1. In an L.A. Law episode, an automobile manufacturer knowingly built cars that had a significant safety flaw. Rather than redesigning the cars (at substantial additional cost), the manufacturer calculated the expected costs of future lawsuits and determined that it would be cheaper to sell an unsafe car and defend itself against lawsuits than to redesign the car. What issues does the financial analysis overlook? What is the consequence of not redesigning the car?

DataPoint Engineering is considering the purchase of a new piece of equipment for $205,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $210,000 in nondepreciable working capital. Seventy-two thousand dollars of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12–11, Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

The tax rate is 25 percent. The cost of capital must be computed based on the following:

a. Determine the annual depreciation schedule. (Do not round intermediate calculations. Round your depreciation base and annual depreciation answers to the nearest whole dollar. Round your percentage depreciation answers to 3 decimal places.)

b. Determine the annual cash flow for each year. Be sure to include the recovered working capital in Year 6. (Do not round intermediate calculations and round your answers to 2 decimal places.)

c. Determine the weighted average cost of capital. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

d-1. Determine the net present value. (Use the WACC from part c rounded to 2 decimal places as a percent as the cost of capital (e.g., 12.34%). Do not round any other intermediate calculations. Round your answer to 2 decimal places.)

d-2. Should DataPoint purchase the new equipment?
  

• Yes

• No

Suppose someone offered to sell you a note calling for the payment of $1,000 in 15 months (or 456 days). They offer to sell it to you for $850. You have $850 in a bank time deposit that pays a 6.76649% rate with daily compounding, and you plan to leave the money in the bank unless you buy the note. The note is not risky and you are sure it will be paid on schedule. Should you buy the note? Check the decision two ways: (1) by comparing your future value if you buy the note versus leaving your money in the bank and (2) by comparing the PV of the note with your current bank account.

FV Note = ____

FV Bank = _____

PV Note = ____

PV Bank = ____

Should I buy this note?

At the beginning of the year, long-term debt of Cooper Tires is $2,459 and total debt is $3,018. At the end of the year, long-term debt is $2,573 and total debt is $3,319. The interest paid is $129. What is the amount of the cash flow to creditors?

Lloyd is a divorce attorney who practices law in Florida. He wants to join the American Divorce Lawyers Association (ADLA), a professional organization for divorce attorneys. The membership dues for the ADLA are $750 per year and must be paid at the beginning of each year. For instance, membership dues for the first year are paid today, and dues for the second year are payable one year from today. However, the ADLA also has an option for members to buy a lifetime membership today for $8,000 and never have to pay annual membership dues.

Obviously, the lifetime membership isn’t a good deal if you only remain a member for a couple of years, but if you remain a member for 40 years, it’s a great deal. Suppose that the appropriate annual interest rate is 7.1%. What is the minimum number of years that Lloyd must remain a member of the ADLA so that the lifetime membership is cheaper (on a present value basis) than paying $750 in annual membership dues? (Note: Round your answer up to the nearest year.)

16 years

22 years

20 years

18 years

Find the rates of return to do the following:

A.) Double an investment in 4 years,

B.) double the investment in 10 years,

C.) triple an investment in 4 years,

triple an investment in 10 years

1. A bond trader purchased each of the following bonds at a yield to maturity of 11%. Immediately after she purchased the bonds, interest rates fell to 9%. What is the percentage change in the price of each bond after the decline in interest rates? Fill in the following table:

Price @ 11%       Price @ 9%         Percentage Change

Tom Alexander has an opportunity to purchase any of the investments shown in the following. The purchase price, the amount of the single cash inflow, and is year of receipt are given for each investment. Which purchase recommendations would you make, assuming that Tom can earn 10% on his investment. Investment A: today price—$18000, single cash inflow— $30000, year of receipt —5 Investment B: today price—$600, single cash inflow— $3000, year of receipt —20 Investment C: today price—$3500, single cash inflow— $10000, year of receipt —10 Investment D: today price—$1000, single cash inflow— $15000, year of receipt —40

A. Investment C and D

B. Investment B and C

C. Investment A and B

D. Investment A and C

Calculate the present value of the annuity assuming that it is (1) an ordinary annuity (2) an annuity due. Comparing the two types of annuities, all else equal, which type is more preferable? Why? Amount of annuity=$12,000 Interest rate=7% Deposit period (years)=3

Ordinary annuity = 33696, annuity due = 31492, ordinary annuity is better because it discounts for one less year.

Ordinary annuity = 31492, annuity due = 33696, annuity due is better because it discounts for one less year.

Ordinary annuity = 33696, annuity due = 31492, ordinary annuity is better because it compounds for one more year.

Ordinary annuity = 31492, annuity due = 33696, annuity due is better because it compounds for one more year.

Bilbo Baggins wants to save money to meet three objectives. First, he would like to be able to retire 30 years from now with retirement income of $23,000 per month for 25 years, with the first payment received 30 years and 1 month from now. Second, he would like to purchase a cabin in Rivendell in 15 years at an estimated cost of $499,000. Third, after he passes on at the end of the 25 years of withdrawals, he would like to leave an inheritance of $800,000 to his nephew Frodo. He can afford to save $1,700 per month for the next 15 years.

If he can earn a 9 percent EAR before he retires and a 7 percent EAR after he retires, how much will he have to save each month in Years 16 through 30?

(Please don't link another post, I've repeatedly attempted to solve this problem while looking at another post. I had no luck at all, so I would appreciate an explanation, thank you so much!)

Define and describe the following: 1. Capital Gain/Loss 2. Current Yield (be sure to review the Module Notes) 3. Holding Period Return (be sure to review the Module Notes) 4. Investment Horizon.

Stock A has a current price of $35.00, a beta of 1.05, and a dividend yield of 6.3 percent. If the Treasury bill yield is 5.5 percent and the market portfolio is expected to return 12 percent, what should Stock A sell for at the end of an investor's two year investment horizon?

1. You have decided to retire. You would like to receive equal retirement payments each year for the next 10 years. You want to receive your first retirement payment in one year. You currently have $1,000,000 of savings. You expect to receive another $1,000,000 in 5 years. You can earn 10 percent interest compounded annually on your savings. How large will your annual retirement payment be?

2. What is the Annual Percentage Rate (APR) if the Effective Annual Rate (EAR) is 10% and your money is compounded quarterly?

3. You take out a $100,000 five-year loan with annual payments. You will pay 10% interest compounded annually. How much will your annual payments be? How much total interest will you pay?

4. You want to buy a car in five years and a boat in ten years. Today, the car and boat cost $5,000 and $10,000, respectively. The price of the boat and car will grow by 3% each year. How much money do you need to put away each year (equal payments at the end of the year) for the next three years, to have enough money saved to buy the boat and car? You will receive 10% interest compounded annually.

Please help me with the setup of these problems to solve correctly.

Thanks!

You are bearish on Commodore stock and decide to sell short 100 shares at the current market price of $60 per share. (the stock does not expect dividends so ignore any expected dividend)

a) How much cash must you put into your brokerage account if the initial margin requirement is 50% of the value of the short position?

b) If you are wrong and the stock price increases, at what price would you receive a margin call from your broker if the maintenance margin is 30% of the value of the short position?

Please show all work.