The Howland Carpet Company has grown rapidly during the past 5 years. Recently, its commercial bank urged the company to consider increasing its permanent financing. Its bank loan under a line of credit has risen to $250,000, carrying an 8% interest rate. Howland has been 30 to 60 days late in paying trade creditors. Discussions with an investment banker have resulted in the decision to raise $500,000 at this time. Investment bankers have assured the firm that the following alternatives are feasible (flotation costs will be ignored).

● Alternative 1: Sell common stock at $8.

● Alternative 2: Sell convertible bonds at an 8% coupon, convertible into 100 shares of common stock for each $1,000 bond (i.e., the conversion price is $10 per share).

● Alternative 3: Sell debentures at an 8% coupon, each $1,000 bond carrying 100 warrants to buy common stock at $10.

John L. Howland, the president, owns 80% of the common stock and wishes to maintain control of the company. There are 100,000 shares outstanding. The following are extracts of Howland’s latest financial statements:

Balance Sheet

Line of credit 250,000

Other current liabilities $150,000

Long-term debt 0

Common stock, par $1 100,000

Retained earnings 50,000

Total assets $550,000

Total claims $550,000

Income Statement

Sales $1,100,000

All costs except interest 990,000

EBIT $110,000

Interest 20,000

Pre-tax earnings $90,000

Taxes (40%) 36,000

Net income $54,000

Shares outstanding 100,000

Earnings per share $0.54

Price/earnings ratio 15.83

Market price of stock $8.55

a. Show the new balance sheet under each alternative. For Alternatives 2 and 3, show the balance sheet after conversion of the bonds or exercise of the warrants. Assume that half of the funds raised will be used to pay off the bank loan and half to increase total assets.

b. Show Mr. Howland’s control position under each alternative, assuming that he does not purchase additional shares.

c. What is the effect on earnings per share of each alternative, assuming that profits before interest and taxes will be 20% of total assets?

d. What will be the debt ratio (TL/TA) under each alternative?

e. Which of the three alternatives would you recommend to Howland, and why?

Take two of the five functions of insurers and describe and discuss the functions. Rate the five functions in terms of (1) importance, and separately, (2) difficulty. Explain your reasoning.

1. Today, Ralph and Sara each have $500,000 in an investment account. No other contributions will be made to their investment accounts. Both have the same goal: They each want their account to reach $1.5 million, at which time each will retire. Ralph has his money invested in risk-free securities with an expected annual return of 4 percent. Sara has her money invested in a stock fund with an expected annual return of 11 percent. How many years after Sara retires will Ralph retire? Pick the closest answer.

   	a	16.24
   	b	19.0
   	c	10.53
   	d	17.48
   	e	28.01

1. Suppose you buy 200 shares of stock ABC at $50 per share and sell it in a year. The initial margin is 40%. The call money rate is 7%. One year later, stock price decreases 20% to $40. What's the rate of return of buying on margin?

   	A.	-57.5%
   	B.	-60.5%
   	C.	-62.5%
   	D.	-70%

An interest rate swap has three years of remaining life. Payments are exchanged annually. Interest at 3.2% is paid and 12-month LIBOR is received. An exchange of payments has just taken place. The one-year, two-year and three-year LIBOR/swap zero rates are 1.5%, 2.5 and 3.75%. All rates an annually compounded. What is the value of the swap as a percentage of the principal when OIS and LIBOR rates are the same? (Assume Principal =$100)

Ann is looking for a fully amortizing 30-year Fixed Rate Mortgage with monthly payments for $3,200,000. Mortgage A has a 4.38% interest rate and requires Ann to pay 1.5 points upfront. Mortgage B has a 6% interest rate and requires Ann to pay zero fees upfront. Assuming Ann makes payments for 30 years, what is Ann’s annualized IRR from mortgage A?

XYZ Corp recently reported $8,000 of sales, $5,750 of operating costs other than depreciation, and $700 of depreciation. The company had no amortization charges, it had $3,000 of outstanding bonds that carry a 6% interest rate, and its federal-plus-state income tax rate was 30%. In order to sustain its operations and thus generate sales and cash flows in the future, the firm was required to make $1,250 of capital expenditures on new fixed assets and to invest $300 in net operating working capital. By how much did the firm's net income exceed its free cash flow?

Show your answer in this format: $123.45

1. The population of a state has grown at an annual rate of 2.8% over the past 5 years. If the current number of inhabitants is 3,825,000, what will be its population in 5, 10 and 20 years considering:
a) that the population growth rate does not change?
b) that the population grows to 2.8% the first 5 years, 2.5% the next 5 years and 2.0% the last years?

ANSWER

a) 5 years: 4 391 339; 10 years: 5,041,533; 20 years: 6 644 981

b) 5 years: 4 391 339; 10 years: 4 968 397; 20 years: 6 056 448

2. The annual income per inhabitant in the previous state is $ 5,000. What will be your annual income in 5, 10, 15 and 20 years if GDP is considered to grow at an average annual rate of 3.5%, and the population grows to 2.8%?

Please step by step.

Thank you !

A five-year bond with a yield of 7% (continuously compounded) pays a 5.5% coupon at the end of each year.

1. What is the bond’s price?
2. What is the bond’s duration?
3. Use the duration to calculate the effect on the bond’s price of a 0.3% decrease in its yield.
4. Recalculate the bond’s price on the basis of a 6.7% per annum yield and verify that the result is in agreement with your answer to (c).

Ann is looking for a fully amortizing 30 year Fixed Rate Mortgage with monthly payments for $3,200,000. Mortgage A has a 4.38% interest rate and requires Ann to pay 1.5 points upfront. Mortgage B has a 6% interest rate and requires Ann to pay zero fees upfront. Assuming Ann makes payments for 2 years before she sells the house and pays the bank the balance, what is Ann’s annualized IRR from mortgage A?

Two infrastructure project alternatives are available to transport water from a reservoir to town

– Option A involves building a 10-mile long gravity pipeline

– Option B involves building an 8-mile long pipeline and a pumping station

• Given an MARR of 7%, which option is more economic in 10, 20, and 30 years?

Initial pipeline cost: option A $2.8 million, option B $1.5 million.

Pumping Station cost: option A $0, option B $500,000.  

Annual operation and maintenance cost: option A $30,000, option B $60,000.

Annual power costs during first 10 years: option A $0, option B $40000.

Annual power costs after 10 years: option A $0, option B $120000.

​(Compound interest with​ non-annual periods)  Calculate the amount of money that will be in each of the following accounts at the end of the given deposit​ period: Account Holder Amount Deposited Annual Interest Rate Compounding Periods Per Year​ (M) Compounding Periods​ (Years) Theodore Logan III ​$ 1 comma 000 18 ​% 4 10 Vernell Coles 96 comma 000 8 2 3 Tina Elliot 9 comma 000 10 3 4 Wayne Robinson 119 comma 000 10 12 5 Eunice Chung 30 comma 000 16 1 4 Kelly Cravens 13 comma 000 8 6 3 a.  The amount of money in Theodore Logan​ III's account at the end of 10 years will be ​$ nothing. ​(Round to the nearest​ cent.)

The Duo Growth Company just paid a dividend of $1.00 per share. The dividend is expected to grow at a rate of 21% per year for the next three years and then to level off to 5% per year forever. You think the appropriate market capitalization rate is 16% per year.

a. What is your estimate of the intrinsic value of a share of the stock?

b. b. If the market price of a share is equal to this intrinsic value, what is the expected dividend yield?