McGilla Golf is evaluating a new line of golf clubs. The clubs will sell for $1,060 per set and have a variable cost of $480 per set. The company has spent $172,500 for a marketing study that determined the company will sell 53,500 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,100 sets of its high-priced clubs. The high-priced clubs sell at $1,560 and have variable costs of $690. The company also will increase sales of its cheap clubs by 12,700 sets. The cheap clubs sell for $480 and have variable costs of $210 per set. The fixed costs each year will be $9,950,000. The company has also spent $1,325,000 on research and development for the new clubs. The plant and equipment required will cost $33,250,000 and will be depreciated on a straight-line basis to a zero salvage value. The new clubs also will require an increase in net working capital of $2,710,000 that will be returned at the end of the project. The tax rate is 23 percent and the cost of capital is 13 percent.

Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Explain in 250 words time value of money

An investor short sells 200 shares of a stock for $ 68.67 per share. The initial margin is 53 % ​, and the maintenance margin is 40 % . The price of the stock rises to $ 81.73 per share.

What is the​ margin, and will there be a margin​ call?

The margin in the account is ______ ​%. ​ (Round to the nearest​ percent.)

Because the current margin is (equal to, below or above) the maintenance​ margin, there (will or will not) be a margin call.  

(1)

equal to

below

above

(2) will not will

3. A family friend is planning her retirement from work in the U.S. She is 61 years old right now (time 0) and has the choice of taking her Social Security (a public pension program) in time 1, in time 5 or in time 9 according to the following schedule:

I. Early retirement (Age 62 exactly) $1,200 per month for life

II. Regular retirement (Age 66 exactly) $1,800 per month for life

III. Delayed retirement (Age 70 exactly) $2,500 per month for life

If her expected life expectancy is 88 years old (exactly), what are the present values of the choices? (Assume r = 4% (annual))

1. The annual membership fee at your health club is $750 a year and is expected to increase at 5% per year. A life membership is $7,500 and the discount rate is 12%. In order to justify taking out the life membership, what would be your minimum life expectancy?

2. You are considering buying a car worth $30,000. The dealer, who is anxious to sell the car, offers you an attractive financing package. You have to make a down-payment of $3,500, and pay the rest over 3 years with monthly payments. The dealer will charge you interest at a constant APR of 2%, which is lower than the market interest rate.

   1. (1) Whatisthemonthlypaymenttothedealer?

   2. (2) Thedealeroffersyouasecondoption:youpaycash,butgeta$2,500discount.Shouldyougofor

      the loan or should you pay cash? Assume that the market annual interest rate (APR) is at 5%.

   3. A foundation announces that it will be offering one CUHK (SZ) scholarship every year for an indefinite number of years. The first scholarship is to be offered exactly one year from now. When the scholarship is offered, the student will receive ¥100,000 annually for a period of four years, beginning from the date the scholarship is offered. This student is then expected to repay the principal amount received (¥400,000) in 10 equal annual installments, interest-free, starting two years after the last payment of the scholarship. This implies that the foundation is really giving an interest-free loan under the guise of a scholarship. The current interest is 6% and is expected to remain unchanged.

      1. (1) What is the PV of the first scholarship (the scholarship includes both money given out to and the

         repayments received from the student)?

      2. (2) The foundation invests a lump sum to fund all future scholarships. Determine the size of the

         investment today.

The U.S. government has decided to decrease the corporate tax rate from 35% to 20% (for the record, I originally wrote this problem long before this actually happened). You have been tasked with re-estimating the remaining PV of a project’s cash flows. The project will operate for the next 4 years before shutting down. It will produce yearly revenue of $40k with yearly operating costs of $20k. The project utilizes some heavy machinery which has a current book value of $80k and is being depreciated on a straight-line basis by $15k per year for the remainder of the project. (IMPORTANT: This does not mean that you purchase the machine today for $80k. You bought the machine in the past when you started the project). The machinery will have a resell value of $30k at the completion of the project. The firm’s discount rate is 10%.

1. Show how much each of the project’s OCFs will change on a timeline once the tax rate is decreased.
2. Compute the after-tax salvage both before and after the tax change.

Proposal X   Proposal Y

Required investment                                      $2,400,000        $3,000,000

Estimated life                                                   10 years              10 years

Estimated residual value                                  $200,000              $200,000

Estimated annual net cash flows                        $450,000             $580,000

Required rate of return                                       14%                      14%

Which proposal is the better investment.

Simply Chocolate Company is considering two possible expansion plans.Proposal X involves opening five stores in North Carolina at a cost of $2,400,000. Under Proposal Y, the company would focus on Virginia and open six stores at a cost of $3,000,000. The following information is given for the two proposals:

Proposal X Proposal Y

Required investment                                      $2,400,000        $3,000,000

Estimated life                                                   10 years              10 years

Estimated residual value                                  $200,000              $200,000

Estimated annual net cash flows                        $450,000             $580,000

Required rate of return                                       14%                      14%

Based on the above following problem, Required: for each proposal, you are asked to calculate

a. Pay back Period

b.Accounting Rate of Return

c.Net Present Value

d.Profitability Index

Garcia Real Estate is involved in commercial real estate ventures throughout the United States. Some of these ventures are much riskier than other ventures because of market conditions in different regions of the country.

1) If Garcia does not risk-adjust its discount rate for specific ventures properly, which of the following is likely to occur over time? Check all that apply.

A. The firm will increase in value.

B. The firm’s overall risk level will increase.

C. The firm could potentially reject projects that provide a higher rate of return than the company should require.

2) How do managers typically deal with within-firm risk and beta risk when they are evaluating a potential project?

A. Subjectively

B. Quantitatively

Consider the case of another company. Turnkey Printing is evaluating two mutually exclusive projects. They both require a $5 million investment today and have expected NPVs of $1,000,000. Management conducted a full risk analysis of these two projects, and the results are shown below.

3) Which of the following statements about these projects’ risk is correct? Check all that apply.

A. Project B has more market risk than Project A.

B. Project B has more stand-alone risk than Project A.

C. Project A has more stand-alone risk than Project B.

D. Project A has more market risk than Project B.

Suppose you have the following projected cash flows for a drone pizza delivery business: an initial investment cost of $2,300,000, and with expected net revenues of $850,000 each year for six years. If the required return for the risk of this project is 12%, then

1. What is the NPV of this project?

2. What is the Profitability Index for this project?

3. What is the Internal Rate of Return for this project?

4. What is the Payback Period of this project? Suppose the cut off period is 2 years.

5. Should you accept this project?

If applicable, show the formulas used to find these answers.

how do I calculate the standard deviation of the stock returns by hand using this formula? Please show equations

how does the afi framework relate in the real business world??   

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

This project will require an investment of $15,000 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. Yeatman 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.

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

A. $44,036

B. $55,045

C. $63,302

D. $66,054

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

A. $51,493

B. $70,464

C. $67,754

D. $54,203

3) Using the BONUS/STRAIGHT-LINE depreciation method will result in the highest NPV for the project.

4) No other firm would take on this project if Yeatman turns it down. How much should Yeatman 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?

A. $2,047

B. $1,117

C. $1,861

D. $1,582

5) The project will require an initial investment of $15,000, 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 Yeatman do to take this information into account?

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

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

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

For the mixed stream of cash flows shown in the following​ table. determine the future value at the end of the final year if deposits are made into an account paying annual interest of 15​%, assuming that no withdrawals are made during the period and that the deposits are​ made:

a. At the end of each year.

b. At the beginning of each year

A.

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 17% and a standard deviation of return of 18.0%. Stock B has an expected return of 13% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is 0.50. The risk-free rate of return is 8%. The proportion of the optimal risky portfolio that should be invested in stock A is _________.

B.