. Your business needs approximately $1,000,000 to purchase a piece of equipment to use in the production facility to produce a new product. Your task is to analyze several possible financing options. The options being considered to raise the funds for the equipment are as follows: • Funding the project with a loan from Jayhawk Bank. Jayhawk Bank currently charges a fixed rate of 8% annual interest compounded quarterly. Payments are scheduled quarterly over five years. • Funding the project by cashing in a money market account that was set up two years ago as an emergency fund. The fund started with an initial deposit of $900,000 and paid 3.5% annual interest compounded monthly. • Funding the project from an initial investment and current profits. This option requires the project to be delayed for a year and a half. A portion of the company’s expected profits ($50,000 per month each month) would be invested during the delay, and an initial cash outlay would need to be determined. A money market account will be used to hold Project 2 IST 310: Spreadsheet and Database Applications Page 5 these funds. The current money market rates pay 4% annual interest compounded monthly. • Funding the project with a loan from Kansas Bank. The loan will be paid back over the next four years, with equal semiannual payments (compounded semiannually) of $150,000. • Funding the project with a loan from Rock Chalk Bank. The loan would have a fixed interest rate of 6.5% per year compounded quarterly, and fixed quarterly payments of $95,000. Use various financial functions to determine the missing piece of information for each of the five options (PMT for cell E3, FV for cell G4, PV for cell F5, RATE for cell C6, and NPER for cell D7). When using Excel financial functions, pay close attention to the compounding period being used. The financial functions apply the interest rate per period and the payment per period to the principal over a specified number of periods. It does not matter if the compounding period is months, days, quarters, years, or some other specified period. A financial function applies the appropriate rate and payments for the specified number of times. If the rate and number of period arguments and the payment are not all consistent with the compounding period duration, the wrong values will be calculated. The payment on a loan of 8% per year for five years compounded once per year is different from the payment on that same loan amount compounded quarterly with a rate of 2% per quarter (8% divided by 4) over 20 quarters (5 years multiplied by 4 quarters). For the loan being offered by Jayhawk Bank, the interest rate per year is 8% over a period of five years. Because the compounding period is quarterly, a rate of 2% per quarter is applied over 20 separate periods. The value that you are calculating with the PMT function is the payment per quarter. Your completed analysis should look like this:

Boeing imported a Rolls-Royce jet engine for £10 million in one year. The market conditions are given as follows: i_$=4.0%, i_£ = 3.0%, S₀ = $1.45/£, F₁ = $1.46/£.

1. Set up a money market hedge
2. Show the amount of dollar gains or losses the money market hedge incurs compared to a forward hedge. Be sure to use the parity conditions to explain why the money market hedge gains or losses.

Please keep at least two decimal points. If not, one point will be taken off.

Interest Rate Parity formula: F($/£) = S($/£)*[(1+i_$)/(1+i_£)

Kurz Manufacturing is currently an​ all-equity firm with 30 million shares outstanding and a stock price of $ 14.00 per share. Although investors currently expect Kurz to remain an​ all-equity firm, Kurz plans to announce that it will borrow $ 67 million and use the funds to repurchase shares. Kurz will pay interest only on this​ debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a 30 % corporate tax rate.

a.) What is the market value of​ Kurz's existing assets before the​ announcement?

b.) What is the market value of​ Kurz's assets​ (including any tax​ shields) just after the debt is​ issued, but before the shares are​ repurchased?

c.) What is​ Kurz's share price just before the share​ repurchase? How many shares will Kurz​ repurchase?

d.) What are​ Kurz's market value balance sheet and share price after the share​ repurchase?

NPVs, IRRs, and MIRRs for Independent Projects

Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $19,000 and that for the pulley system is $20,000. The firm's cost of capital is 12%. After-tax cash flows, including depreciation, are as follows:

1. Calculate the IRR for each project. Round your answers to two decimal places.

   Truck:________%
   
   Pulley:________%

2. Calculate the NPV for each project. Round your answers to the nearest dollar, if necessary. Enter each answer as a whole number. For example, do not enter 1,000,000 as 1 million.

   Truck:________$   

   Pulley:________$  

3. Calculate the MIRR for each project. Round your answers to two decimal places.

   Truck:_______%
   
   Pulley:_______%

Consider the following regarding forward exchange rates. If the forward exchange rate on a 3 month contract is 0.904, and the spot rate is currently 0.851, the implied APR is ___%. Round your answer to three decimal places.

A firm is evaluating a new project that will last 4 years. The equipment needed for this project costs $180,000 and can be depreciated using straight-line depreciation over a 6-year useful life. This project will reduce sales of an existing product by $30,000 each year. Sales of this new project are expected to be $255,000 each year and variable costs are 85% of net sales. The project also requires fixed costs of $20,000 each year. The firm will use a manufacturing plant that they purchased 3 years ago for $275,000. Currently the market value of this plant is $250,000, after taxes. At the end of 4 years, itis expected that this plant will be worth $175,000, after taxes. The project requires less working capital than the firm currently has. At the beginning of the project, the firm will be able to reduce its total working capital by $15,000. At the end of the project, working capital will have to return to its previous level, before this project was started. The firm’s marginal tax rate is 35%andthe required return on this project is 10%. Should the firm accept this project? Why or why not?

Zemfira Inc., EBIT and Leverage. (Ross #1 ch.13) Zemfira Inc., has no debt outstanding and a total market value of $125,000. Earnings before interest and taxes are projected to be $10,400 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 20 percent higher. If there is a recession, then EBIT will be 35 percent lower. Zemfira is considering a $42,000 debt issue with a 6 percent interest rate. The proceeds will be used to repurchase shares of stock. There are currently 6,250 shares outstanding. Ignore taxes for part a and b. a. Calculate EPS under each of three economic scenarios before any debt is issued. Also, calculate the percentage changes in EPS when the economy expands or enters a recession. b. Repeat part (a) assuming that Zemfira goes through with recapitalization. c. Repeat parts (a) and (b) assuming Zemfira has a tax rate of 35 percent. Will the percentage change in EPS be the same both with and without taxes? d. Suppose the company has a market-to-book ratio of 1.0 i. Calculate ROE under each of three economic scenarios before any debt is issued. Also, calculate the percentage changes in ROE for economic expansion and recession, assuming no taxes. ii. Repeat part (a) assuming the firm goes through with proposed recapitalization. iii. Repeat parts (a) and (b) assuming the firm has a tax rate of 35 percent.

Parramore Corp has $11 million of sales, $2 million of inventories, $4 million of receivables, and $3 million of payables. Its cost of goods sold is 80% of sales, and it finances working capital with bank loans at an 8% rate. Assume 365 days in year for your calculations. Do not round intermediate steps.

1. What is Parramore's cash conversion cycle (CCC)? Do not round intermediate calculations. Round your answer to two decimal places.
   days
2. 
   
3. If Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold, what would be the new CCC? Do not round intermediate calculations. Round your answer to two decimal places.
   days
4. 
   
5. How much cash would be freed up, if Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $
6. 
   
7. By how much would pretax profits change, if Parramore could lower its inventories and receivables by 9% each and increase its payables by 9%, all without affecting sales or cost of goods sold? Do not round intermediate calculations. Round your answer to the nearest cent. Write out your answer completely. For Example, 13.2 million should be entered as 13,200,000.
   $

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.6%. The probability distributions of the risky funds are:   

The correlation between the fund returns is .0800.

Suppose now that your portfolio must yield an expected return of 14% and be efficient, that is, on the best feasible CAL.

a. What is the standard deviation of your portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-1. What is the proportion invested in the T-bill fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b-2. What is the proportion invested in each of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

A tractor for over-the-road hauling is purchased for $75,000.00. It is expected to be of use to the company for 6 years, after which it will be salvaged for $4,600.00. Calculate the depreciation deduction and the unrecovered investment during each year of the tractors life.

a) Use straight-line depreciation. Provide depreciation and book value for year 6.

b) Use declining-balance depreciation, with a rate that ensures the book value equals the salvage value. Provide depreciation and book value for year 6.

c) Use double declining balance depreciation. Provide depreciation and book value for year 6.

d) Use double declining balance, switching to straight-line depreciation. Provide depreciation and book value for year 6.

How are CAPM, the Fama-French model and APT? Which is more useful to the small investor and why?

What makes a capital market efficient? What is the value to the US investor of investing in a capital market that is not efficient?