Kokomochi is considering the launch of an advertising campaign for its latest dessert​ product, the Mini Mochi Munch. Kokomochi plans to spend

$ 5.96

million on​ TV, radio, and print advertising this year for the campaign. The ads are expected to boost sales of the Mini Mochi Munch by

$ 8.78

million this year and

$ 6.78

r. In​ addition, the company expects that new consumers who try the Mini Mochi Munch will be more likely to try​ Kokomochi's other products. As a​ result, sales of other products are expected to rise by

$ 2.55

million each year.

​Kokomochi's gross profit margin for the Mini Mochi Munch is

34 %

and its gross profit margin averages

25 %

for all other products. The​ company's marginal corporate tax rate is

45 %

both this year and next year. What are the incremental earnings associated with the advertising​ campaign?

Note​:

Assume that the company has adequate positive income to take advantage of the tax benefits provided by any net losses associated with this campaign.

You are a manager at Percolated​ Fiber, which is considering expanding its operations in synthetic fiber manufacturing. Your boss comes into your​ office, drops a​ consultant's report on your​ desk, and​ complains, "We owe these consultants

$ 1.6$1.6

million for this​ report, and I am not sure their analysis makes sense. Before we spend the

$ 20$20

million on new equipment needed for this​ project, look it over and give me your​ opinion." You open the report and find the following estimates​ (in millions of​ dollars):  ​(Click on the following icon

  

in order to copy its contents into a​ spreadsheet.)

	Project Year
Earnings Forecast​ ($ million)	1	2	. . .	9	10
Sales revenue	25.00025.000	25.00025.000		25.00025.000	25.00025.000
minus−Cost of goods sold	15.00015.000	15.00015.000		15.00015.000	15.00015.000
equals=Gross profit	10.00010.000	10.00010.000		10.00010.000	10.00010.000
minus−​Selling, ​general, and administrative expenses	1.6001.600	1.6001.600		1.6001.600	1.6001.600
minus−Depreciation	2.0002.000	2.0002.000		2.0002.000	2.0002.000
equals=Net operating income	6.4006.400	6.4006.400		6.4006.400	6.4006.400
minus−Income tax	1.281.28	1.281.28		1.281.28	1.281.28
equals=Net unlevered income	5.1205.120	5.1205.120		5.1205.120	5.1205.120

All of the estimates in the report seem correct. You note that the consultants used​ straight-line depreciation for the new equipment that will be purchased today​ (year 0), which is what the accounting department recommended. The report concludes that because the project will increase earnings by

$ 5.120$5.120

million per year for ten​ years, the project is worth

$ 51.2$51.2

million. You think back to your halcyon days in finance class and realize there is more work to be​ done!  

​First, you note that the consultants have not factored in the fact that the project will require

$ 11$11

million in working capital upfront​ (year 0), which will be fully recovered in year 10.​ Next, you see they have attributed

$ 1.6$1.6

million of​ selling, general and administrative expenses to the​ project, but you know that

$ 0.8$0.8

million of this amount is overhead that will be incurred even if the project is not accepted.​ Finally, you know that accounting earnings are not the right thing to focus​ on!

a. Given the available​ information, what are the free cash flows in years 0 through 10 that should be used to evaluate the proposed​ project?

b. If the cost of capital for this project is

16 %16%​,

what is your estimate of the value of the new​ project?

Aday Acoustics, Inc., projects unit sales for a new 7-octave voice emulation implant as follows:

Year		Unit Sales
1			76,500
2			81,900
3			88,200
4			84,800
5			72,300

Production of the implants will require $1,550,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $4,150,000 per year, variable production costs are $150 per unit, and the units are priced at $332 each. The equipment needed to begin production has an installed cost of $19,200,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as 7-year MACRS property. In five years, this equipment can be sold for about 25 percent of its acquisition cost. The company is in the 25 percent marginal tax bracket and has a required return on all its projects of 15 percent. MACRS schedule.

  

What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What is the IRR of the project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Garlington Technologies Inc.’s 2018 financial statements are shown here: Balance Sheet as of December 31, 2018 Cash $ 180,000 Accounts payable $ 360,000 Receivables 360,000 Notes payable 156,000 Inventories 720,000 Line of credit 0 Total current assets $1,260,000 Accruals 180,000 Fixed assets 1,440,000 Total current liabilities $ 696,000 Common stock 1,800,000 Retained earnings 204,000 Total assets $2,700,000 Total liabilities and equity $2,700,000 Income Statement for December 31, 2018 Sales $3,600,000 Operating costs 3,279,720 EBIT $ 320,280 Interest 18,280 Pre-tax earnings $ 302,000 Taxes (40%) 120,800 Net income $ 181,200 Dividends $ 108,000

Suppose that in 2019 sales increase by 10% over 2018 sales and that 2019 dividends will increase to $112,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2018. Use an interest rate of 13%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all-new debt will be in the form of a line of credit.

What is the present value of an annuity that pays $6,500 per year for 9 years with a 11% interest rate with the first payment TODAY.

Dingel Inc. is attempting to evaluate three alternative capital structures - A,B,C. The following table shows the three structures along with relevant cost data. The firm is subject to a 40% tax rate. The risk-free rate is 5.3% and the market return is currently 10.7%

		Capital Structure
Item	A	B	C
Debt($ million)	35	45	55
Preferred Stock ($ million)	0	10	10
Common Stock ($ million)	65	45	35
Total Capital	100	100	100
Debt (yield to maturity)	7.0%	7.5%	8.5%
Annual Preferred Stock Dividend	-	$2.80	$2.20
Preferred Stock (Market Price)	-	$30.00	$21.00
Common Stock Beta	.95	1.10	1.25

(a) Calculate the after-tax cost of debt for each capital structure

(b) Calculate the cost of preferred stock for each capital structure

(c) Calculate the cost of common stock for each capital structure

(d) Calculcate the weighted average cost of capital (WACC) for each capital structure

(e) compare the WACCs calculated in part (d) and discuss the impact of the firm's financial leverage on its WACC and its related risk

Please include detail of work

Sales Increase

Maggie's Muffins Bakery generated $2,000,000 in sales during 2016, and its year-end total assets were $1,400,000. Also, at year-end 2016, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000 of accruals. Looking ahead to 2017, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 6%, and its payout ratio will be 55%. How large a sales increase can the company achieve without having to raise funds externally—that is, what is its self-supporting growth rate? Do not round intermediate calculations. Round your answers to the nearest whole.

Question:

Sales can increase by

① $    ,

② that is　by    %

Anderson international Limited is evaluating a project in Erewhon. The project will create the following cash flows:

year Cash flow

0 -$1,190,000

1 365,000

2 430,000

3 325,000

4 280,000

All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that

all cash flows created by a foreign company are "blocked" and must be reinvested with the government for one year. The reinvestment rate for these funds

is 5 percent.

If Anderson uses a required return of 9 percent on this project, what are the NPV and IRR of the project?

Financial Forecasting:

To determine potential future financial needs, one must generate a plan based not only on past relationships but also on reasonable future projections. Using ratios to help formulate a forecast where sales drive results is an important step in the planning process.

The financial planning models generated by forecasting activities help synthesize the financial manager's thinking about financial, as well as operational, relationships. To generate an estimate of future funding needs, financial planning models use the traditional financial statements you know and love the balance sheet, the income statement, and the statement of cash flows. There are some slight differences, however, between an accounting approach and a financial approach to planning. Specifically, from a current assets and current liabilities perspective, the focus is on firm operations, and not the financial instruments that represent short-term balance entries.

For example, accounts receivable and inventories are used from the current assets section, but cash and marketable securities are not. Accounts payable, taxes payable, and wages payable are used from the current liabilities section, but short-term debt and current portion of long-term debt are not used in the planning process. Remember the focus... Generating a financial plan helps determine future financing needs, incorporates operational plans into financial plans, and provides bases for firm valuation. All those factors should be driven by operations, and not access to short-term financial instruments. Although the outcome of a plan may be a need or estimated need for access for "what-to-do," e.g. how much short-term borrowing should we do in the short-term, the starting point excludes those factors.

Required:

When planning an acquisition, financial forecasts often provide guidance for future activities.

1. How long in the future do you think is an appropriate length of time to formulate a financial plan? Write 50 words.

2. What financial forecasting experience do you have? Write 100 words.

3. Why do you think financial forecasting might be problematic? Write 100 words.

Please write in your own words. Please don't copy from anywhere and give the link which is used for writing.

Delectable Parsnip, Inc.’s, net income for the most recent year was $15,221. The tax rate was 23 percent. The firm paid $5,010 in total interest expense and deducted $5,447 in depreciation expense.

What was the company’s cash coverage ratio for the year? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

You need to pay for the property taxes on your house in 6 months. The property taxes at that time will be $6,000 . How much do you have to invest each month, starting next month, for 5 months to exactly pay for the taxes if your investments earn 5.00% APR (compounded monthly)? a. 1,185 b. 1,227 c. 1,221 d. 1,140 d.

Financial Derivatives

40. Identify the formation of a butterfly spread, straddle and strangle. Identify the formation of Tunel, Condor, Ratio Spread Call and Put

The market value of Owl Fund Industries common stock is $125 million and the market value of its debt is $25 million. The beta of the company's common stock is 1.0 and the expected risk premium on the market portfolio is 6.5 percent. If the Treasury bill rate is 3 percent and the yield on its debt is 4%, what is the company's cost of capital assuming the tax rate is 0%.

You are asked to evaluate the following two projects for the Norton corporation. Use a discount rate of 14 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Project X (Videotapes of the Weather Report) ($46,000 Investment)						Project Y (Slow-Motion Replays of Commercials) ($66,000 Investment)
Year		Cash Flow				Year		Cash Flow
1		$	23,000			1		$	33,000
2			21,000			2			26,000
3			22,000			3			27,000
4			21,600			4			29,000

Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .75. It’s considering building a new $47 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $5.9 million in perpetuity. The company raises all equity from outside financing. There are three financing options:

1.	A new issue of common stock: The flotation costs of the new common stock would be 7.7 percent of the amount raised. The required return on the company’s new equity is 15 percent.
2.	A new issue of 20-year bonds: The flotation costs of the new bonds would be 3.3 percent of the proceeds. If the company issues these new bonds at an annual coupon rate of 5.6 percent, they will sell at par.
3.	Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, it has no flotation costs and the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .10. Assume there is no difference between the pretax and aftertax accounts payable costs.

What is the NPV of the new plant? Assume that PC has a 23 percent tax rate. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole dollar amount, e.g., 1,234,567.)

***Note: Answer is NOT $5,567,662