Consider the three bonds quoted in the following table (settlement: 2/15/94). Calculate discount factors and spot rates at six-month intervals (d1, d2, d3 and y1, y2, y3), and implied six month forward rates (f1 and f2).

Prof. Business wants a 22-year retirement annuity that begins 9 years from today with an equal annual payment equal to $115,000 today inflated at 2.5% annually over 9 years. Her first retirement annuity payment would occur 9 years from today. She realizes her purchasing power will decrease over time during retirement.

Prof. Business currently has $660,000 in her University retirement account. She expects these savings and any future deposits into her University and any other retirement account will earn 8% compounded annually. Also, she expects to earn 7% annual return after she retires.

Prof. Business now wants to consider retiring two years earlier in 7 years and will deposit her required University contributions each year as in question 4 and will deposit and additional $14,400 at the end of each year for the next 7 years (first deposit totals $35,400). Also, she will require a 24-year retirement annuity.

Answer from #4:

Questions:

a) How much money will Prof. Business have in her retirement account immediately after her last deposit 7 years from today?

b) What would be the equal annual payment from her 24-year retirement annuity whose first payment occurs exactly 7 years from today?

Please show work and functions on an excel spreadsheet.

Harris Corporation is evaluating whether to lease or purchase equipment. Its tax rate is 25 percent. The purchase price is $2.4 million, required modifications to the equipment will cost $100,000. The company would depreciate the equipment over 4 years, using straight-line depreciation. A 4-year lease calls for a payment of $750,000 at the beginning of each year.   If the equipment is purchased, the company will borrow from its bank at an interest rate of 10 percent.

a. Calculate the cost of purchasing the equipment.

b. Calculate the cost of leasing the equipment.

c. Calculate the net advantage to leasing. Should the company purchase or lease the equipment?

You are considering a proposal to produce and market a new sluffing machine. The most likely outcomes for the project are as follows: Expected sales: 100,000 units per year

Unit price: $190

Variable cost: $114

Fixed cost: $4,080,000

The project will last for 10 years and requires an initial investment of $11.28 million, which will be depreciated straight-line over the project life to a final value of zero. The firm’s tax rate is 30%, and the required rate of return is 12%. However, you recognize that some of these estimates are subject to error. Sales could fall 30% below expectations for the life of the project and, if that happens, the unit price would probably be only $180. The good news is that fixed costs could be as low as $2,720,000, and variable costs would decline in proportion to sales.

a. What is project NPV if all variables are as expected?

In a comprehensive fashion, present the various components of the private sector's Retirement or Pension Program. Explain the extent of its coverage and its membership. Explain how it is financed, how it pays benefits to its members. Discuss its solvency. Provide your recommendations for long-term sustainability.

Central Supply purchased a new printer for $70,000 in January of 2017. It has a fiscal yearend of December 31. The printer is expected to operate for nine years, after which it will be sold for salvage value (estimated to be $6,550).

a.      (i) How much is the depreciation expense for the year end December 2017 and for yearend December 2018 if the company uses the double-declining-balance method?

(ii) What does the disclosure look like for the Balance Sheet as it relates to the printer for the year end December 2017 and for yearend December 2018 (using the double-declining balance method)?

b.      (i) How much is the depreciation expense for the year end December 2018 if the company uses the straight-line method?

(ii) What is the amount to be disclosed on the Balance Sheet as the value for the printer for the year end December 2018 (using the straight-line method)?

Consider a PV solar power project with the following parameters:

• Initial cost: $18M for hardware + $14M for installation.

• The yearly energy produced is 24 millions kWh which will bring an income of $2.9M per year

• $0.5M per year is used for operation and maintenance.

• At the end of the 25 year time horizon, a net expenditure of $1M will be required for removal and site cleaning.

• The MARR is 7%.

a) Calculate the NPV for this investment.

b) Recalculate the NPV, this time assuming that an investment tax credit of 20% for hardware and 10% for installation costs are available.

c) Calculate the IRR for this investment (with tax incentive).

d) Calculate the levelized cost of energy (with tax incentive)

The January 28, 2017 (fiscal year 2016) financial statements of Caleres, Inc. reported the following information (in thousands):

The footnotes to the 2016 financial statements of Skechers U.S.A., Inc. reported that the company uses the FIFO method of accounting for inventories. Financial statements reported the following (in thousands):

a.      Calculate the two companies’ days-inventory-outstanding ratios for 2016 to allow for a comparison.

b. Which company is more efficient with its inventory?

c. Suggest two ways that Calares might improve the days-inventory-outstanding.

Last year Janet purchased a $1,000 face value corporate bond with an 8% annual coupon rate and a 30-year maturity. At the time of the purchase, it had an expected yield to maturity of 12.56%. If Janet sold the bond today for $927.06, what rate of return would she have earned for the past year? Do not round intermediate calculations. Round your answer to two decimal places.

Your parents have accumulated a $170,000 nest egg. They have been planning to use this money to pay college costs to be incurred by you and your sister, Courtney. However, Courtney has decided to forgo college and start a nail salon. Your parents are giving Courtney $32,000 to help her get started, and they have decided to take year-end vacations costing $10,000 per year for the next four years. Use 8 percent as the appropriate interest rate throughout this problem. Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods.

a. How much money will your parents have at the end of four years to help you with graduate school, which you will start then? (Round your final answer to 2 decimal places.)

Funds available for graduate school?

b. You plan to work on a master’s and perhaps a PhD. If graduate school costs $29,780 per year, approximately how long will you be able to stay in school based on these funds? (Round your final answer to 2 decimal places.)

Number of years?

You work for a pharmaceutical company that has developed a new drug. The patent on the drug will last 17 years. You expect that the​ drug's profits will be $1 million in its first year and that this amount will grow at a rate of 2% per year for the next 17 years. Once the patent​ expires, other pharmaceutical companies will be able to produce the same drug and competition will likely drive profits to zero. What is the present value of the new drug if the interest rate is 9% per​ year?

Problem 1-10 (LO. 4, 5)

Ashley runs a small business in Boulder, Colorado, that makes snow skis. She expects the business to grow substantially over the next three years. Because she is concerned about product liability and is planning to take the company public in year 2, she currently is considering incorporating the business. Pertinent financial data are as follows:

Ashley expects her combined Federal and state marginal income tax rate to be 25% over the three years before any profits from the business are considered. Her after-tax cost of capital is 10%, and the related present value factors are: for 2017, 0.8929; for 2018, 0.7972; and for 2019, 0.7118.

Click here to access the tax table to use for this problem.

Enter all amounts as positive numbers. When required, round your answers to the nearest dollar.

a. Considering only these data, compute the present value of the future cash flows for the three-year period, assuming that Ashley incorporates the business and pays all after-tax income as dividends (for Ashley’s dividends that qualify for the 15% rate).

Considering only these data, compute the present value of the future cash flows for the period, assuming that Ashley continues to operate the business as a sole proprietorship.

Hampton Industries had $70,000 in cash at year-end 2018 and $21,000 in cash at year-end 2019. The firm invested in property, plant, and equipment totaling $300,000 — the majority having a useful life greater than 20 years and falling under the alternative depreciation system. Cash flow from financing activities totaled +$170,000. Round your answers to the nearest dollar, if necessary.

1. What was the cash flow from operating activities? Cash outflow, if any, should be indicated by a minus sign.

   $  

2. If accruals increased by $10,000, receivables and inventories increased by $125,000, and depreciation and amortization totaled $29,000, what was the firm's net income?

   $  

Charles and Caitlin are facing an important decision. After having discussed different financial scenarios, the two computer engineers felt it was time to finalize their cash flow projections and move to the next stage – decide which of two possible projects they should undertake.

Both had a bachelor degree in engineering and had put in several years as maintenance engineers in a large chip manufacturing company. About six months ago, they were able to exercise their first stock options. That was when they decided to quit their safe, steady job and pursue their dreams of starting a venture of their own. In their spare time, almost as a hobby, they had been collaborating on some research into a new chip that could speed up certain specialized tasks by as much as 25%. At this point, the design of the chip was complete. While further experimentation might improve the performance of their design, any delay in entering the market now may prove to be costly, as one of the established players might introduce a similar product of their own. The duo knew that now was the time to act if at all.

They estimated that they would need to spend about $1,000,000 on plant, equipment and supplies. As for future cash flows, they felt that the right strategy at least for the first year would be to sell their product at dirt-cheap prices in order to induce customer acceptance. Then, once the product had established a name for itself, the price could be raised. By the end of the fifth year, their product in its current form was likely to be obsolete. However, the innovative approach that they had devised and patented could be sold to a larger chip manufacturer for a decent sum. Accordingly, the two budding entrepreneurs estimated the operating cash flows for this project (call it Project A) as follows:

PROJECT A                                                                                                 

An alternative to pursuing this project would be to sell their innovative chip design to one of the established chip makers. This way, they would receive an upfront payment. But the amount would be relatively small – perhaps around $200,000 – as neither their product nor their innovative approach had a track record.

They could then invest in some plant and equipment that would test silicon wafers for zircon content before the wafers were used to make chips. Too much zircon would affect the long-term performance of the chips. The task of checking the level of zircon was currently being performed by chip makers themselves. However, many of them, especially the smaller ones, did not have the capacity to permit 100% checking. Most tested only a sample of the wafers they received. Dave and Eva were confident that they could persuade at least some of the chip makers to outsource this function to them. By exclusively specializing in this task, their little company would be able to slash costs by more than half, and thus allow the chip manufacturers to go in for 100% quality check for roughly the same cost as what they were incurring for a partial quality check today. The life of this project too is expected to be only about five years. The initial investment for this project is estimated at $ 1,100,000. After taking into account the sale of their patent, the net investment would be $900,000. As for the future, Charles and Caitlin were pretty sure that there would be sizable profits in the first year. But thereafter, the zircon content problem would slowly start to disappear with advancing technology in the wafer industry.

Keeping this in mind, they estimate the future cash inflows for this project (call it Project B) as follows:

PROJECT B                                                                                                 

Charles and Caitlin now need to make their decision. For purposes of analysis, they plan to use a required rate of return of 20% for both projects. Ideally, they would prefer that the project they choose have a payback period of less than 3.5 years and a discounted payback period of less than 4 years.

One of the concerns that Charles and Caitlin have is regarding the reliability of their cash flow estimates. The analysis depends on the accuracy of those projected cash flows. However, they are both aware that actual future cash flows may be higher or lower.

QUESTION   

1. Which of these projects would you recommend? Explain why.

Bonus Value. You have a bond that pays $ 100 of annual interest, with a value of $ 1,000 and matures in 15 years. Your required rate of return is 12%. a. Calculate the value of the bonus b. How does the value change if your required rate of return: 1. Increase to 15% 2. Decrease to 8% c. Assume that the bond matures in 5 years instead of 15 years. Re-compute your answers in part b.