AFN equation

Broussard Skateboard's sales are expected to increase by 15% from $7.0 million in 2016 to $8.05 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%.

1. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar.
$

2. Assume that an otherwise identical firm had $5 million in total assets at the end of 2016. The identical firm's capital intensity ratio (A₀*/S₀) is

-Select- 1. higher than    2. lower than 3.equal to

than Broussard's; therefore,

3. the identical firm is

-Select- 1.less    2. more 3. the same capital intensive -

4. it would require

-Select- 1. a smaller    2. a larger 3. the same increase in total assets to support the increase in sales.

Can companies act ethically or is there a need for greater governance beyond internal committees. Or do we require a higher level form of governance. Can social application companies govern themselves or does this require the government to intervene?

Dickinson Brothers, Inc., is considering investing in a machine to produce computer keyboards. The price of the machine will be $1,700,000, and its economic life is five years. The machine will be fully depreciated by the straight-line method. The machine will produce 27,000 keyboards each year. The price of each keyboard will be $59 in the first year and will increase by 4 percent per year. The production cost per keyboard will be $26 in the first year and will increase by 5 percent per year. The project will have an annual fixed cost of $285,000 and require an immediate investment of $250,000 in net working capital. The corporate tax rate for the company is 25 percent. The appropriate discount rate is 9 percent. What is the NPV of the investment?

Myers Business Systems is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are given next:

a. What is the expected value of unit sales for the new product?

b. What is the standard deviation of unit sales?

Calculate the monthly finance charge for the credit card transaction. Assume that it takes 10 days for a payment to be received and recorded, and that the month is 30 days long. (Round your answers to the nearest cent.)

$200 balance, 18%, $50 payment

(a) previous balance method

(b) adjusted balance method

(c) average daily balance method

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 $1500 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 _______

Decision #2 begins at the top of page 2!

Decision #2: Planning for Retirement

Erich and Mallory are 22, newly married, and ready to embark on the journey of life.   They both plan to retire 45 years from today. Because their budget seems tight right now, they had been thinking that they would wait at least 10 years and then start investing $3000 per year to prepare for retirement.   Mallory just told Erich, though, that she had heard that they would actually have more money the day they retire if they put $3000 per year away for the next 10 years - and then simply let that money sit for the next 35 years without any additional payments – then they would have MORE when they retired than if they waited 10 years to start investing for retirement and then made yearly payments for 35 years (as they originally planned to do).   Please help Erich and Mallory make an informed decision:   

Assume that all payments are made at the END a year (or month), and that the rate of return on all yearly investments will be 7.2% annually.  

(Please do NOT ROUND when entering “Rates” for any of the questions below)

1. How much money will Erich and Mallory have in 45 years if they do nothing for the next 10 years, then put $3000 per year away for the remaining 35 years?

2. How much money will Erich and Mallory have in 10 years if they put $3000 per year away for the next 10 years?

b2) How much will the amount you just computed grow to if it remains invested for the remaining

35 years, but without any additional yearly deposits being made?

3. How much money will Erich and Mallory have in 45 years if they put $3000 per year away for each of the next 45 years?

How much money will Erich and Mallory have in 45 years if they put away $250

4. per MONTH at the end of each month for the next 45 years? (Remember to adjust 7.2% annual rate to a Rate per month!)

5. If Erich and Mallory wait 25 years (after the kids are raised!) before they put anything away for retirement, how much will they have to put away at the end of each year for 20 years in order to have $1,000,000 saved up on the first day of their retirement 45 years from today?

Assume the car can be purchased for 0% down for 60 months (in lieu of rebate).

A car with a sticker price of $42,850 with factory and dealer rebates of $5,100

(a) Find the monthly payment if financed for 60 months at 0% APR. (Round your answer to the nearest cent.)

(b) Find the monthly payment if financed at 2.5% add-on interest for 60 months. (Round your answer to the nearest cent.)

(c) Use the APR approximation formula to find the APR for part (b). (Round your answer to one decimal place.)

(d) State whether the 0% APR or the 2.5% add-on rate should be preferred.   

Problem 2-08

The following information is available concerning the historical risk and return relationships in the U.S. capital markets:

1. Explain why the geometric and arithmetic mean returns are not equal and whether one or the other may be more useful for investment decision making.

   The arithmetic average assumes -Select-compounding or interest-on-interest; the presence of simple interest Item 1 , while the geometric average assumes -Select-compounding or interest-on-interest; the presence of simple interest Item 2 .

2. For the time period indicated, rank these investments on a relative basis using the coefficient of variation from most to least desirable. Do not round intermediate calculations. Round your answers to two decimal places.

   Rank	Investment Category	Сoefficient of variation, %
   1	-Select-Common Stocks, Long-term corporate bonds, Long-term government bonds, Real estate, Treasury bills Item 3
   2	-Select-Common Stocks, Long-term corporate bonds, Long-term government bonds, Real estate, Treasury bills Item 5
   3	-Select-Common Stocks, Long-term corporate bonds, Long-term government bonds, Real estate, Treasury bills Item 7
   4	-Select-Common Stocks, Long-term corporate bonds, Long-term government bonds, Real estate, Treasury bills Item 9
   5	-Select-Common Stocks, Long-term corporate bonds, Long-term government bonds, Real estate, Treasury bills Item 11

3. Assume the arithmetic mean returns in these series are normally distributed. Calculate the range of returns that an investor would have expected to achieve 95 percent of the time from holding long-term government bonds. Do not round intermediate calculations. Round your answers to two decimal places. Use a minus sign to enter negative values, if any.

   Arithmetic: from   % to    %

Below is a list of prices for $1,000-par zero-coupon Treasury securities of various maturities. An 11% coupon $100 par bond pays an semi-annual coupon and will mature in 1.5 years. What should be the YTM on the bond? Assume semi-annual interest compounding for this question. Maturity (periods) Price of $1,000 par bond

1 943.4

2 873.52

3 770

Equipment maintenance costs for manufacturing explosion-proof pressure switches are projected to be $125,000 in year one and increase by 2.5% each year through year five. What is the equivalent annual worth of the maintenance costs at an interest rate of 10% per year, compounded MONTHLY?

Please do not use excel and show formulas.

Nicki​ Johnson, a sophomore mechanical engineering​ student, receives a call from an insurance​ agent, who believes that Nicki is an older woman ready to retire from teaching. He talks to her about several annuities that she could buy that would guarantee her an annual fixed income. The annuities are as follows in the popup​ window: If Nicki could earn 9 percent on her money by placing it in a savings​ account, should she place it instead in any of the​ annuities? Which​ ones, if​ any? Why?

What rate of return could Nicki earn on her money if she place it in annuity A with $6,500 payment per year and 16 years duration?

Suppose you have access to the following bond data.

One year zero coupon bond, priced at 98, face value 100. Two year coupon bond, priced at 97. Annual coupons are $2, delivered at end of year. Three year coupon bond, priced at 96. Annual coupons are $3, delivered at the end of the year.

1. What is the coupon rate on the two-year coupon bond?

2. What is the current yield on the three-year coupon bond?

3. What is the yield-to-maturity of the three-year coupon bond?

4. Extract one year, two year, and three year spot rates from the bond data.

5. Using the spot rates, calculate the present value of $35 received in one year and $35 received in two years.

6. Using the spot rates, calculate the rate I should be able to lock in for a one year loan starting one year from now. Suppose now that you are a life insurance company projecting to pay benefits of $40 per year for the next 10 years to your policyholders. You are operating in an economy where the term structure of interest rates is completely flat at 4%, so that all spot rates are 4%.

7. Calculate the present value of your benefit obligations.

8. Calculate the duration of your benefit obligations.

9. Given your calculation above, if you were choosing a single type of bond from 1-year, 2-year, 3-year, 4-year, 5-year, 6-year, 7-year, 8-year, 9-year, and 10-year zero coupon bonds, which would serve you best from the perspective of asset-liability matching? In other words, if interest rates were to change, which bond’s price would move most closely with the present value of your obligations?

10. Calculate the percentage change in the value of your obligations if the interest rate were to drop from 4.0% to 3.9%.

11. Calculate the percentage change in the value of the bond you identified in (9) if the interest rate were to drop from 4.0% to 3.9%.

12. Calculate the percentage change in the value of a 1-year zero coupon bond if the interest rate were to drop from 4.0% to 3.9%.

13. (EXTRA CREDIT) If you were allowed to invest in more than one type of bond, could you provide a better match to your benefit obligations than you found in (9)? Propose a mix of bonds that would provide a better match, and verify that the percentage change in the value of the mix would more closely match the percentage change in obligation value in the interest rate scenario used in (10) through (12).

Bill has been adding funds to his investment account each year for the past 3 years. He started with an initial investment of $1,000. After earning a 10% return the first year, he added $3,000 to his portfolio. In this year his investments lost 5%. Undeterred, Bill added $2,000 the next year and earned a 2% return. Last year, discouraged by the recent results, he only added $500 to his portfolio, but in this final year his investments earned 8%. What was Bill's dollar-weighted average return for his investments?

You’ve just opened a margin account with $16,000 at your local brokerage firm. You instruct your broker to purchase 1,200 shares of Landon Golf stock, which currently sells for $28 per share. Suppose the call money rate is 7 percent and your broker charges you a spread of 1 percent over this rate. You hold the stock for 6 months and sell at a price of $35 per share. The company paid a dividend of $0.47 per share the day before you sold your stock. 1. What is your total dollar return from this investment? 2. What is your effective annual rate of return?