finance

What is the NPV for each project?

What is the profitability index for each project?

Complete the balance sheet and sales information using the following financial data:

Total assets turnover: 1×
Days sales outstanding: 73.0 days^a
Inventory turnover ratio: 4×
Fixed assets turnover: 3.0×
Current ratio: 2.0×
Gross profit margin on sales: (Sales - Cost of goods sold)/Sales = 20%
^aCalculation is based on a 365-day year.

Do not round intermediate calculations. Round your answers to the nearest dollar.

Barbara Jones is a sales executive at a Baltimore firm. She is 25 years old and plans to invest $4,000 each year in an IRA account until she is 65 at which time she will retire (a total of 40 payments). If Barbara invests at the beginning of each year, and the IRA investment will earn 9.95 percent annually, how much will she have when she retires? Assume that she makes the first payment today. (Round factor values to 4 decimal places, e.g. 1.5212 and final answer to 2 decimal places, e.g. 15.25.)

How you would put this problem into a financial calculator? Thanks

Beryl's Iced Tea currently rents a bottling machine for $51,000 per year, including all maintenance expenses. It is considering purchasing a machine instead and is comparing two options:

a. Purchase the machine it is currently renting for $155,000. This machine will require $21,000 per year in ongoing maintenance expenses.

b. Purchase a new, more advanced machine for $265,000. This machine will require $18,000 per year in ongoing maintenance expenses and will lower bottling costs by $14,000 per year. Also, $39,000 will be spent up front to train the new operators of the machine.

Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The marginal corporate tax rate is 30%. Should Beryl's Iced Tea continue to rent, purchase its current machine, or purchase the advanced machine? To Which of the a. b. c. d. e. make this decision, calculate the NPV of the FCF associated with each alternative. following is the best choice?

a)Purchase the advanced machine, as the NPV is -$253,110

b)Purchase the current machine, as the NPV is -$283,498

c)Purchase the current machine, as the NPV is -$204,563

d)Purchase the current machine, as the NPV is −$215,906

e)Rent the current machine, as the NPV is -$229,110.

Problem 4-24 Calculating EFN [LO2]

One year ago, your company purchased a machine used in manufacturing for $90,000.You have learned that a new machine is available that offers many advantages and you can purchase it for $150,000 today. It will be depreciated on a straight-line basis over 10 years and has no salvage value.

You expect that the new machine will produce a gross margin (revenues minus operating expenses other than depreciation) of $60,000 per year for the next 10 years. The current machine is expected to produce a gross margin of $25,000 per year. The current machine is being depreciated on a straight-line basis over a useful life of 11 years, and has no salvage value, so depreciation expense for the current machine is $8,182 per year. The market value today of the current machine is $5,000. Your company's tax rate is 42 %,and the opportunity cost of capital for this type of equipment is 10 %. Should your company replace its machine?

a. Yes. With an NPV of $32,577, there is a profit from replacing the machine.

b. Yes. With an NPV of $42,688, there is a profit from replacing the machine.

c. Yes. With an NPV of $52,797, there is a profit from replacing the machine.

d. No. With an NPV of -$2,797, there is a loss from replacing the machine.

e. No. With an NPV of -$22,973, there is a loss from replacing the machine.

Question:

You participate in a jury. Today a worker sued the city for the injuries suffered due to an accident with a street sweeper truck. At the trial, the doctors declare that the plaintiff will be able to return to work in five years. The jury has already ruled in favor of the plaintiff. You are the judge of the jury and propose the jury to grant today a compensation to the plaintiff. The compensation covers the following:

1. A retroactive payment equivalent to the salary of the last two years. The annual salary (monthly salary*12) of the plaintiff during the last two years would have been $40,000 (two years ago) and $43,000 (one year ago), respectively.

2. The present value of the future monthly salary for the next eight years. You assume that the salary will be $45,000 per year (monthly salary*12) for the first five years, and then $48,000 (monthly salary*12) for the next three years.

3. A payment today for the amount of $100,000 due to pain and suffering.

4. Finally, a payment of $20,000 today to cover court costs. Assume that salary payments are of equal amounts paid at the end of each month, except in the last three future years where salaries are equal but paid at the beginning of each month. It is estimated that the appropriate interest rate is 18% nominal biennial with monthly capitalization. (a) What is the amount of the retroactive payment which will be paid to the plaintiff today? (b) What is the total amount of compensation that will be paid to the plaintiff today? (c) If you were the plaintiff, would you like to use a higher or lower interest rate? Explain.

The three-month dollar interest rate in New York is 3% per annum. Alternatively, the three-month euro interest rate in Frankfort is 5% p.a. The current $/€ spot exchange rate is $1.1340/€. The euro three-month forward rate is quoted at $1.1326/€.

1. Show how a U.S. arbitrageur would exploit a possible covered interest arbitrage opportunity with a nominal $80,000,000. Don’t start with the formula. Explain in your own words the transactions the arbitrageur would execute and calculate the profit/loss the arbitrager would make or face.

You own the stock of Pettersson and its current price is $36.00/share. It pays no dividend today. Based on your own research, you expect Pettersson to pay its first dividend of $2.50/share at the end of Years 1, 2, and 3 (12, 24, and 36 months from now). Given its performance outlook, you further expect the Board of Pettersson to increase the Year 4 dividend by 10% to $2.75; and then to increase it further by 4% annually for the next 2 years (end of years 5 and 6); after which it will grow by 2.0% annually forever. You enjoy a number of investment alternatives that will, on average, provide you with a 9% annual return. In light of this, should you buy more Pettersson stock at the current $36 price; or should you sell all your current Pettersson holdings for $36 and reinvest the proceeds elsewhere?

A. Sell for $36.00 because the intrinsic value is $34.78

B. Sell for $36.00 because the intrinsic value is $35.57

C. Buy for $36.00 because the intrinsic value is $37.75

D. Buy for $36.00 because the intrinsic value is $38.29

E. Buy for $36.00 because the intrinsic value is $38.72

You bought a house for $150,000 and put down 10% and got a mortgage at an interest rate of 4.35 % per year. You would pay it back by paying an equal amount at the end of each month for 15 years? (Show all work) How much is your loan amount? How much is your monthly loan payment? How much is your loan balance after 2 years? How much is your total interest payment by the end of year 3?

Medical Research Corporation is expanding its research and production capacity to introduce a new line of products. Current plans call for the expenditure of $100 million on four projects of equal size ($25 million each), but different returns. Project A is in blood clotting proteins and has an expected return of 18 percent. Project B relates to a hepatitis vaccine and carries a potential return of 14 percent. Project C, dealing with a cardiovascular compound, is expected to earn 11.8 percent, and Project D, an investment in orthopedic implants, is expected to show a 10.9 percent return.

The firm has $23,000,000 in retained earnings. After a capital structure with $23,000,000 million in retained earnings is reached (in which retained earnings represent 60 percent of the financing), all additional equity financing must come in the form of new common stock.

Common stock is selling for $26 per share and underwriting costs are estimated at $2.9 if new shares are issued. Dividends for the next year will be $0.71 per share (D₁), and earnings and dividends have grown consistently at 11% percent per year.

The yield on comparative bonds has been hovering at 10 percent. The investment banker feels that the first $19,500,000 of bonds could be sold to yield 10 percent while additional debt might require a 2 percent premium and be sold to yield 12 percent. The corporate tax rate is 30 percent. Debt represents 40 percent of the capital structure.

What is the Time Value of Money and how do financial managers use it to make business decisions?

On May 6, 2013, the treasurer of a corporation enters into a long forward contract to buy £1 million in six months at an exchange rate of 1.5532

This obligates the corporation to pay $1,553,200 for £1 million on November 6, 2013

What are the possible outcomes?