3. Income statement

The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company during a specified period of time. It reports a firm’s gross income, expenses, net income, and the income that is available for distribution to its preferred and common shareholders.

The income statement is prepared using the generally accepted accounting principles (GAAP) that match the firm’s revenues and expenses to the period in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income statement and other financial statements and reports to evaluate the company’s financial performance and condition.

Consider the following scenario:

Cute Camel Woodcraft Company’s income statement reports data for its first year of operation. The firm’s CEO would like sales to increase by 25% next year.

Complete the Year 2 income statement data for Cute Camel, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar.

KFA is considering investing in a new drone technology costing $12 million. It has a 5 year life (no salvage value) and will save KFA $3.5 million/year in pre-tax operating costs. It will need an up-front working capital investment of $300,000. KFA's cost of capital is 8.0% and its tax rate is 21.0%. Their current technology has a $5 million book value but a $1 million salvage value. What are the NPV and IRR of the decision to replace the old technology?

KFA has issued a 100-year coupon bond with par of $1,000, and a 6.50% annual coupon paid semi-annually. Calculate its price for each of the following three YTM scenarios: 4.0%, 6.0%, and 8.0%.

KFA is evaluating a project with the following cash flows in the first 4 years: $4,000, $5,000, $6,000, and $7,000. Use an 8.0% discount rate to calculate the project's net present values (NPV) for three potential initial investments: $11,000 (scenario 1), $13,000 (scenario 2), and $15,000 (scenario 3). Assume no residual value.

Suppose you inherited a building from your great aunt which you now own outright (e.g., you have complete ownership without any outstanding debt). If this building is 200,000 SF, rents for $12 per square foot per year, is expected to be on average 5% vacant, and costs $5 per occupied SF per year to operate, what is the expected Before-Tax Cash Flow for the building?

answer

$1,330,000

Now, you decide to complete some renovations on the building described in question 2. If the renovation costs $2,510,006, which you can finance with a 15-year FRM mortgage with payments due annually offered at 10% annual interest, how much more would you need to charge in rent for the Before-Tax Cash Flow to remain the same as it did in question 2?

Group of answer choices

~$1.74 /sf/year more

~$2.24 /sf/year more

~$3.03 /sf/year more

~$2.09/sf/year more

Describe the different types of indirect investments available to investors. Explain why this type of investment is a better alternative for some investors than buying securities directly.

A bank has issued a six-month, $2.0 million negotiable CD with a 0.50 percent quoted annual interest rate (i_{CD, sp}).

a. Calculate the bond equivalent yield and the EAR on the CD.
b. How much will the negotiable CD holder receive at maturity?
c. Immediately after the CD is issued, the secondary market price on the $2 million CD falls to $1,998,500. Calculate the new secondary market quoted yield, the bond equivalent yield, and the EAR on the $2.0 million face value CD.

Use 365 days in a year

You are bullish on Amazon’s stock (AMZN) which is currently selling for $1596.50. You have decided to buy a 6-month call option with a strike price of $1,625. It costs $50.60 per share to buy the option. Assume the 6-month risk-free rate is 1% per annum with continuous compounding. a.Draw the profit and payoff function for the long call option at expiration? (Provide labels for the axes and label a point on the functions above, below and at the strike) b.Note each contract is for 100 call options. Calculate what the payoff and profit at expiration is if the spot price is _______.

i.$1,550

ii.$1,700

iii.$1,675.60

c.Draw the profit and payoff function for the short call option at expiration? (Provide labels for the axes and label a point on the functions above, below and at the strike)

Martin Enterprises needs someone to supply it with 133,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $950,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in five years, this equipment can be salvaged for $109,000. Your fixed production costs will be $525,000 per year, and your variable production costs should be $18.15 per carton. You also need an initial investment in net working capital of $106,000. If your tax rate is 23 percent and you require a return of 11 percent on your investment.

A. Assuming the price per carton is $27.60, what is the NPV of this project?

B. Assuming the price per carton is $27.60, find the quantity of cartons per year you can supply and still break even.

C. Assuming the price per carton is $27.60, find the highest level of fixed costs you could afford each year and still break even.

The current spot price of Amazon stock is $1,823 the current 1-year forward price is $1,944. The current 1-year risk free rate is 6.5% per annum with semiannual compounding. If there is a $20 transaction fee for the combination of all transactions made, paid today, can you make an arbitrage profit with 100 shares? If there is an arbitrage how much would you make? Otherwise prove that there is not an arbitrage.

Olsen Outfitters Inc. believes that its optimal capital structure consists of 70% common equity and 30% debt, and its tax rate is 40%. Olsen must raise additional capital to fund its upcoming expansion. The firm will have $5 million of retained earnings with a cost of rs = 15%. New common stock in an amount up to $7 million would have a cost of re = 19%. Furthermore, Olsen can raise up to $3 million of debt at an interest rate of rd = 11% and an additional $3 million of debt at rd = 13%. The CFO estimates that a proposed expansion would require an investment of $7.8 million. What is the WACC for the last dollar raised to complete the expansion? Round your answer to two decimal places.

What exactly is the capital structure of an organization? Additionally, what do we mean by the cost of capital? When considering capital projects, are there ways of measuring risks and costs associated?

1. What is the net operating profit after taxes (NOPAT) for 2018? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to one decimal place.

   $   million

2. What are the amounts of net operating working capital for both years? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answers to one decimal place.

   2018 $   million

   2017 $   million

3. What are the amounts of total net operating capital for both years? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answers to one decimal place.

   2018 $   million

   2017 $   million

4. What is the free cash flow for 2018? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to one decimal place.

   $   million

5. What is the ROIC for 2018? Round your answer to one decimal places.

   %

6. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.) Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answers to one decimal place.

   After-tax interest payment	$   million
   Reduction (increase) in debt	$   million
   Payment of dividends	$   million
   Repurchase (Issue) stock	$   million
   Purchase (Sale) of short-term investments	$   million

You have just been hired as a financial analyst for Barrington Industries. Unfortunately, company headquarters (where all of the firm's records are kept) has been destroyed by fire. So, your first job will be to recreate the firm's cash flow statement for the year just ended. The firm had $100,000 in the bank at the end of the prior year, and its working capital accounts except cash remained constant during the year. It earned $5 million in net income during the year but paid $800,000 in dividends to common shareholders. Throughout the year, the firm purchased $5.4 million of machinery that was needed for a new project. You have just spoken to the firm's accountants and learned that annual depreciation expense for the year is $440,000; however, the purchase price for the machinery represents additions to property, plant, and equipment before depreciation. Finally, you have determined that the only financing done by the firm was to issue long-term debt of $1 million at a 6% interest rate. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Open spreadsheet What was the firm's end-of-year cash balance? Recreate the firm's cash flow statement to arrive at your answer. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar, if necessary. $

What is the connection between the value of shares and dividends? How are they both different?