 000par value bonds of Waco Industries pay 9percent interest annually. The market price of the bond is ​$885

​,and the​ market's required yield to maturity on a​ comparable-risk bond is 12percent.

a.  Compute the​ bond's yield to maturity.

b.  Determine the value of the bond to you given the​ market's required yield to maturity on a​ comparable-risk bond.

Should you purchase this bond?

The following are monthly percentage price changes for four market indexes.

Compute the following.

1. Average monthly rate of return for each index. Round your answers to five decimal places.

   DJIA:

   S&P 500:

   Russell 2000:

   Nikkei:

2. Standard deviation for each index. Do not round intermediate calculations. Round your answers to four decimal places.

   DJIA:

   S&P 500:

   Russell 2000:

   Nikkei:

3. Covariance between the rates of return for the following indexes. Use a minus sign to enter negative values, if any. Do not round intermediate calculations. Round your answers to six decimal places.

   Covariance (DJIA, S&P 500):

   Covariance (S&P 500, Russell 2000):

   Covariance (S&P 500, Nikkei):

   Covariance (Russell 2000, Nikkei):

4. The correlation coefficients for the same four combinations. Use a minus sign to enter negative values, if any. Do not round intermediate calculations. Round your answers to four decimal places.

   Correlation (DJIA, S&P 500):

   Correlation (S&P 500, Russell 2000):

   Correlation (S&P 500, Nikkei):

   Correlation (Russell 2000, Nikkei):

5. Using the unrounded answers from parts (a), (b), and (d), calculate the expected return and standard deviation of a portfolio consisting of equal parts of (1) the S&P and the Russell 2000 and (2) the S&P and the Nikkei. Do not round intermediate calculations. Round your answers to five decimal places.

   Expected return (S&P 500 and Russell 2000):

   Standard deviation (S&P 500 and Russell 2000):

   Expected return (S&P 500 and Nikkei):

   Standard deviation (S&P 500 and Nikkei):

   Since S&P 500 and Russell 2000 have a strong -Select-(negative positive) Item 21 correlation, meaningful reduction in risk -Select-is not observe dis observed Item 22 if they are combined.

   Since S&P 500 and Nikkei have a strong -Select-(negative positive )Item 23 correlation, meaningful reduction in risk -Select-is not observe dis observedItem 24 if they are combined.

An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 10 years, while Bond S matures in 1 year. Assume that only one more interest payment is to be made on Bond S at its maturity and that 10 more payments are to be made on Bond L. What will the value of the Bond L be if the going interest rate is 6%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 6%? Round your answer to the nearest cent. $ What will the value of the Bond L be if the going interest rate is 8%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 8%? Round your answer to the nearest cent. $ What will the value of the Bond L be if the going interest rate is 13%? Round your answer to the nearest cent. $ What will the value of the Bond S be if the going interest rate is 13%? Round your answer to the nearest cent. $ Why does the longer-term bond’s price vary more than the price of the shorter-term bond when interest rates change? Long-term bonds have lower reinvestment rate risk than do short-term bonds. The change in price due to a change in the required rate of return increases as a bond's maturity decreases. Long-term bonds have greater interest rate risk than do short-term bonds. The change in price due to a change in the required rate of return decreases as a bond's maturity increases. Long-term bonds have lower interest rate risk than do short-term bonds.

Examine the role of liquidity in banking. How is liquidity linked to capital/solvency?

“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

(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:

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:

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.