An electric utility is considering a new power plant in northern Arizona. Power from the plant would be sold in the Phoenix area, where it is badly needed. Because the firm has received a permit, the plant would be legal; but it would cause some air pollution. The company could spend an additional $40 million at Year 0 to mitigate the environmental problem, but it would not be required to do so. The plant without mitigation would cost $270.22 million, and the expected cash inflows would be $90 million per year for 5 years. If the firm does invest in mitigation, the annual inflows would be $93.42 million. Unemployment in the area where the plant would be built is high, and the plant would provide about 350 good jobs. The risk adjusted WACC is 16%.

1. Calculate the NPV and IRR with mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to two decimal places.
   NPV: $   million
   IRR:   %

   Calculate the NPV and IRR without mitigation. Enter your answer for NPV in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative values, if any, should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to two decimal places.
   NPV: $   million
   IRR:   %

2. How should the environmental effects be dealt with when evaluating this project?
   1. The environmental effects should be treated as a sunk cost and therefore ignored.
   2. If the utility mitigates for the environmental effects, the project is not acceptable. However, before the company chooses to do the project without mitigation, it needs to make sure that any costs of "ill will" for not mitigating for the environmental effects have been considered in the original analysis.
   3. The environmental effects should be treated as a remote possibility and should only be considered at the time in which they actually occur.
   4. The environmental effects if not mitigated would result in additional cash flows. Therefore, since the plant is legal without mitigation, there are no benefits to performing a "no mitigation" analysis.
   5. The environmental effects should be ignored since the plant is legal without mitigation.
3. Should this project be undertaken?
   1. The project should be undertaken since the NPV is positive under both the "mitigation" and "no mitigation" assumptions.
   2. Even when no mitigation is considered the project has a negative NPV, so it should not be undertaken.
   3. The project should be undertaken only if they do not mitigate for the environmental effects. However, they want to make sure that they've done the analysis properly due to any "ill will" and additional "costs" that might result from undertaking the project without concern for the environmental impacts.
   4. The project should be undertaken only under the "mitigation" assumption.
   5. The project should be undertaken since the IRR is positive under both the "mitigation" and "no mitigation" assumptions.

A) Given the year end prices of the following stocks, estimate the expected return of a portfolio of 30% AAA and 70% BBB. Enter your answer as a percent without the % sign. Round your final answer to two decimals.

B) Given the year end prices of the following stocks, estimate the standard deviation of the returns of a portfolio of 30% AAA and 70% BBB. Enter your answer as a percent without the % sign. Round your final answer to two decimals.

The Neal Company wants to estimate next year's return on equity (ROE) under different financial leverage ratios. Neal's total capital is $12 million, it currently uses only common equity, it has no future plans to use preferred stock in its capital structure, and its federal-plus-state tax rate is 25%. The CFO has estimated next year's EBIT for three possible states of the world: $4.9 million with a 0.2 probability, $2.9 million with a 0.5 probability, and $700,000 with a 0.3 probability. Calculate Neal's expected ROE, standard deviation, and coefficient of variation for each of the following debt-to-capital ratios. Do not round intermediate calculations. Round your answers to two decimal places.

Debt/Capital ratio is 50%, interest rate is 11%.

Debt/Capital ratio is 60%, interest rate is 14%.

You are trying to pick the least-expensive machine for your company. You have two choices: machine A, which will cost $100,000 to purchase and which will have operating cash flows of −$7,000 annually throughout the machine's expected life of three years; and machine B, which will cost $125,000 to purchase and which will have operating cash flows of −$2,600 annually throughout that machine's four-year life. Both machines will be worthless at the end of their life. If you intend to replace whichever type of machine you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 15 percent, answer the following 3 questions (for any question requiring an answer in dollars, show your answer in the rounded to the nearest dollar amount i.e. $123,456):

What is the EAC for machine A? ________

What is the EAC for machine B? _________

Which machine (A or B) should be chosen strictly based on this analysis? ________

Perform instant experiments on whether changing various inputs causes an increase or decrease in the Bond Price and by how much.

(A) What happens when the annual coupon rate is increased?

(B) What happens when the yield to maturity is increased?

(C) What happens when the number of payments / year is increased?

(D) What happens when the face value is increased?

(E) What is the relationship between the price of a par bond and time to maturity? Try this question both when the YTM = coupon rate, and when YTM ≠ coupon rate, and see the differences.

(F) What happens when the annual coupon rate is increased to the point that it equals the yield to maturity? What happens when it is increased further?

North Pole Fishing Equipment Corporation and South Pole Fishing Equipment Corporation would have identical equity betas of 1.11 if both were all equity financed. The market value information for each company is shown here:

The expected return on the market portfolio is 11.4 percent and the risk-free rate is 3.4 percent. Both companies are subject to a corporate tax rate of 21 percent. Assume the beta of debt is zero.

1) What is the equity beta of North Pole? What is the equity beta of South Pole?

2) What is the required rate of return on equity for North Pole?

What is a C corporation and a S corporation?

How does a partnership relate to it?

Horizontal and Vertical Analysis

Selected data from the financial statements of Jones Hardware Company follows.

Required:

1. Calculate by how much accounts receivable, merchandise inventory, total assets, net sales, and cost of goods sold increased or decreased in dollar terms from 2018 to 2019.

2. Indicate what happened from 2018 to 2019 to accounts receivable and merchandise inventory as a percentage of total assets. Round to the nearest whole percent.

Indicate what happened from 2018 to 2019 to cost of goods sold as a percentage of net sales (rounded to the nearest whole percent).

Cost of goods sold   from % in 2018 to % in 2019.

You work for Apple. After toiling away on $ 10.5 million worth of​ prototypes, you have finally produced your answer to Google​ Glasses: iGlasses​ (the name alone is​ genius). iGlasses will instantly transport the wearer into the world as Apple wants him to experience​ it: iTunes with the wink of an eye and apps that can be activated just by looking at them. You think that these will sell for five years until the next big thing comes along​ (or until users are unable to interact with actual human​ beings). Revenues are projected to be $ 457.2 million per year along with expenses of $ 344.2 million. You will need to spend $ 56.9 million immediately on additional equipment that will be depreciated using the​ 5-year MACRS schedule.​ Additionally, you will use some fully depreciated existing equipment that has a market value of $ 9.2 million. As the iGlasses are an outcome of the​ R&D center, Apple plans to charge $ 5.3 million of the annual costs of the center to the iGlasses product for four years.​ Finally, Apple's working capital levels will increase from their current level of $ 119.7 million to $ 142 million immediately. They will remain at the elevated level until year​ 4, when they will return to $ 119.7 million.​ Apple's discount rate for this project is 15.7 % and its tax rate is 35 %. Calculate the free cash flows and determine the NPV of this project.​ (*) The opportunity cost must be​ after-tax. Note​: Assume that the equipment is put into use in year 1.

List and discuss four examples of unethical conduct that are not violations of civil and/or criminal law.

•South Park Energy is considering replacing the company's Methane Plant with a Nuclear Plant.

•The Methane Plant was built two years ago at a cost of $120M with an expected useful life of 5 years. This plant is being depreciated to zero using 5-year straight-line depreciation. The Methane Plant can be sold today for $70M. If this plant had been kept, it would have had no salvage value at the end of its expected useful life three years from today.

•The Nuclear Plant would cost $500M to build today. Since the Nuclear plant will just be a working prototype, its expected useful life is only 3 years and it falls in the 3-year MACRS depreciation class (yr 1: 33%, yr 2: 45%, yr 3: 15%, yr 4: 7%). The Nuclear Plant is expected to have a salvage value of $40M at the end of the plant's 3-year life. The Nuclear Plant is expected to reduce operating expenses by $150M each year during the plant's 3-year expected life and increase revenues by $40 million each year. The company's marginal tax rate is 40%, and this project has a weighted average cost of capital of 13%.

(Q1) What is the total cash flows during year 3 for this replacement analysis?

(Q2) What is the initial cash flow for this replacement analysis?

Corporation Finance question

Discuss the similarities in dividends, share repurchases, and stock splits/stock dividends.

Corporation Finance question

Discuss the difference between angel investing, venture capital, LBOs, private equity. Include 2 companies in each category and list some of their investments.

1. Describe the main results of Modigliani and Miller Propositions (I and II) for:
   1. 1958 model – no taxes, no bankruptcy costs
   2. 1963 model – with taxes, no bankruptcy costs
   3. Tradeoff model – with taxes and bankruptcy costs

In total there are 6 results

Corporation Finance Question

How is the quality of corporate governance measured?