Assuming the borrower is in no danger of default, under what conditions might a lender be willing to accept a lesser amount from a borrower than the outstanding balance of a loan and still consider the loan paid in full?
In: Finance
You are considering how to invest part of your retirement savings.You have decided to put
$ 600 comma 000$600,000
into three stocks:
51 %51%
of the money in GoldFinger (currently
$ 28$28/share),
6 %6%
of the money in Moosehead (currently
$ 75$75/share),
and the remainder in Venture Associates (currently
$ 4$4/share).
Suppose GoldFinger stock goes up to
$ 36$36/share,
Moosehead stock drops to
$ 67$67/share,
and Venture Associates stock
risesrises
to
$ 16$16
per share.
a. What is the new value of the portfolio?
b. What return did the portfolio earn?
c. If you don't buy or sell any shares after the price change, what are your new portfolio weights?
a. What is the new value of the portfolio?
The new value of the portfolio is
$nothing.
(Round to the nearest dollar.)
b. What return did the portfolio earn?
The portfolio earned a return of
nothing%.
(Round to two decimal places.)
c. If you don't buy or sell any shares after the price change, what are your new portfolio weights?
The weight of Goldfinger is now
nothing%.
(Round to two decimal places.) The weight of Moosehead is now
nothing%.
(Round to two decimal places.) The weight of Venture is now
nothing%.
(Round to two decimal places.)
In: Finance
Despite your better judgment you bought a lottery ticket you won! You now need to decide which payout option to take: a) an immediate lump sum of $130,000; b) $1,000 per month to be received at the end of this month and every month thereafter for 40 years in total; or, c) $10,000 to be received one year from now and every year thereafter for 50 years in total.
Assuming an annual discount rate of 9%, which payout option should you take based on a comparison of the present value of each of the 3 payout options (i.e., please note the present value of each alternative and which one you would select)?
In: Finance
Find the present value of the streams of cash flows shown in the following table. Assume that the firm's opportunity cost is 14%.
a. The present value of stream A is $
b. The present value of stream B is $
c. The present value of stream C is $
|
A |
B |
C |
|||||||||
|
Year |
Cash Flow |
Year |
Cash Flow |
Year |
Cash Flow |
||||||
|
1 |
−$2,100 |
1 |
$11,000 |
1−5 |
10,000/yr |
||||||
|
2 |
$3,000 |
2−5 |
$5,100/yr |
6−10 |
$7,900/yr |
||||||
|
3 |
$4,100 |
6 |
$7,100 |
||||||||
|
4 |
$6,100 |
||||||||||
|
5 |
$8,000 |
||||||||||
In: Finance
Which assertion about statement 1 and statement 2 is true?
Project A would cost 19,998 dollars today and have the following other expected cash flows: 3,983 dollars in 1 year, 7,670 dollars in 3 years, and 13,620 dollars in 4 years. The cost of capital for project A is 6.11 percent. Project B would cost 16,941 dollars today and have the following other expected cash flows: 2,942 dollars in 1 year, 6,526 dollars in 3 years, and 13,004 dollars in 4 years. The cost of capital for project B is 8.6 percent.
Statement 1: Project A would be accepted based on the project’s net present value (NPV) and the NPV rule
Statement 2: Project B would be accepted based on the project’s internal rate of return (IRR) and the IRR rule
|
Statement 1 is true and statement 2 is true |
||
|
Statement 1 is false and statement 2 is false |
||
|
Statement 1 is false and statement 2 is true |
||
|
Statement 1 is true and statement 2 is false |
In: Finance
If you invest 3000 today and expect to profit $200 a year for 10 years what id the IRR on the investment?
In: Finance
What is the project's NPV?
Crane Lumber, Inc., is considering purchasing a new wood saw
that costs $60,000. The saw will generate revenues of $100,000 per
year for five years. The cost of materials and labor needed to
generate these revenues will total $60,000 per year, and other cash
expenses will be $10,000 per year. The machine is expected to sell
for $4,800 at the end of its five-year life and will be depreciated
on a straight-line basis over five years to zero. Crane’s tax rate
is 34 percent, and its opportunity cost of capital is 11.10
percent.
In: Finance
Edsel Research Labs has $29.60 million in assets. Currently half
of these assets are financed with long-term debt at 6 percent and
half with common stock having a par value of $10. Ms. Edsel, the
Vice President of Finance, wishes to analyze two refinancing plans,
one with more debt (D) and one with more equity (E). The company
earns a return on assets before interest and taxes of 6 percent.
The tax rate is 35 percent.
Under Plan D, a $7.40 million long-term bond would be sold at an interest rate of 12 percent and 740,000 shares of stock would be purchased in the market at $10 per share and retired. Under Plan E, 740,000 shares of stock would be sold at $10 per share and the $7,400,000 in proceeds would be used to reduce long-term debt.
a-1. How would each of these plans affect
earnings per share? Consider the current plan and the two new
plans. (Round your answers to 2 decimal places.)
Earning per Shares
Current ______
Plan D _______
Plan E ________
a-2. Which plan(s) would produce the highest EPS?
Note that due to tax loss carry-forwards and carry-backs, taxes can
be a negative number.
The Current Plan and Plan E
Plan D
Plan E
Current Plan
b. Which plan would be most favorable if return on
assets increased to 9 percent? Compare the current plan and the two
new plans.
Plan D
Plan Current and D
Plan E
Current Plan and Plan D
c. Assuming return on assets is back to the
original 6 percent, but the interest rate on new debt in Plan D is
8 percent, which of the three plans will produce the highest
EPS?
The Plan Current and E
The plans Current and D
Plan E
Plan D
In: Finance
A project has an initial cost of $40,000, expected net cash inflows of $12,000 per year for 9 years, and a cost of capital of 11%. What is the project's payback period? Round your answer to two decimal places.
PLEASE SHOW ME A DETAILED EXPLANATION WITH EXCEL. THANKS!
In: Finance
|
You are considering a new product launch. The project will cost $870,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 530 units per year; price per unit will be $18,900, variable cost per unit will be $15,600, and fixed costs will be $905,000 per year. The required return on the project is 14 percent, and the relevant tax rate is 25 percent. |
| a. |
The unit sales, variable cost, and fixed cost projections given above are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your NPV answers to 2 decimal places, e.g., 32.16.) |
| b. |
Calculate the sensitivity of your base-case NPV to changes in fixed costs. (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) |
| c. |
What is the accounting break-even level of output for this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
Annuities: 4 questions
Q1: -PV: I save $200/year for 20 years at 5%. What is the present value of these savings?
Q2: -FV: I save $200/year for 20 years at 5%. How much will I have in 20 years?
Q3: -Payment: I want a $ 1 million in 25 years. I can earn 7% annually. How much do I need to save each month?
Q4: -Rate: I invest $250,000 and receive $20,000/year for next 20 years, what rate am I earning?
In: Finance
You want to quit your job and go back to school for a law degree 4 years from now, and you plan to save $2,100 per year, beginning immediately. You will make 4 deposits in an account that pays 5.7% interest. Under these assumptions, how much will you have 4 years from today?
In: Finance
We are evaluating a project that costs $1,180,000, has a life of 10 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 59,000 units per year. Price per unit is $45, variable cost per unit is $25, and fixed costs are $750,000 per year. The tax rate is 25 percent and we require a return of 14 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±15 percent.
Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
In: Finance
You are evaluating two different silicon wafer milling machines. The Techron I costs $261,000, has a 3-year life, and has pretax operating costs of $70,000 per year. The Techron II costs $455,000, has a 5-year life, and has pretax operating costs of $43,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $47,000. If your tax rate is 21 percent and your discount rate is 11 percent, compute the EAC for both machines. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
Which machine do you prefer?
Techron II
Techron I
In: Finance