Balance Sheet Data

               Long-Term Debt               80,000,000

               Preferred Stock                20,000,000

               Common Equity                20,000,000

Number of shares of Common                 1,500,000                         Price per share Common             $42

Number of shares of Preferred                     150,000                               Price per share Preferred            $108

Number of 8% Coupon 25-year Bonds          40,000               Price of 8% 25-year Bonds   $1075

Number of 6% Coupon 15-year Bonds          40,200                           Price of 6% 15-year Bonds   $920

Forecasted Dividend on Common (D₁)             $3.30                           Dividend Rate on Preferred            9.5%

Par Value of Preferred                                           $100                                 Current 10-Year Treasury Yld.        4.3%

Standard Deviation of Stock                                   40%                              Correlation Stock vs. Market 0.50

Standard Deviation of Market                                15%                      Market Risk Premium                    5.0%

Risk Premium of our Stock over our 15-yr Bonds          3.9%        Forecasted Constant Growth             3.0%

Tax Rate                                                                       25%                        Flotation costs on Bonds               1.4%

Flotation costs on Preferred                                   2.4%

1. Calculate the appropriate weights to use for the financing sources. (Hint: Assume that the firm feels their current mix of long-term debt is good and would like to raise capital with the same mix of maturities)
2. Calculate the after-tax cost of debt (hint: You can account for the two bonds by taking a weighted average of their cost or by keeping them separate and putting both into the WACC formula at their individual weights). Note that there are flotation costs of 1.4% on bonds.
3. Calculate the cost of preferred. Note that there are flotation costs of 2.4% on preferred stock.
4. Calculate the cost of common (Hint: Use all three methods and take an average). Note that all common equity will come from internally generated equity (retained earnings) which means no new shares will be issued and no flotation costs incurred.
5. Calculate the WACC
6. Why are firms likely to prefer internally generated equity to issuing new shares of common? Identify and briefly explain two reasons.
7. If my firm had two separate divisions – one relatively low risk and one relatively high risk, how might I apply the WACC to each division?

16. If you deposit $1000 at the end of each of the next 10 years, how much will you have in 20 years if you earn 10% APR compounded annually?A. $41,338B. $40,187C. $42,492D. $43,937E. $42,531

Show Process Please

You are the newly appointed manager of Alpine Ambulatory Surgery Center. Congratulations! One of the first tasks you have is to decide how costs should be allocated from support departments to patient care departments in your organization. You have three support departments: administration, housekeeping, and building maintenance. Administration includes human resources, billing and collection, purchasing and of course, your executive office. Housekeeping includes janitorial services for the entire building and laundry/linen cleaning. Building maintenance includes utilities, repairs/maintenance services. You have four patient care departments: surgery, recovery, laboratory and radiology. Your task for this discussion is the following: Describe which allocation method you would use (direct or step down) and why you would recommend that method. Describe how you would allocate costs from support departments to your patient care departments. Be specific as to the cost drivers you will use for each. Describe at least one potential problem you may have in terms of the perceived fairness of your allocation decisions. What would you do to address that limitation?

The technique for calculating a bid price can be extended to many other types of problems. Answer the following questions using the same technique as setting a bid price; that is, set the project NPV to zero and solve for the variable in question. Guthrie Enterprises needs someone to supply it with 141,000 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 $1,810,000 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 $151,000. Your fixed production costs will be $266,000 per year, and your variable production costs should be $9.50 per carton. You also need an initial investment in net working capital of $131,000. The tax rate is 21 percent and you require a return of 13 percent on your investment. Assume that the price per carton is $16.10.

a. Calculate the project NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b. What is the minimum number of cartons per year that can be supplied and still break even? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)

c. What is the highest fixed costs that could be incurred and still break even? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

A firm is considering an investment in a new machine with a price of $16.8 million to replace its existing machine. The current machine has a book value of $6.5 million and a market value of $5.2 million. The new machine is expected to have a 4-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.85 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it will also need an investment of $360,000 in net working capital. The required return on the investment is 11 percent and the tax rate is 21 percent. The company uses straight-line depreciation.

1. What is the NPV of the decision to purchase a new machine? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.)

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

3. What is the NPV of the decision to purchase the old machine? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.)

4. What is the IRR of the decision to purchase the old machine? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. )

What's the role of high yield bonds in the bond market.

how foundations can be used to evade tax. give examples.

A proposed cost-saving device has an installed cost of $695,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $105,000, the marginal tax rate is 25 percent, and the project discount rate is 11 percent. The device has an estimated Year 5 salvage value of $80,000.

What level of pretax cost savings do we require for this project to be profitable? MACRS schedule. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

3) On July 15th, 2013, $800 was invested in an account paying 10% compounded semiannually. Then on July 15, 2017 the money was reinvested in an account paying 8% compounded daily. Determine the balance on October 20, 2017 using the Banker's Rule.

What is the periodic rate if the nominal rate of 12% is compounded monthly?

What is the periodic rate if the nominal rate of 6% is compounded quarterly?

When is the nominal or annual stated rate the same as the effective rate?

[Research Problem 1]

Facts:

Jason is a promising left-handed pitcher for the KIU baseball team. he has been drafted by the Chicago Cups. In 2018, he is offered two separate contracts by the Cubs. The first contract provides that he will be paid $1,000,000 as a bonus in 2018. The second provides that the Cubs will transfer $1,000,000 into a bank account in his name for withdrawal no earlier than 2020. He will also be paid the market rate of interest upon payment of the $1,000,000 in 2020. Laser accepts the second contract.

Tax Issues:

Is the $1,000,000 payable to Laser in 2020 taxable to Loser and, if so, in what year?

Tax Sources:

Memo (Analysis & Conclusion):

Explanation:

[Research Problem 2]

Facts:

Emily has been charged with failure to file her 2017 federal Form 1040. As such, she has come to your office to seek your assistance. She wants to file her 2017 Form 1040 but believes the "reasonable cause" exception should apply. She was under a great deal of stress at work and her in personal life during the 2018 filing season. As a result, Emily developed a sleep disorder which was treated with a combination of pills and counseling.

You prepare Emily 2017 Form 1040. She agrees to pay the tax and related interest but insists the failure-to-pay penalty does not apply as she will ill. She feels she should not be expected to meet the usual deadline for filing since she was ill.

Tax Issues:

Please write letter to Emily explaining whether she will be required to pay the failure-to pay penalties or whether she meets the criteria to be exempted from the penalty. Write memo to the tax files supporting your conclusion.

Tax Sources:

Letter to Emily:

Memo:

[Research Problem 3]

Facts:

Your client, Jackie, has been accused of criminal tax fraud. Jackie dropped out of high school during her freshman year. Over the past several years she received hundreds of thousands of dollars from Sam, an elderly gentleman, in exchange for love and companionship. When Sam died and she was left out of the will, Jackie sued the estate for compensatory payments earned throughout her years of tending to Sam.

Tax Issues:

The government now accuses Jackie of fraud for failing to file income and self-employment tax returns for the open tax years. Please provide any defense Jackie may have against the fraud charges.

Tax Sources:

Tax Analysis and Conclusion:

1. Fred, an American businessman based in the U.S., imports fruit from Malaysia. He reads that the U.S. Federal Reserve Bank will raise interest rates two weeks from now. Based on the relationship between interest rates and currency values, is Fred better off importing as much fruit from Malaysia now or should he wait until the U.S. Fed actually raises interest rates before he imports more fruit from Malaysia? Explain your answer.

2. MXN is the symbol for the Mexican Peso. MXN/USD .05. A 2020 Toyota Supra costs $49,000 in the U.S. and 1,200,000 Mexican Pesos in Mexico. Based on this information, please answer the following questions.

1. What is USD/MXP in real currency exchange rate terms?
2. Is the USD over or undervalued?
3. Where am I better off buying the Toyota Supra? In Mexico or in the U.S.?
4. Based on the official/nominal MXN/USD currency exchange rate, what would I expect to pay for the Supra in Mexico?
5. Based on the real cost of the same car in both countries, if Purchasing Power Parity (PPP) were to hold true, what would USD/MXN be?
6. Based on the nominal currency exchange rate, if Purchasing Power Parity (PPP) were to hold true, what would I expect to pay for the Supra in the U.S.

Please explain how you solved each letter for #2. Thank you!

1.

a. On January 2, you sold short 1,000 shares of ABC stock at $25 per share. On March 2, a dividend of $1 per share was paid. On April 2, covered the short sale by buying the stock at a price of $23 per share. You paid $20 in commissions for the roundtrip ($10 to short, $10 to cover). Assuming you have no other positions, what is the value of your account on April 2? Present your answer rounded to the nearest cent in this format, $123.45

b.

What would happen to the divisor of a market-weighted index if one of its constituents did a 2:1 stock split?

a-Nothing

b-Get smaller

c-Get bigger

1. If interest rates increase in South Africa, what will follow? Circle all of the correct responses based on the below option:

1. South Africa’s currency (the Rand) will depreciate in value
2. South Africa will import more than it exports
3. South Africa’s balance of trade position will lead to more of a surplus position
4. Countries that export products to South Africa will be pleased
5. Countries that import products from South Africa will be pleased

2. Australia suddenly experiences more of a balance of trade surplus. What can we attribute this to? Circle all of the correct responses based on the below option:

1. The Australian dollar depreciated in value
2. Interest rates increased in Australia
3. Interest rates decreased in Australia
4. The Australian dollar appreciated in value

3. BRL is the symbol for the Brazilian Real, the name of Brazil’s currency. USD/BRL 4. A Honda CTX700 motorcycle sells for $7,400 in the U.S. Is the Brazilian Real over or undervalued?

Please answer all questions, need to check my answers.

I'm very confused about this whole import & export concept and how it is affected by rising or declining interest rates. If you could please explain it to me I'd really appreciate it

The average annual rate of return for your start up company for the past several years has been 20% and has made you rich. To maintain this growth, you are evaluating two projects: the first to expand the production capacity and the second is open a new office. You have developed the following table to compare the two:

Comparison of projects

   Year       Plant Expansion       New Office       Initial Outlay    3,500,000 500,000 1 1,500,000 250,000 2 2,000,000 350,000 3 2,500,000 375,000 4 2,750,000 425,000

a, What is the total cash flow of each project?

b. What is the traditional payback period of each and which would be selected based on this value?

c. What is the discounted payback period of each and which would be selected based on this value?

d. What is the NPV and which would be selected based on this rate?

e. What is the IRR of each project and which would be selected on this rate?

f. What is the PI of each project of each project and which would be selected on this rate?

g. You can only afford to undertake one project. Which one and why