1. What are the risks and problems of living in subdivided housing units? List and explain four of them.

2. You are offered an annuity that will pay $10,000 a year for ten years (that is, ten payments), but the payments start after five years have elapsed. If you want to earn 8% on your funds, what is the maximum you should pay for this annuity?

Quantitative Problem: Adams Manufacturing Inc. buys $10.8 million of materials (net of discounts) on terms of 2/10, net 50; and it currently pays after 10 days and takes the discounts. Adams plans to expand, which will require additional financing. If Adams decides to forgo discounts, how much additional credit could it obtain? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest cent. Use a 365-day year.

$

What would be the nominal and effective cost of such a credit? Do not round intermediate calculations. Round your answers to two decimal places. Use a 365-day year.

Nominal cost: ?

Effective cost?

If the company could receive the funds from a bank at a rate of 8.30%, interest paid monthly, based on a 365-day year, what would be the effective cost of the bank loan? Do not round intermediate calculations. Round your answer to two decimal places.

?? %

Should Adams use bank debt or additional trade credit?

​(Alternative dividend policies​)
Final earnings estimates for the Smithfield Meat Packing Company have been prepared for the CFO of the company and are shown in the following​ table:
YEAR   PROFITS AFTER TAXES
1 18,000,000
2 21,000,000
3 19,000,000
4 23,000,000
5 25,000,000
The firm has 7,700,000 shares of common stock outstanding. As assistant to the​ CFO, you are asked to determine the yearly dividend per share to be paid depending on the following possible​ policies:

a. A stable dollar dividend targeted at 50 percent of earnings over a​ 5-year period.

b. A​ small, regular dividend of ​$0.70 per share plus a​ year-end extra when the profits in any year exceed ​$20,000,000. The​ year-end extra dividend will equal 60 percent of profits exceeding ​$20,000,000.

c. A constant dividend payout ratio of 45 percent.

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $70,000, and it would cost another $10,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $28,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require an $13,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $67,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 35%.

a. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent.  

b. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest cent.

c. If the WACC is 14%, should the spectrometer be purchased?

Wolfson Corporation has decided to purchase a new machine that costs $3.9 million. The machine will be depreciated on a straight-line basis and will be worthless after four years. The corporate tax rate is 23 percent. The Sur Bank has offered Wolfson a four-year loan for $3.9 million. The repayment schedule is four yearly principal repayments of $975,000 and an interest charge of 7 percent on the outstanding balance of the loan at the beginning of each year. Both principal repayments and interest are due at the end of each year. Cal Leasing Corporation offers to lease the same machine to Wolfson. Lease payments of $1,110,000 per year are due at the beginning of each of the four years of the lease.

a. What is the NAL of leasing for Wolfson? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) b. What is the maximum annual lease Wolfson would be willing to pay?

Lewis Health System Inc. has decided to acquire a new electronic health record system for its Richmond hospital. The system receives clinical data and other patient information from nursing units and other patient care areas, then either displays the information on a screen or stores it for later retrieval by physicians. The system also permits patients to call up their health record on Lewis's website.

The equipment costs $1,000,000, and, if it were purchased, Lewis could obtain a term loan for the full purchase price at a 10 percent interest rate. Although the equipment has a six-year useful life, it is classified as a special-purpose computer, so it falls into the MACRS three-year class. If the system were purchased, a four-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after four years, and the best estimate of its residual value at that time is $200,000. However, since real-time display system technology is changing rapidly, the actual residual value is uncertain.   

As an alternative to the borrow-and-buy plan, the equipment manufacturer informed Lewis that Consolidated Leasing would be willing to write a four-year guideline lease on the equipment, including maintenance, for payments of $260,000 at the beginning of each year. Lewis's marginal federal-plus-state tax rate is 40 percent. You have been asked to analyze the lease-versus-purchase decision, and in the process to answer the following questions:

a. What is the present value cost of owning the equipment?

b. What is the present value cost of leasing the equipment?                                               

c. What is the net advantage to leasing (NAL)?                                                                                

d. Answer these questions one at a time to see the effect of the change on NAL. That is, starting with the original numbers you used for questions a. and b., what is the NAL if:                                                                                             

    - interest rate increases to 12 percent                                                                                          

    - the tax rate falls to 34 percent                                                                                       

    - maintenance cost increases to $25,000 per year                                                                                   

    - residual value falls to $150,000                                                                                      

    - the system price increases to $1,050,000                                                                                               

e. Do the changes in d. make leasing more or less attractive? Explain.

**Please show all calculations and formulas used to derive the answers**

Your division is considering two projects with the following cash flows (in millions):

1. What are the projects' NPVs assuming the WACC is 5%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.

   Project A:    $   million

   Project B:    $   million

   What are the projects' NPVs assuming the WACC is 10%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.

   Project A:  $   million

   Project B:  $   million

   What are the projects' NPVs assuming the WACC is 15%? Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to two decimal places.

   Project A:  $   million

   Project B:  $   million

2. What are the projects' IRRs assuming the WACC is 5%? Do not round intermediate calculations. Round your answer to two decimal places.

   Project A:    %

   Project B:    %

   What are the projects' IRRs assuming the WACC is 10%? Do not round intermediate calculations. Round your answer to two decimal places.

   Project A:    %

   Project B:    %

   What are the projects' IRRs assuming the WACC is 15%? Do not round intermediate calculations. Round your answer to two decimal places.

   Project A:    %

   Project B:    %

3. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 7.81%.)

   -Select-Project AProject BNeither A nor BItem 13

   If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 7.81%.)

   -Select-Project A Project B Neither A nor B Item 14

   If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 7.81%.)

Assume Highline Company has just paid an annual dividend of $ 0.91 Analysts are predicting an 11.7 % per year growth rate in earnings over the next five years. After​ then, Highline's earnings are expected to grow at the current industry average of 5.1 % per year. If​ Highline's equity cost of capital is 7.9 % per year and its dividend payout ratio remains​ constant, for what price does the​ dividend-discount model predict Highline stock should​ sell?

Valeri invested $5000 at 9.25% compounded quarterly. After 18 months, the rate changed to 9.75% compounded semi-annually. What amount will Valeri have 3 years after the initial investment?

In a pro forma income statement, do you think a finance manager make changes in the prior year's percentages for different line items? Give an example of a line item that you would expect to vary in percentage every year as sales forecasts grow or changes for Facebook. Be sure to cite and reference your sources if possible.

What is meant by a poison pill, in corporate management? Give an example of how the concept is applied.

Currently, Warren Industries can sell 20 dash year​, ​$1, 000​-par-value bonds paying annual interest at a 11​% coupon rate. Because current market rates for similar bonds are just under 11​%, Warren can sell its bonds for ​$1 ,050 ​each; Warren will incur flotation costs of ​$30 per bond. The firm is in the 29​% tax bracket.

a.  Find the net proceeds from the sale of the​ bond.

b.  Calculate the​ bond's yield to maturity​ (YTM​) to estimate the​ before-tax and​ after-tax costs of debt.

c.  Use the approximation formula to estimate the​ before-tax and​ after-tax costs of debt.

Consider the Three Gorges Dam Project on the Yangtzee River in the People’s Republic of China.(For example, see National Geography September 1997 for more information)

(A) Suppose the Ministry of Water Projects announces that the Project Benefit to Cost Ratio (BCR) for the Project is 2.0. Indicate how you would constructively criticize the BCR given. Explain using course concepts.

(B) Suppose the Net Present Value (NPV) of Market Benefits and the Environmental Costs of the current location of the dam in comparison to other locations are as follows:

Project                         NPV of Market Benefits                     Environmental Costs

Current                                    1,000,000,000                                     Large

Alternative 1                              750,000,000                                     Medium

Alternative 2                              600,000,000                                     Medium

Alternative 3                              500,000,000                                     Small

Indicate criteria to help compare the above Projects, identify the Best Option and explain using Course Concepts.