Given the following cash flows for a capital project, calculate its payback period and discounted payback period. The required rate of return is 8 percent.

The discounted payback period is

Types of budgets employed by the organization (operating, capital, cash, statistical, FTE, etc.)

Question 6:

Olivia Hardison, CFO of Impact United Athletic Designs, plans to have the company issue $500 million of new common stock and use the proceeds to pay off some of its outstanding bonds. Assume that the company, which does not pay any dividends, takes this action, and that total assets, operating income (EBIT), and its tax rate all remain constant. What affect it can have on the company’s financial statements. Discuss.

ABC Ltd. issued $3,000,000 bond that has 15% coupon rate paid semi-annually. The bond has a face value of $1000 and will mature 12 years from now. The company has just paid a divided of $6.50 per share on its 50,000 ordinary shares. The company forecasted to maintain a growth rate of 5% in dividends in future. The company has 20,000 preference shares with $100 face value which has a market price of $120 per share. Requirements: 1. What is the value of the bond if required rate of return is 12%? 2. What is the price of the company's ordinary shares if required rate of return is 18%? 3. What is the dividend rate of the company's preference share if rate of return is 14%? 4. What is the market value of the firm? 5. Calculate the capital structure of the company by identifying weight of the financing and equity? 6. Compute the weighted average cost of capital (WACC) under the traditional tax system. Tax rate is 30% and use Dividend Growth model (DGM)

Question 11.

Companies Heidee and Leaudy have the same sales, tax rate, interest rate on their debt, total assets, and basic earning power. Both companies have positive net incomes. Company Heidee has a higher debt ratio and, therefore, a higher interest expense. Which of the following statements is CORRECT? Rationalize your selection.

a. Company Heidee has more net income.

b. Company Heidee pays less in taxes.

c. Company Heidee has a lower equity multiplier.

d. Company Heidee has a higher ROA.

e. Company Heidee has a higher times interest earned (TIE) ratio.

Determining net cash flows for a new boat Jan and Deana have been dreaming about owning a boat for some time and have decided that estimating its cash flows will help them in their decision process. They expect to have a disposable annual income of

$23,600. Their cash flow estimates for the boat purchase are as​ follows:

Using these cash flow​ estimates, calculate the​ following:

a. The initial investment.

b. Operating cash flow.

c. Terminal cash flow.

d. Summary of annual cash flow.​ (Note: Assume that Jan and Deana plan on selling the boat in 4​ years.)

e. On the basis on their disposable annual​ income, what advice would you give Jan and Deana regarding the proposed boat​ purchase?

A two-month European put option on a non-dividend-paying stock is currently selling for $2.00. The stock price is $52, the strike price is $55, and the risk-free interest rate is 5% per annum. What opportunities are there for an arbitrageur?

Analysis of an expansion project

Companies invest in expansion projects with the expectation of increasing the earnings of its business.

Consider the case of McFann Co.:

McFann Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs:

This project will require an investment of $10,000 in new equipment. Under the new tax law, the equipment is eligible for 100% bonus deprecation at t = 0, so it will be fully depreciated at the time of purchase. The equipment will have no salvage value at the end of the project’s four-year life. McFann pays a constant tax rate of 25%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project’s net present value (NPV) would be under the new tax law.

Determine what the project’s net present value (NPV) would be under the new tax law.

$26,608

$23,947

$30,599

$31,930

Now determine what the project’s NPV would be when using straight-line depreciation.     

Using the      depreciation method will result in the highest NPV for the project.

No other firm would take on this project if McFann turns it down. How much should McFann reduce the NPV of this project if it discovered that this project would reduce one of its division’s net after-tax cash flows by $600 for each year of the four-year project?

$1,582

$1,396

$2,047

$1,861

The project will require an initial investment of $10,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $4,000, after taxes, if the project is rejected. What should McFann do to take this information into account?

Increase the NPV of the project by $4,000.

Increase the amount of the initial investment by $4,000.

The company does not need to do anything with the value of the truck because the truck is a sunk cost.

Question 4:

What are some economic factors that affect the capital requirements? Explain

Question 3:

What are the various ways through which transfer of capital takes place between the savers and investors? Discuss with the help of examples.

What is the price per share based on the equity free cash flow model?

Year 1:

Revenue: 630

Fixed costs: 120

Variable costs: 200

Additional investments in NWC: 10

Additional investments in operating long-term assets: 70

Depreciation: 60

Interest expenses: 35

Newly issued debt: 25

Principal repayment: 15

Cost of equity, Rs: 0.14

Corporate tax rate: 0.40

Growth rate per year:

from year 1 through year 5: 0.12

After year 5: 0.05

Market value:

Short-term debt: 100

Long-term debt: 600

Preferred Stock:

Market price per share: 10

Number of shares: 10

Common Stock:

Market price per share: 18

Number of shares: 100

a. $16.39*

b. $13.09

c. $15.33

d. $14.21

1. One investing firm is assessing an opportunity of a real estate investment. The project requires 4.5 million CAD at the beginning of the first year to start up the first complex and 1.6 million CAD at the beginning of the second year to start the second complex. Upon completion in two years, a hotel industry customer would purchase the whole project for 8.7 million CAD. If the average secure interest rate from a bank is 4%, determine the return rate of the investment.

2. One investor wants to buy an apartment for 370,000 CAD. He then wants to rent his property for 1700 CAD a month for a year and after the year sell it for 475,000 CAD. The bank guaranteed him a return rate of 3% per annum through a mutual fund investment that can be calculated monthly. This means the investor can invest the rent money in the bank. The investor wants to know what the return rate of this investment is.

A European call option and put option on a stock both have a strike price of $25 and an expiration date in four months. Both sell for $4. The risk-free interest rate is 6% per annum, the current stock price is $23, and a $1 dividend is expected in one month. Identify the arbitrage opportunity open to a trader.

The Nelson Company has $1,875,000 in current assets and $625,000 in current liabilities. Its initial inventory level is $312,500, and it will raise funds as additional notes payable and use them to increase inventory.

How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.9? Round your answer to the nearest cent. $

What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.