Note* answer is not -.4628

Very Fancy Foods hires homeless workers from the local church and the area shelters to assist in the packaging of its gourmet frozen meals. This procession is all done by hand, at a cost of $60,000 per year (which would be eliminated with the machine.) A machine is available that could be used in place of the homeless workers. The machine would cost $140,000 and have a 10-year useful life. It would require an operator at an annual cost of $28,000. Annual maintenance costs will be $8,000 in years 1, 2, 3, 4 and then climb to $12,500 in years 5-10. The machine will be sold in 10 years at an expected price of $50,000. For tax purposes, the company computes depreciation deductions assuming zero salvage value and uses straight-line depreciation. The machine would be depreciated over 7 years years. Management requires a 9% after-tax return on all equipment purchases. The company’s tax rate is 20%. Use this information to answer the questions below.

Compute the machine’s net present value and internal rate of return.

Binomial model Over the coming year Ragwort’s stock price will halve to $50 from its current level of $100 or it will rise to $200. The one-year interest rate is 10%.

a. What is the delta of a one-year call option on Ragwort stock with an exercise price of $100?

b. Use the replicating-portfolio method to value this call.

c. In a risk-neutral world what is the probability that Ragwort stock will rise in price?

d. Use the risk-neutral method to check your valuation of the Ragwort option.

e. If someone told you that in reality there is a 60% chance that Ragwort’s stock price will rise to $200, would you change your view about the value of the option? Explain.

Consider the following 6 months of returns for 2 stocks and a portfolio of those 2​stocks:

​Note:  The portfolio is composed of​ 50% of Stock A and​ 50% of Stock B.  

1. What is the expected return and standard deviation of returns for each of the two​ stocks?

1. 0.00176; 0.00176
2. 0.04195; 0.04195
3. 0.05985; 0.06953
4. 0.07985; 0.09767
5. None of the above

2. What is the expected return and standard deviation of returns for the​ portfolio?

1. 5; 0
2. 1.5; 0.5
3. 1.5; 0.75
4. 2.5; 1
5. 2.5; 1.25

3. Is the portfolio more or less risky than the two​ stocks? Why?

1. The portfolio is more risky than the two stocks. It has the same expected return but a standard deviation of 0, compared to standard deviations of 0.04195for both stocks.
2. The portfolio is less risky than the two stocks. It has the same expected return but a standard deviation of 0.04195, compared to standard deviations of 0 for both stocks.
3. The portfolio is less risky than the two stocks. It has the same expected return but a standard deviation of 1, compared to standard deviations of 0.04195for both stocks.
4. The portfolio is less risky than the two stocks. It has the same expected return but a standard deviation of 0, compared to standard deviations of 0.04195for both stocks.
5. The portfolio is less risky than the two stocks. It has the same expected return but a standard deviation of 1.25, compared to standard deviations of 0.04195for both stocks.

Sora Industries has 66 million outstanding shares, $121 million in debt, $59 million in cash, and the following projected free cash flow for the next four years:

A. Suppose Sora's revenue free cash flow are expected to grow at a 3.3% rate beyond year 4. If Sora's weighted average cost of capital is 14.0%, what is the value of Sora's stock based on this information?

1. $2.82
2. $3.09
3. $3.18
4. $5.07
5. None of the above

B. Sora's cost of goods sold was assumed to be 67% of sales. If its cost of goods sold is actually 70% of sales, how would the estimate of the stock's value change?

1. $87
2. $3.09
3. $18
4. $3.75
5. None of the above

C. Let's return to the assumptions of part (a) and suppose Sora can maintain its costs of goods sold at 67% of sales. However, now suppose Sora reduces its selling, general, and administrative expenses from 20% of sales to 16% of sales. What stock price would you estimate now? (Assume no other expenses, except taxes, are affected.)

1. $4.42
2. $4.79
3. $4.93
4. $6.82
5. None of the above

D. Sora's net working capital needs were estimated to be 18% of sales (which is their current level in year 0). If Sora can reduce this requirement to 12% of sales starting in year 1, but all other assumptions remain as in part (a), what stock price do you estimate for Sora?

1. $2.53
2. $3.01
3. $4.67
4. $5.89
5. None of the above

The Ricordi family has just bought a house for $275,000. They have been saving money for a while and are able to make a $100,000 down payment. They have chosen a 30-year mortgage from their bank to borrow the balance of the purchase price. The interest rate of the mortgage is 6.5%, compounded monthly.

e) [4 pts] After ten years of payments, how much of their next monthly payment is devoted to interest?

1. FOR BURGER KING: WHAT IS THE 2018 AND 2017 TIMES INTEREST EARNED

2. FOR BURGER KING: WHAT IS THE 2018 AND 2017 WHAT IS THE TOTAL DEBT TO TOTAL ASSETS

3. FOR BURGER KING WHAT IS THE 2018 AND 2017 AVERAGE COLLECTION PERIOD

The financial instruments market is international - how does this make decisions that companies make more complex? Look at working capital, capital budgeting, and capital financing decisions.

The Ricordi family has just bought a house for $275,000. They have been saving money for a while and are able to make a $100,000 down payment. They have chosen a 30-year mortgage from their bank to borrow the balance of the purchase price. The interest rate of the mortgage is 6.5%, compounded monthly.
a) [7 pts] What will the Ricordis' monthly payments be?
b) [2 pts] What is the total interest the Ricordis will pay over the full 30-year life of the mortgage?
c) [2 pts] How much of the first payment one month from now is for interest and how much will be applied to the principal of their loan?
d) [4 pts] What is the balance owing on their loan after ten years? e) [4 pts] After ten years of payments, how much of their next monthly payment is devoted to interest?

■Machine A

–Initial Cost = $150,000

–Pre-tax operating cost = $65,000

Expected life is 8 years

■Machine B

–Initial Cost = $100,000

–Pre-tax operating cost = $57,500

–Expected life is 6 years

The machine chosen will be replaced indefinitely and neither machine will have a differential impact on revenue. No change in NWC is required.

The required return is 10%, the applicable CCA rate is 20% and the tax rate is 40%.

Which machine should you buy?

Assume that you recently graduated and you just landed a job as a financial planner with the Cleveland Clinic. Your first assignment is to invest $100,000. Because the funds are to be invested at the end of one year, you have been instructed to plan for a one-year holding period. Further, your boss has restricted you to the following investment alternatives, shown with their probabilities and associated outcomes. State of Economy Probability T-Bills Alta Inds. Repo Men American Foam Market Port. Recession 0.1 8.00% -22.0% 28.0% 10.0% -13.0% Below Average 0.2 8.00% -2.0% 14.7% -10.0% 1.0% Average 0.4 8.00% 20.0% 0.0% 7.0% 15.0% Above Average 0.2 8.00% 35.0% -10.0% 45.0% 29.0% Boom 0.1 8.00% 50.0% -20.0% 30.0% 43.0% Barney Smith Investment Advisors recently issued estimates for the state of the economy and the rate of return on each state of the economy. Alta Industries, Inc. is an electronics firm; Repo Men Inc. collects past due debts; and American Foam manufactures mattresses and various other foam products. Barney Smith also maintains an "index fund" which owns a market-weighted fraction of all publicly traded stocks; you can invest in that fund and thus obtain average stock market results. Given the situation as described, answer the following questions. a. Calculate the expected rate of return on each alternative. b. Calculate the standard deviation of returns on each alternative. c. Calculate the coefficient of variation on each alternative. d. Calculate the beta on each alternative. e. Do the SD, CV, and beta produce the same risk ranking? Why or why not? f. Suppose you create a two-stock portfolio by investing $50,000 in Alta Industries and $50,000 in Repo Men. Calculate the expected return, standard deviation, coefficient of variation, and beta for this portfolio. How does the risk of this two-stock portfolio compare with the risk of the individual stocks if they were held in isolation? Please show all calculations and formulas used to derive the answers.

PLEASE SHOW THE EXCEL INPUTS AND FORMULAS AS I AM VERY NEW TO THIS SUBJECT AND WANT TO LEARN EXCEL INPUTS.

Problem 7-18 Abandonment We are examining a new project. We expect to sell 6,300 units per year at $57 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $57 × 6,300 = $359,100. The relevant discount rate is 12 percent, and the initial investment required is $1,740,000. After the first year, the project can be dismantled and sold for $1,610,000. Suppose you think it is likely that expected sales will be revised upward to 9,300 units if the first year is a success and revised downward to 4,900 units if the first year is not a success. a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. What is the value of the option to abandon? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

A. NPV

B. Option Value

Stu can purchase a house today for $110,000, including the cost of some minor repairs. He expects to be able to resell it in one year for $129,000 after cleaning up the property. At a discount rate of 5.5 percent, what is the expected net present value of this purchase opportunity?

How to design and create a projected three-year financials statement,

including the capital budget, for intermountain healthcare in Utah?

Jan sold her house on December 31 and took a $20,000 mortgage as part of the payment. The 10-year mortgage has a 6% nominal interest rate, but it calls for semiannual payments beginning next June 30. Next year Jan must report on Schedule B of her IRS Form 1040 the amount of interest that was included in the two payments she received during the year.

a. What is the dollar amount of each payment Jan receives? Round your answer to the nearest cent.

$  

b. How much interest was included in the first payment? Round your answer to the nearest cent.

$  

How much repayment of principal was included? Do not round intermediate calculations. Round your answer to the nearest cent.

$  

How do these values change for the second payment?

1. The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal increases.
2. The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal decreases.
3. The portion of the payment that is applied to interest and the portion of the payment that is applied to principal remains the same throughout the life of the loan.
4. The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal also declines.
5. The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal also increases.

c. How much interest must Jan report on Schedule B for the first year? Do not round intermediate calculations. Round your answer to the nearest cent.

$  

Will her interest income be the same next year?

d. If the payments are constant, why does the amount of interest income change over time?

1. As the loan is amortized (paid off), the beginning balance, hence the interest charge, increases and the repayment of principal increases.
2. As the loan is amortized (paid off), the beginning balance, hence the interest charge, declines and the repayment of principal increases.
3. As the loan is amortized (paid off), the beginning balance, hence the interest charge, declines and the repayment of principal declines.
4. As the loan is amortized (paid off), the beginning balance, hence the interest charge, increases and the repayment of principal declines.
5. As the loan is amortized (paid off), the beginning balance declines, but the interest charge and the repayment of principal remain the same.