The 2017 balance sheet of Kerber’s Tennis Shop, Inc., showed $2.6 million in long-term debt, $740,000 in the common stock account, and $5.95 million in the additional paid-in surplus account. The 2018 balance sheet showed $3.8 million, $965,000, and $8.05 million in the same three accounts, respectively. The 2018 income statement showed an interest expense of $200,000. The company paid out $570,000 in cash dividends during 2018. If the firm's net capital spending for 2018 was $670,000, and the firm reduced its net working capital investment by $155,000, what was the firm's 2018 operating cash flow, or OCF?

The Financial Advisor’s Investment Case Inferior Investment Alternatives

Although investing requires the individual to bear risk, the risk can be controlled through the construction of diversified portfolios and by excluding any portfolio that offers an inferior return for a given amount of risk. While this concept seems obvious, one of your clients, Laura Spegele, is considering purchasing a stock that you believe will offer an inferior return for the risk she will bear. To convince her that the acquisition is not desirable, you want to demonstrate the trade-off between risk and return.

   While it is impractical to show the trade-off for all possible combinations, you believe that illustrating several combinations of risk and return and applying the same analysis to the specific investment should be persuasive in discouraging the purchase. Currently, U.S. Treasury bills offer 7 percent. Three possible stocks and their betas are as follows:

1. What will be the expected return and beta for each of the following portfolios?

a) Portfolios 1 through 4: All of the funds are invested solely in one asset (the corresponding three stocks or the Treasury bill).

b) Portfolio 5: One-quarter of the funds are invested in each alternative.

c) Portfolio 6: One-half of the funds are invested in stock A and one-half in stock C.

d) Portfolio 7: One-third of the funds are invested in each stock.

2. Are any of the portfolios inefficient?

3. Is there any combination of the Treasury bill and stock C that is superior to portfolio 6 (i.e., half the funds in stock A and half in stock C)?

4. Since your client’s suggested stock has an anticipated return of 12 percent and a beta of 1.4, does that information argue for or against the purchase of the stock?

5. Why is it important to consider purchasing an asset as part of a portfolio and not as an independent act?

Suppose that today (January 1) you deposited $1000 into a savings that pays 8 percent.

a. If the bank compounds interest annually, how much will you have in your account three years from today?

b. What would your balance be in three years if the bank used quarterly compounding rather than annual compounding?

c. Suppose you deposited the $1000 in four payments of $250 each on January 1 of the next four years, beginning one year from today. How much would you have in your account in four years when the last deposit is made assuming that interest is 8 percent compound annually?

d. Suppose you deposited four equal payments in your account beginning next January 1, assuming an 8 percent interest rate, how large would each of your payments have to be for you to obtain the same ending balance as you calculating in part a?

"You are invited to speak to a group of young professionals who are interested in joining the financial industry. The organizer requests that you speak on the importance of financial regulation. Using at least two real world historical situations, explain why it is important for financial institutions to be regulated."

DEF Manufacturing Company has considered investing in two independent projects, which both will result in a cost of $1,500,000. Each project is expected to last 6 years. Project A ‘s annual cash flows are listed as follows: Year 1: $265,000; Year 2: $265,000; Year 3: $265,000 Year 4: $525,000; Year 5: $449,000; Year 6: $820,000. Project B annual cash flows are listed as follows: Year 1: $220,000; Year 2: $449,000; Year 3: $525,000; Year 4: $765,000; Year 5: $765,000; Year 6: $765,000. DEF’s cost of capital is 12%.

A) Calculate each project’s NPV.

B) Compute each project’s IRR.

C) Calculate Payback Period for both projects

D) As the financial analyst evaluating this project, would you accept/reject one or accept or reject

both? Would your answer change if the projects were mutually exclusive?

Mrs.McNamara just turned 44 and is beginning to plan for her retirement. She would like to make annual contributions to a retirement fund beginning with X on her 45th birthday and increasing by $500 each year until her last contribution on her 64th birthday.

These contributions should fund annual retirement checks beginning with $50,000 on her 65th birthday and increasing by 5% each year until her last retirement check issued on her 84th birthday. The fund will earn interest at the nominal rate of 10% convertible semiannually.

Determine which of the following is closest to the minimum X needed to ensure that Mrs. McNamara's retirement goals are met.

Ans: At least $6700, but less than $7100.

What are the basic benefits and purposes for a company to develop pro forma statements and a cash budget? What key factors go into developing these statements?

Your firm has taken out a $451,000 loan with 8.6% APR​ (compounded monthly) for some commercial property. As is common in commercial real​ estate, the loan is a 55​-year loan based on a

15​-year amortization. This means that your loan payments will be calculated as if you will take 15 years to pay off the​ loan, but you actually must do so in 55 years. To do​ this, you will make

59 equal payments based on the 15​-year amortization schedule and then make a final 60th payment to pay the remaining balance.  ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

a. What will your monthly payments​ be?

b. What will your final payment​ be?

The mortgage on your house is five years old. It required monthly payments of $1,402​, had an original term of 30​ years, and had an interest rate of 8% ​(APR). In the intervening five​ years, interest rates have fallen and so you have decided to

refinance—that is, you will roll over the outstanding balance into a new mortgage. The new mortgage has a​ 30-year term, requires monthly​ payments, and has an interest rate of 5.625% (APR).

a. What monthly repayments will be required with the new​ loan?

b. If you still want to pay off the mortgage in 25​ years, what monthly payment should you make after you​ refinance?

c. Suppose you are willing to continue making monthly payments of $1,402.How long will it take you to pay off the mortgage after​ refinancing?

d. Suppose you are willing to continue making monthly payments of $1,402​,and want to pay off the mortgage in 25 years. How much additional cash can you borrow today as part of the​ refinancing?

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?