A project to produce rocker seats requires a $10 million investment. If the project is financed on an all equity basis, the after tax cash flows are $8 million for 10 years. The cost of unlevered equity for such a solar heater project is 12%. The firm intends to raise $5 million in debt financing that will be repaid in equal installments in 10 years. The interest rate on the debt is 8%. Is the project worthwhile? Use APV method.Tax rate can be ignored

Boral Ltd produces building and construction materials. It is a major exporter to Europe, where its main competition is from other European companies. All of these companies invoice the products in euros. Is Boral’s transaction exposure likely to be significantly affected if the euro strengthens or weakens? Explain. If the euro weakens for several years, can you think of any change that might occur in the global chemicals market?

2.Define the following terms
1)correspondent relationship
2)International settlements
3)visible trade
   4)financial transaction
5)vostro account
6)International trade
7)trade terms
8)open account
9)advance payment
10)sales contract

What is the price for a $1,000 par, 20 year, 8% coupon bond with semiannual payments and a 10% yield to maturity? (express your answer in dollars and cents. Do not include the $ symbol)

What is the current year's return on equity (ROE)?

Your consulting firm has been hired to evaluate a manufacturing process. In order to value the process, you’ve decided to value each piece separately. You are currently evaluating the effect of inventory on the final value of the project. The process requires an initial amount of NWC of $500k. Each year, NWC will increase by $100k. The manufacturing process will be in operation for 10 years before shutting down. If the firm’s discount rate is 6%, what is the effect of the project’s NWC on the total NPV of the project (in other words, what is the NPV of the NWC)?

Principles of Finance (FINC 311)

Homework Assignment 2

Learning Goal 1: Analytical - Apply appropriate problem-solving methodologies to the analysis and solution of financial problems

Students are able to use TVM techniques to problems involving loan payments and asset values

Student computes present and future values

1.          

                a.             You deposit $100 into an account earning a 10% annual rate of interest. How much money will you have in the account at the end of five years?

                b.             You have just won the lottery and have a choice of receiving a lump sum of $1,000,000 or an annuity of $100,000 per year for 15 years. If the appropriate discount rate is 8%, which alternative would you choose? (10 points) Explain.

                c.             What happens to the future value of a sum of money deposited for N years as the rate of return k increases? (15 points) What happens to the present value of a sum of money to be received at the end of N years as k increases?

2.             Applies TVM techniques using multiple compounding periods per year.

                a.             You are saving for retirement and have the opportunity to invest in a security that pays a 12% annual rate of return, compounded quarterly. If you invest $100,000 in the security now how much will you have in your retirement account at the end of 10 years?

                b.             Would it be better for your retirement account if the returns on the security were simply compounded once a year? (5 points) Explain why or why not. (15 points) Is more frequent compounding good for borrowers or for lenders and why? (30 points)

                c.             Colin’s grandparents want to make a gift of $50,000 towards his college education fund in 12 years. How much money would they have to deposit today in an account that accrues interest monthly if the rate quoted by the bank is 6 percent?

3.             Applies TVM techniques to real problems

                                Peter is considering making a loan of $500,000 to Paul. It is a three-year loan with annual payments due at the end of each year and a 7% annual interest rate. Find the payments that would be required to amortize the loan over the three-year period and then prepare an amortization schedule to demonstrate how the loan will be fully paid off in three years.

Year        Beginning Balance              

Payment

Interest Paid        

Principal Paid        Ending Balance

1              $500,000.00                                                        

2                                                                             

3                                                                             

A company is projected to have a free cash flow of $389 million next year, growing at a 5% rate until the end of year 3. After that, cash flows are expected to grow at a stable rate of 2.5% in perpetuity. The company's cost of capital is 8.3%. The company owes $106 million to lenders and has $7 million in cash. If it has 239 million shares outstanding, what is your estimate for its stock price? Round to one decimal place. (e.g., $4.32 = 4.3)

At year-end 2525, Stockholder’s Equity is $3,300 and there are 110 common shares outstanding. For 2526, sales should equal $13,200 , the net profit margin (= net income ÷ sales) is 7.20%, the payout ratio (=dividends ÷ net income) is 45%, and no shares are issued or repurchased. If the equity price-to-book ratio at year-end 2525 is 0.65, and it moves to 0.74 at year-end 2526, what is the shareholder’s annual rate of return for 2526?a. 51.8% b. 47.1% c. 42.8% d. 39.0% e. 57.0%

At year-end 2525 the company has Total assets of $6,200 financed by Debt of $3,400 and Stockholders’ equity of $2,800 . For 170 common shares outstanding, the equity price-to-book ratio at year-end 2525 is 1.36. During 2526, the company expects an asset turnover ratio (= Salest÷ Total assetst-1 ) of 3.8 and an operating margin (= (Sales – operating expenses) ÷ Sales ) of 7.1%. Interest charges will equal 9% of Debt. Corporate taxes equal 30% of taxable income and the payout ratio always is 60%. Your analyst tells you that at year-end 2526 the company price-to-earnings ratio will equal 4.4.What is the shareholders’ rate of return for year 2526?a. 25.6% b. 21.2% c. 31.0%d. 28.2%e. 23.3%

Suppose that Xtel currently is selling at $44 per share. You buy 350 shares using $12,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 9%

. a. What is the percentage increase in the net worth of your brokerage account if the price of Xtel immediately changes to: (i) $46.20; (ii) $44; (iii) $41.80? What is the relationship between your percentage return and the percentage change in the price of Xtel? (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) b. If the maintenance margin is 25%, how low can Xtel’s price fall before you get a margin call? (Round your answer to 2 decimal places.) c. How would your answer to (b) change if you had financed the initial purchase with only $7,700 of your own money? (Round your answer to 2 decimal places.) d. What is the rate of return on your margined position (assuming again that you invest $12,000 of your own money) if Xtel is selling after 1 year at: (i) $46.20; (ii) $44; (iii) $41.80? What is the relationship between your percentage return and the percentage change in the price of Xtel? Assume that Xtel pays no dividends. (Negative values should be indicated by a minus sign. Round your answers to 2 decimal places.) e. Continue to assume that a year has passed. How low can Xtel’s price fall before you get a margin call? (Round your answer to 2 decimal places.)

Venture capital financing is a type of funding which assembles cash from investors and lends it to startup businesses that have high potential for success. Venture capital investments usually encompass very high risk; however, the reward has the potential to exceed the risk. The process for acquiring venture capital financing sometimes is complicated, but generally there are five stages in the process of procuring venture capital financing.

Respond to the following in a minimum of 175 words: 

Discuss the five main stages in the process of venture capital financing. 

TOTAL ASSETS $_____________ = TOTAL LIABILITIES AND OWNER’S EQUITY $____________

A. Elvis Li opened a business bank account for his cleaning supplies company on March 1 with a deposit of $10,000.

B. Elvis Li Cleaning Supplies Co. sold $1,900 supplies to its customers on account. Cost of supplies sold was $1,200.

C. Elvis Li Cleaning Supplies Co. bought inventory for $10,000 on account suppliers on March 7.

D. Elvis Li Cleaning Supplies Co. sold inventory on account to customers on March 15 for $3,000. Cost of supplies sold was $2,500.

E. Elvis Li Cleaning Supplies Co. paid trucking fee of $500 in cash on March 16 to deliver goods to customers.

F. Elvis Li withdrew $4,000 cash from the company for personal use on March 29.

G. Company paid March trucking fee of $3,000 in cash on March 29.

H. On March 30, Elvis Li invested $5,000 more of his own cash in Elvis Li Cleaning Supplies Co.

You have a bike store. Your assets consist of $10,400 in inventory, $1,000 in equipment (phones, computers, etc.) and $600 cash. You are capitalized with $10,000 owners’ equity and $2,000 debt at 6%. Assume your only variable cost are the bikes you purchase from the manufacturer, $60/bike. Your fixed costs total $2500. During the year you purchased 250 bikes and sold them at $80/bike. But you only paid for half the bikes you bought; the rest were sold to you “on credit.” Your profits tax rate is 20%. What is your ROE for the year? You “took out” all the profits. Do the “money in – money out” to calculate the net change in cash for the year. What does your balance sheet look like at the end of the year?

Inputs: Use 2 inputs: cash flow vector, interest rate. Use values: cash flow = (-10, 2, 4, 5, 9, 6), interest rate = 12%. Assume that cash flows start at t=0 and go on year by year.

Output: Produce a table containing years, cash flows, PV of cash flows, and a summary with NPV, PI, and Payback.

(Rstudio)