Assume ABC Corporation is expected to pay a dividend in the amount of $3 and the dividend is expected to grow at a constant rate of 5 percent. What is the expected rate if the stock is currently trading at $50 a share? What is the dividend yield? What is the capital gain rate?

Prepare a statement of operations: (only 1 year)

Revenue from patients: $5,000,000, Medical services $ 600,000; Therapy services $100,000; support services $200,000, General services $ 300,000, Depreciation $150,000, Interest $ 50,000; interest income $1,000

------------------------------------------

Revenue:

Net Patient Service Revenue

Total Operating Revenue

Operating Expense:

....

Total Operating Expenses:

Income from operations:

Nonoperating Gains (Losses)

Interest Income:

Net Nonoperating Gains:

Revenue and Gains in Excess of Expenses and Losses:

Increase in Unrestricted Fund Balance:

16. Bond Price Movements Miller Corporation has a premium bond making semiannual payments. The bond has a coupon rate of 8.2 percent, a YTM of 6.2 percent, and 13 years to maturity. The Modigliani Company has a discount bond making semiannual payments. This bond has a coupon rate of 6.2 percent, a YTM of 8.2 percent, and also has 13 years to maturity. If interest rates remain unchanged, what do you expect the price of these bonds to be 1 year from now assuming both bonds have a par value of $1,000? In 3 years? In 8 years? In 12 years? In 13 years? What’s going on here? Illustrate your answers by graphing bond prices versus time to maturity.

4.7

Baker Industries’ net income is $24,000, its interest expense is $6,000, and its tax rate is 25%. Its notes payable equals $23,000, long-term debt equals $70,000, and common equity equals $245,000. The firm finances with only debt and common equity, so it has no preferred stock. What are the firm’s ROE and ROIC? Do not round intermediate calculations. Round your answers to two decimal places.

ROE:   %

ROIC:   %

1. ABC Corporation currently has an Inventory Turnover of 13.99, an Accounts Receivable Turnover of 24.52, and an Accounts Payable Turnover of 19. How many days are in the operating cycle?

2.

Indicate the effect of the following on the cash cycle: Accounts Receivable Period (AR Period) goes up

Note: AR Period is also called as the Average Collection Period

Group of answer choices

* No change

* Increase

* Decrease

Find the net present value (NPV) for the following series of future cash flows, assuming the company’s cost of capital is 6.64 percent. The initial outlay is $339,858. Year 1: 163,676 Year 2: 147,656 Year 3: 123,800 Year 4: 178,407 Year 5: 149,077 Round the answer to two decimal places.

What is a financial market? What is a financial institution? Why are they so important? Would you let one or many financial institutions fail?

6. Analysis of an expansion project

Companies invest in expansion projects with the expectation of increasing the earnings of its business.

Consider the case of Black Sheep Broadcasting:

Black Sheep Broadcasting is considering an investment that will have the following sales, variable costs, and fixed operating costs:

This project will require an investment of $25,000 in new equipment. The equipment will have no salvage value at the end of the project’s four-year life. Black Sheep Broadcasting pays a constant tax rate of 40%, and it has a required rate of return of 11%.

When using accelerated depreciation, the project’s net present value (NPV) is _____ . (Hint: Round each element in your computation—including the project’s net present value—to the nearest whole dollar.)

When using straight-line depreciation, the project’s NPV is ______ . (Hint: Again, round each element in your computation—including the project’s net present value—to the nearest whole dollar.)

Using the ______ depreciation method will result in the greater NPV for the project.

No other firm would take on this project if Black Sheep Broadcasting turns it down. How much should Black Sheep Broadcasting reduce the NPV of this project if it discovered that this project would reduce one of its division’s net after-tax cash flows by $700 for each year of the four-year project?

$1,629

$2,172

$1,846

$1,303

The project will require an initial investment of $25,000, but the project will also be using a company-owned truck that is not currently being used. This truck could be sold for $9,000, after taxes, if the project is rejected. What should Black Sheep Broadcasting do to take this information into account?

A. The company does not need to do anything with the value of the truck because the truck is a sunk cost.

B. Increase the NPV of the project by $9,000.

C. Increase the amount of the initial investment by $9,000.

Recently, Congress has passed legislation lowering the mortgage interest deduction limit from $1,000,000 to $750,000.

A. What is the mortgage interest deduction? Which types of mortgage borrowers benefit most from it, and why?

B. The mortgage interest deduction is often criticized by economists and others. What are some of the key problems or issues which are highlighted by these critics? Can you think of any counterarguments?

C. Thinking about the user cost model we studied in class, what effect would cutting or eliminating the mortgage interest deduction have on the cap rate for residential real estate. Would this effect be larger when interest rates are low or when rates are high? Explain.

The following is a quote from The Economist (Dec. 3, 2016):

“The dollar has been gradually gaining strength for years. But the prompt for this latest surge is the prospect of a shift in the economic-policy mix in America. The weight of investors’ money has bet that Mr. Trump will cut taxes and spend more public funds on fixing America’s crumbling infrastructure. A big fiscal boost would lead the Federal Reserve to raise interest rates at a faster rate to check inflation. America’s ten-year bond yield has risen to 2.3%, from almost 1.7% on election night. Higher yields are a magnet for capital flows.”

There has also been Fed attempts to raise interest rates recently.

EXPLAIN IN A PARAGRAPH: Will higher US interest rates strengthen the USD? Agree or disagree. Explain fully. Also, will the resulting change in the USD (from your analysis) be consistent with President Trump’s overall economic perspective on trade and US manufacturing.

Please address these questions from a Jan. 1, 2017 perspective for that time period.

ACME manufacturing is considering replacing an existing production line with a new

line that has a greater output capacity and operates with less labour than the existing

line. The new line would cost $1 million, have a 5-year life, and would be depreciated

using the straight-line depreciation method over 5 years. At the end of 5 years, the new

line could be sold as scrap for $200 000 (in year 5 dollars). Because the new line is more

automated, it would require fewer operators, resulting in a saving of $40 000 per year

before tax and unadjusted for inflation (in today’s dollars). Additional sales with the new

machine are expected to result in additional net cash inflows, before tax, of $60 000 per

year (in today’s dollars). If ACME invests in the new line, a one-time investment of $10

000 in additional working capital will be required. The tax rate is 30 per cent, the

opportunity cost of capital is 10 per cent, and the annual rate of inflation is 3 per cent.

What is the NPV of the new production line?

Note: show workings how to calculate the revenue, op exp, and PV of net cash flows.

4. Your uncle has had a standard 30-year FRM with a 5% interest rate for 2 years (24 months); the original principal was $200,000. One day he calls you up, very excitedly: “My bank offered to refinance my mortgage to a new 30-year ARM with a 2.5% interest rate. This is awesome – since the interest rate is cut in half, my monthly payment will also be cut in half!”

A. Is the second part of his statement correct? By how much does his payment go down? In addition to showing a calculation, please try to briefly explain intuitively what is going on.

B. How would your answer to part (a) change if your uncle had had his old mortgage for 20 years (240 months) instead?

C. How would your answer to part (a) change if the new mortgage has an initial interest only period?

Consider a competitive oil market where a producer faces costs to get the oil out of the ground. Suppose that it costs $10 dollars per barrel to extract oil from the ground. Let ?? denote the price of oil in period ? and let r be the interest rate. a. If a firm extracts a barrel of oil in period ?, how much profit does it earn that period? b. If a firm extracts a barrel of oil in period ? + 1, how much profit does it earn in period ? + 1? c. What is the present value of the profits from extracting a barrel of oil in period ? + 1? What about period ?? d. If the firm is willing to supply oil in each of the two periods, what must be true about the relation between the present value of profits from sale of a barrel of oil in the two periods? Express this in an equation. Explain how this relates to the no-arbitrage condition.

G Corporation is estimating its WACC. Its target capital structure is 20% debt, 20% preferred stock, and 60% common equity. Its bonds have a 10% coupon, paid semiannually, a current maturity of 20 years, and sell for $850. The firm could sell, at par, $100 preferred stock which pays a 12% annual dividend. Greshak's beta is 1.2, the risk-free rate is 10%, and the market risk premium is 5%. The firm's marginal tax rate is 40%. What is the company’s WACC component cost of equity (r_s)?

Please show all work

6.   Murphy Manufacturing has just issued a 15-year, 12% coupon interest rate, $1,000-par bond that pays interest annually. The required return is currently 11%, and the company is certain it will remain at 11% until the bond matures in 15 years.

1. Assuming that the required return does remain at 11% until maturity, find the value of the bond with (1) 15 years, (2) 12 years, (3) 9 years, (4) 6 years, (5) 3 years, and (6) 1 year to maturity.
2. Plot your findings on a set of “time to maturity (x axis) – market value of bond (y axis).
3. All else remaining the same, when the required return differs from the coupon interest rate and is assumed to be constant to maturity, what happens to the bond value as time moves toward maturity? Explain in light of the graph in part b.