A stock will pay an annual dividend next year of $5 per share. Dividends will grow at 30% for the following 2 years and then at 5% thereafter. What is V₀ if K=0.1?

A project has an initial requirement of $206,204 for new equipment and $8,111 for net working capital. The installation costs are expected to be $10,540. The fixed assets will be depreciated to a zero book value over the 4-year life of the project and have an estimated salvage value of $110,343. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $70,468 and the cost of capital is 11% What is the project's NPV if the tax rate is 37%? Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

​(Divisional costs of capital and investment decisions​) In May of this​ year, Newcastle Mfg.​ Company's capital investment review committee received two major investment proposals. One of the proposals was put forth by the​ firm's domestic manufacturing​ division, and the other came from the​ firm's distribution company. Both proposals promise a return on invested capital to approximately 14 percent. In the​ past, Newcastle has used a single​ firm-wide cost of capital to evaluate new investments. ​However, managers have long recognized that the manufacturing division is significantly more risky than the distribution division. In​ fact, comparable firms in the manufacturing division have equity betas of about 1.6​, whereas distribution companies typically have equity betas of only 1.2. Given the size of the two​ proposals, Newcastle's management feels it can undertake only​ one, so it wants to be sure that it is taking on the more promising investment. Given the importance of getting the cost of capital estimate as close to correct as​ possible, the​ firm's chief financial officer has asked you to prepare cost of capital estimates for each of the two divisions. The requisite information needed to accomplish your task​ follows:

: The cost of debt financing is 11 percent before a marginal tax rate of 26 percent. You may assume this cost of debt is after any flotation costs the firm might incur.
:The​ risk-free rate of interest on​ long-term U.S. Treasury bonds is currently 6.2 ​percent, and the​ market-risk premium has averaged 4.9 percent over the past several years. : Both divisions adhere to target debt ratios of 70 percent.
: The firm has sufficient internally generated funds such that no new stock will have to be sold to raise equity financing.

a. Estimate the divisional costs of capital for the manufacturing and distribution divisions.

b. Which of the two projects should the firm undertake​ (assuming it cannot do both due to labor and other nonfinancial​ restraints)? Discuss.

Introduction - AdCreate's Client Portfolio. Read the overview below and complete the activities that follow.

AdCreate is a full-service advertising agency with several high profile marketing firms as clients. Given their vast client list and the varied services they provide to different clients, they are compensated differently by different clients. Jacob Stein, who recently joined AdCreate in the finance department, was asked to review the various compensation models being used by some of AdCreate's biggest clients.

CONCEPT REVIEW: The type and amount of services an ad agency performs vary from one client to another. As a result, agencies use a variety of methods to get paid for their services. Agencies are typically compensated in three ways: commissions, some type of fee arrangement, or percentage charges.

Case Analysis

Agency Compensation Methods:

Read the report below, which provides a summary of AdCreate's compensation agreements with four of its major clients, and answer the questions that follow. NOTE: There may be more than one answer to each question. You MUST list all potential answers for full marks.

AdCreate has a negotiated commission system agreement with Worry Free Financial. Worry FreeFinancial advertises on T.V. mainly and has the following sliding scale for media commissions in its agreement with AdCreate: 15% commission for media expenditures of less than $ 300,000, 12.5%commission for media expenditures between $ 300,000 and $ 400,000 and 10% commission for media expenditures above $ 500,000.

AdCreate has a cost-plus agreement with Still Water Furnishings. Under the cost-plus terms, AdCreate uses a mark up of 13% for services provided to Still Water Furnishings.

With Anchor Motors, AdCreate has an incentive-based agreement. Under the terms of this agreement, AdCreate gets to keep the full 15% commission from media if Anchor Motor's sales for the period of advertising show an increase of 5% or greater compared to sales in the same period the previous year. For sales increase between 3% and 5%, AdCreate gets to keep 13% out of the 15% media commission. Finally, for sales increase between 1% and 3%, AdCreate gets to keep 10% out of the 15% media commission.

AdCreate has a percentage charges agreement with Globe Travel Adventures. Under these terms, AdCreate charges a mark up of 17.65% on services from outside providers like printers, photographers, etc.

Please explain your answers, and why you chose that specific answer over others.

Question 1.

AdCreate has negotiated a rate of 12.5% for a commission system payment, with Worry Free Financial for a campaign in 2010. AdCreate arranged for airing three ads, during Newshour on CNN, in the first week of the launch campaign. AdCreate's income for these three ads in the first week was $49,375. Based on this information, which of the following is true?

• I. The client (Worry Free Financial) paid AdCreate $425,625 for the three ads

• II. AdCreate paid CNN $425,625 for the three ads

• III. AdCreate paid CNN $345,625 for the three ads

Question 2.

Under the cost-plus agreement that AdCreate has with its client Still Water Furnishings, Jacob Stein noticed that AdCreate incurred costs of $625,000 for a print and direct mail campaign during 2010. Under the cost-plus terms, AdCreate used a mark up of 13% for services provided to Still Water Furnishings. Based on this information, which of the following is true?

• a. The client (Still Water Furnishings) paid AdCreate $706,250 in 2010

• b. AdCreate's income from the Still Water Furnishings account in 2010 was $81,250

• c. The client (Still Water Furnishings) paid AdCreate $700,000 in 2010

Question 3.

In reviewing the incentive-based agreement between AdCreate and Anchor Motors, Jacob Stein found that sales of Anchor rose 5.2% compared to the previous year in the second quarter. AdCreate paid the media $895,000 for Anchor Motors ads during the same period. Based on this information, which of the following is true for the second quarter billings?

• a. AdCreate billed Anchor Motors $1,152,941 for the second quarter in 2010

• b. AdCreate's income from the Anchor Motors account for the second quarter of 2010    

       was $257,941

• c. AdCreate billed Anchor Motors $1,052,941 for the second quarter in 201

Question 4.

In reviewing the agreement between AdCreate and Anchor Motors, Jacob Stein found that sales of Anchor rose 2.8% compared to the previous year in the third quarter. AdCreate paid the media $450,000 for Anchor Motors ads during the same period. Based on this information, which of the following is true for the third quarter billings?

• 1. AdCreate billed Anchor Motors $502,941 for the third quarter in 2010

  2. AdCreate's income from the Anchor Motors account for the third quarter of 2010 was $79,412

• 3. AdCreate billed Anchor Motors $529,412 for the third quarter in 2010

• Question 5.

In reviewing the percentage charges agreement between AdCreate and Globe Travel Adventures, Jacob Stein found that AdCreate paid a printing firm $220,000 for a direct mail brochure for Globe Travel Adventures in 2010. Based on this information, which of the following is true?

• 1. AdCreate's income from Globe Travel Adventures in 2010 was $28,830

• 2. The mark up of 17.65% of the cost amounts to a 15% commission

3. AdCreate billed Anchor Motors $258,830 in 2010

** Round all answers to two decimal places. can you please show the work so i can understand**

Part I - Use CVP to Plan Profits

Nottingham News Company has the rights to sell and deliver the city newspaper in a designated area in the country. A monthly subscription sells for $30.00 and Nottingham News pays $10.00 per month for each newspaper subscription. In addition to this variable cost, Nottingham News has fixed costs of $3,000 per month. Nottingham News currently activity level is 700 subscriptions.

1. Calculate the contribution margin ratio and explain the ratio as it pertains to Nottingham News Company.

2. Use the mathematical formula to calculate Nottingham News' monthly breakeven point in units (number of subscriptions).

3. Use the shortcut contribution margin approach to calculate Nottingham News' monthly breakeven in units (number of subscriptions).

4. Prove the breakeven point by preparing a contribution margin income statement.

5. Use the contribution margin ratio, which you calculated in number one to compute Nottingham News' breakeven point in sales dollars.

6. Calculate the margin of safety ratio and explain the ratio as it pertains to Nottingham News Company.

The owner of Nottingham News' wants to earn a $10,000 profit per month. Calculate the sales volume in units (number of subscriptions) and sales dollars required to achieve this level of profit.

BU IT needs you to analyze the impact of a new project that will cause its cash flows to increase $6,000 over last year’s, and continue to grow at a constant rate of 10% per year for the foreseeable future. The discount rate is 20%. You need to analyze this in three ways.

Calculate the NPV and IRR of this new project based on an initial investment cost of $45,000 and the change in cash flows each year, assuming the growth continues forever.

Find the NPV of this project if the project only generates cash flows for 20 years.

Use an embedded function in Excel to calculate the NPV of the project if the cash flows had zero growth, and the project only generates cash flows for 40 years.

Leona Motel’s debt has a face value of $40 million, a coupon rate of 14% (paid semiannually), and expires in 12 years (at t = 12). The current annual yield-to-maturity (stated) for all bonds of the company is 15%.

a. Leona wishes to conserve cash for the next few years. To do this, Leona decides to issue new equity and use the proceeds to purchase the existing debt at the market price. The current stock price of Leona is $60 and there are 2 million shares outstanding. How many shares should Leona issue to purchase the existing debt? Assume the decision to purchase the bond does not change the stock price.

b. Instead, the company decides to issue a zero-coupon bond that matures at t = 5, and use the proceeds to purchase the existing debt at the market price. What is the face value of the zero-coupon bond that Leona needs to issue?

What audit area should the company be prepared for the auditor to review all purchases?

Critically discuss the effect of increasing the amount paid upfront when corporations make capital purchases, focusing on the benefits and drawbacks

What recent factors have made U.S. markets less attractive to foreign investors and issuers?

“If a stock goes up, you should sell it to lock in the gain and buy another stock, but if it goes down you should hold it to recoup the loss”.

Evaluate this statement a) with no taxes, and b) with taxes.

Barron’s recently reported results of a study showing that if one picked stocks at random, the performance of that strategy generally beat the performance of the S&P 500. Is this result surprising? Explain.

The City of Allentown is issuing a 30-year bond with a face value of $80,000,000 and a stated annual interest rate of 5 percent. The town will make interest payments twice a year.

1. Calculate the semiannual interest payment.

2. Calculate how much Allentown will receive from the bond offering under the following conditions:

a. Market interest rates remain unchanged at the time of the offering.

b. Market interest rates increase to 6 percent at the time of the offering

Decision #1:   Which set of Cash Flows is worth more now?

Assume that your grandmother wants to give you generous gift. She wants you to choose which one of the following sets of cash flows you would like to receive:

Option A: Receive a one-time gift of $ 10,000 today.   

Option B: Receive a $1500 gift each year for the next 10 years. The first $1400 would be

     received 1 year from today.            

Option C: Receive a one-time gift of $18,000 10 years from today.

Compute the Present Value of each of these options if you expect the interest rate to be 3% annually for the next 10 years.    Which of these options does financial theory suggest you should choose?

       Option A would be worth $__________ today.

      Option B would be worth $__________ today.

       Option C would be worth $__________ today.

       Financial theory supports choosing Option _______

Compute the Present Value of each of these options if you expect the interest rate to be 6% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

       Option A would be worth $__________ today.

       Option B would be worth $__________ today.

       Option C would be worth $__________ today.

      Financial theory supports choosing Option _______

Compute the Present Value of each of these options if you expect to be able to earn 9% annually for the next 10 years. Which of these options does financial theory suggest you should choose?

       Option A would be worth $__________ today.

       Option B would be worth $__________ today.

       Option C would be worth $__________ today.

       Financial theory supports choosing Option _______