Nast Stores has derived the following consumer credit-scoring model after years of data collecting and model testing:Accounts Receivable Management | 153 Y = (0.20 × EMPLOYMT) + (0.4 × HOMEOWNER) + (0.3 × CARDS) EMPLOYMT = 1 if employed full-time, 0.5 if employed part-time, and 0 if unemployed HOMEOWNER = 1 if homeowner, 0 otherwise CARDS = 1 if presently has 1–5 credit cards, 0 otherwise Nast determines that a score of at least 0.70 indicates a very good credit risk, and it extends credit to these individuals.
a. I f Janice is employed part-time, is a homeowner, and has six credit cards at present, does the model indicate she should receive credit?
b. J anice just got a full-time job and closed two of her credit card accounts. Should she receive credit? Has her creditworthiness increased or decreased, according to the model?
c. Y our boss mentions that he just returned from a trade-association conference, at which one of the speakers recommended that length of time at present residence (regardless of homeownership status) be included in credit-scoring models. If the weight turns out to be 0.25, how do you think the variable would be coded (i.e., 0 stands for what, 1 stands for what, etc.)?
d. S uggest other variables that Associated might have left out of the model, and tell how you would code them (i.e., 0, 1, 2 are assigned to what conditions or variables?).
In: Finance
|
We are examining a new project. We expect to sell 5,200 units per year at $66 net cash flow apiece for the next 10 years. In other words, the annual operating cash flow is projected to be $66 × 5,200 = $343,200. The relevant discount rate is 17 percent, and the initial investment required is $1,510,000. After the first year, the project can be dismantled and sold for $1,230,000. Suppose you think it is likely that expected sales will be revised upward to 8,200 units if the first year is a success and revised downward to 3,800 units if the first year is not a success. |
| a. |
If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. |
What is the value of the option to abandon? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
|
McGilla Golf is evaluating a new line of golf clubs. The clubs will sell for $1,000 per set and have a variable cost of $450 per set. The company has spent $157,500 for a marketing study that determined the company will sell 50,500 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,500 sets of its high-priced clubs. The high-priced clubs sell at $1,500 and have variable costs of $630. The company also will increase sales of its cheap clubs by 12,100 sets. The cheap clubs sell for $450 and have variable costs of $180 per set. The fixed costs each year will be $9,650,000. The company has also spent $1,175,000 on research and development for the new clubs. The plant and equipment required will cost $31,150,000 and will be depreciated on a straight-line basis to a zero salvage value. The new clubs also will require an increase in net working capital of $2,530,000 that will be returned at the end of the project. The tax rate is 22 percent and the cost of capital is 15 percent. |
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Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
In: Finance
Examine yield curve shapes using daily yield curve rates provided by U.S. department of treasury .
a) Report treasure yield rates (1 month, 3 month, 6 month, 1 year, 2 year, 3 year, 5 year, 7 year, 10 year, 20 year, 30 year) on Jan. 02, 2014, Jan. 02, 2015, Jan. 04, 2016, Jan. 03, 2017, Jan. 02, 2018, Jan. 02, 2019, and Sep. 02, 2019.
b) Compute each term spreads for seven term structures.
c) Plot seven yield curves that show the relation between yields and maturities.
d) Provide your findings thoroughly from b) and c).
In: Finance
In: Finance
|
You are considering investing in a company that cultivates abalone for sale to local restaurants. Use the following information: |
| Sales price per abalone | = | $44.80 |
| Variable costs per abalone | = | $11.35 |
| Fixed costs per year | = | $506,000 |
| Depreciation per year | = | $104,000 |
| Tax rate | = | 23% |
|
The discount rate for the company is 15 percent, the initial investment in equipment is $936,000, and the project’s economic life is 9 years. Assume the equipment is depreciated on a straight-line basis over the project’s life and has no salvage value. |
| a. |
What is the accounting break-even level for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. |
What is the financial break-even level for the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
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McGilla Golf is evaluating a new golf club. The clubs will sell for $930 per set and have a variable cost of $415 per set. The company has spent $140,000 for a marketing study that determined the company will sell 47,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,800 sets of its high-priced clubs. The high-priced clubs sell at $1,430 and have variable costs of $560. The company also will increase sales of its cheap clubs by 11,400 sets. The cheap clubs sell for $415 and have variable costs of $145 per set. The fixed costs each year will be $9,300,000. The company has also spent $1,000,000 on research and development for the new clubs. The plant and equipment required will cost $28,700,000 and will be depreciated on a straight-line basis to a zero salvage value. The new clubs also will also require an increase in net working capital of $2,320,000 that will be returned at the end of the project. The tax rate is 25 percent and the cost of capital is 12 percent. What is the senstivity of the NPV to changes in the price and quantity sold of the new clubs? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
In: Finance
Assignment 3 - Skaggs Manufacturing Case Study
CASE 5.1
Skaggs Manufacturing
John Andrews arrived promptly for his 10 am meeting with Martha Gillespie, the buyer for Skaggs Manufacturing. At 10:15, when she hadn't arrived, John asked her secretary if she was out of the office for the morning. The secretary smiled and said, "She'll probably be a few minutes late." John resented this delay and was convinced that Martha had forgotten the appointment.
Finally, at 10:20, Martha entered her office, walked over to John, said hello, and promptly excused herself to talk to the secretary about a tennis game scheduled for that afternoon. Ten minutes later, Martha led John into her office. At the same time, a competing salesperson entered the office for a 10:30 appointment. With the door open, Martha asked John, "What's new today?" As John began to talk, Martha began reading letters on her desk and signing them. Shortly after that, the telephone began to ring, whereupon Martha talked to her husband for 10 minutes.
As she hung up, Martha looked at John and suddenly realized his frustration. She promptly buzzed her secretary and said, "Hold all calls." She got up and shut the door. John again began his presentation when Martha leaned backward in her chair, pulled her golf shoes out of a desk drawer, and began to brush them.
About that time, the secretary entered the office and said, "Martha, your 10:30 appointment is about to leave. What should I tell him" "Tell him to wait; I need to see him." Then she said, "John, I wish we had more time. Look, I think I have enough of your product to last until your next visit. I'll see you then. Thanks for coming by."
John quickly rose to his feet, did not shake hands, said "OK," and left.
Review case 4-1 on page 129.
In: Finance
Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 38%. The T-bill rate is 5%. Your client chooses to invest 85% of a portfolio in your fund and 15% in a T-bill money market fund.
a. What is the expected return and standard
deviation of your client's portfolio? (Round your answers
to 2 decimal places.)
What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio? (Round your answers to 4 decimal places.)
In: Finance
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The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there is a 50 percent chance of success. For $181,000 the manager can conduct a focus group that will increase the product’s chance of success to 65 percent. Alternatively, the manager has the option to pay a consulting firm $396,000 to research the market and refine the product. The consulting firm successfully launches new products 80 percent of the time. If the firm successfully launches the product, the payoff will be $1.96 million. If the product is a failure, the NPV is zero. |
| Calculate the NPV for each option available for the project. (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) |
In: Finance
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Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $5.5 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $5.8 million. The company wants to build its new manufacturing plant on this land; the plant will cost $13 million to build, and the site requires $820,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.) |
| Cash flow amount | $ |
In: Finance
NPV
A project has annual cash flows of $3,500 for the next 10 years and then $6,000 each year for the following 10 years. The IRR of this 20-year project is 13.14%. If the firm's WACC is 11%, what is the project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
$___
In: Finance
The following information is from Andy's Pharmaceutical Inc.’s financial statements:
|
Sales (all credit) |
$245,000 |
|
Total assets turnover |
0.80 times |
|
Total debt to total assets |
30.83% |
|
Fixed asset turnover |
1.1 times |
|
Current ratio |
4.04 times |
|
Average collection period |
29.68 days |
|
Inventory turnover |
7.42 times |
Part A
Using the above listed ratios and data, compute the balance of the following accounts. Assume all sales are on credit and a 360-day year. Round to the nearest dollar. [Hint: use ratio formulas to derive the requested values. The book presents 13 ratio formulas on pages 60 - 64]. Please show your work.
A) Current assets
B) Average daily credit sales
C) Accounts Receivable
D) Inventory
E) Current liabilities
In: Finance
The Clifford Corporation has announced a rights offer to raise $15 million for a new journal, the Journal of Financial Excess. This journal will review potential articles after the author pays a nonrefundable reviewing fee of $4,000 per page. The stock currently sells for $32 per share, and there are 2.7 million shares outstanding.
a. What is the maximum possible subscription price? What is the minimum? (Leave no cells blank - be certain to enter "0" wherever required.)
b. If the subscription price is set at $24 per share, how many shares must be sold? How many rights will it take to buy one share? (Do not round intermediate calculations. Round your rights needed answer to 2 decimal places, e.g., 32.16.)
c. What is the ex-rights price? What is the value of a right? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)
d. A shareholder with 2,000 shares before the offering has no desire (or money) to buy additional shares offered as rights. What is his portfolio value before and after the rights offer? (Do not round intermediate calculations and round your answers to nearest whole number, e.g., 32.)
a.The maximum possible subscription price is-
The minimum possible suscription price-
b.Number of new shares-
Number of rights needed-
c.Ex-rights price-
Value of a right-
d.Portfolio value before rights-
Portfolio value after rights-
In: Finance
If you currently have$200’000 in your retirement account , and plan to contribute $10,000 per year and can earn 8%(annually) , how long will it take you to reach your goal of $1,000,000?
In: Finance