Recent years have seen increased competition in many areas of finance. For example, commercial banks now face a number of other entities fighting for consumer deposits. Identify a financial services firm that has recently(past few years)entered a new market (it can be either a start-up company or an established firm moving into a new area). What market are they entering, and how are they trying to establish themselves or distinguish their offering from the competition? How have the other companies in the space responded? How do you think this will play out over time?

A bicycle manufacturer currently produces

308 comma 000

units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of

$ 1.90

a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Direct​ in-house production costs are estimated to be only

$ 1.40

per chain. The necessary machinery would cost

$ 279 comma 000

and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using a​ ten-year straight-line depreciation schedule. The plant manager estimates that the operation would require

$ 45 comma 000

of inventory and other working capital upfront​ (year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are

$ 20 comma 925

.

If the company pays tax at a rate of

35 %

and the opportunity cost of capital is

15 %

​,

what is the net present value of the decision to produce the chains​ in-house instead of purchasing them from the​ supplier?

1. Suppose that firms face 40% income tax rate on positive profits and that net losses receive no credit. (Thus, if profits are positive, after-tax income is (1 – 0.4) * profit, while if there is a loss, after-tax income is the amount lost.) Firms A and B have the same cash flow distribution as in problem 5 above. Suppose the appropriate effective annual discount rate for both firms is 10%?
   1. What is the expected pre-tax profit for A and B?
   2. What is the expected after-tax profit for A and B?
   3. What would Firms A and B pay today to receive next year’s expected cash flow for sure, instead of the variable cash flows described above?

Here I attach problem 5, so you can see the info for problem 6, problem 6 is the one that I want to get the answer.

Problem 5.

1. Suppose that firms face 40% income tax rate on all profits. In particular, losses receive full credit. Firm A has 50% probability of a $1000 profit and a 50% probability of a $600 loss each year. Firm B has a 50% probability is a $300 profit and a 50% probability of a $100 profit each year.

Problem 16-04
Cost of Trade Credit

A large retailer obtains merchandise under the credit terms of 2/15, net 45, but routinely takes 60 days to pay its bills. (Because the retailer is an important customer, suppliers allow the firm to stretch its credit terms.) What is the retailer's effective cost of trade credit? Assume 365 days in year for your calculations. Do not round intermediate calculations. Round your answer to two decimal places.

You company wants to build a new small plant that will cost $90,000,000 to construct. You will

pay the construction engineering firm $45,000,000 today and another $45,000,000 at the end of the first year of construction. The plant will be finished 24 months from the start of construction. Each year of operation, the plant will take charges of $5,000,000 per year at the beginning of the year for raw materials, labor, and maintenance. Each year of operation, the plant will take credits of $20,000,000 in sales revenues at the end of the year. If the company requires a MARR of 15% and the plant is expected to have a life of 15 years of production, answer the following questions:

a. What is the simple Payback Period for this project ignoring the effects of time value of money? b. What is the NPV of this project using the MARR? c. What is the Discounted Payback Period of this project using the MARR? d. What is the IRR for this project?

Problem 17-04
Exchange Rate

If euros sell for $1.91 (U.S.) per euro, what should dollars sell for in euros per dollar? Round your answer to two decimal places.

Problem 22-03
Merger Bid

Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.15 (given its target capital structure). Vandell has $10.32 million in debt that trades at par and pays an 7.5% interest rate. Vandell’s free cash flow (FCF₀) is $2 million per year and is expected to grow at a constant rate of 5% a year. Both Vandell and Hastings pay a 30% combined federal and state tax rate. The risk-free rate of interest is 6% and the market risk premium is 6%.

Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.6 million, $3.1 million, $3.3 million, and $3.85 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 5% rate. Hastings plans to assume Vandell’s $10.32 million in debt (which has an 7.5% interest rate) and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.5 million each year for Years 1, 2, and 3. After Year 3, a target capital structure of 30% debt will be maintained. Interest at Year 4 will be $1.434 million, after which the interest and the tax shield will grow at 5%.

Indicate the range of possible prices that Hastings could bid for each share of Vandell common stock in an acquisition. Round your answers to the nearest cent. Do not round intermediate calculations.

The bid for each share should range between $ per share and $ per share.

6. Suppose that the following information represents the complete trade data for each country.

(a) Calculate the intra-industry trade index for each commodity category in each country.

(b) Calculate the intra-industry trade index for total trade in each country.

(c) Use trade theory to explain the usefulness of these indices in determining each country’s trade patterns.

Note: You may use either the Balassa index or the Grubel-Lloyd index for your calculations.