KFA is considering investing in a new drone technology costing $12 million. It has a 5 year life (no salvage value) and will save KFA $3.5 million/year in pre-tax operating costs. It will need an up-front working capital investment of $300,000. KFA's cost of capital is 8.0% and its tax rate is 21.0%. Their current technology has a $5 million book value but a $1 million salvage value. What are the NPV and IRR of the decision to replace the old technology?

KFA expects to pay the following dividends over the next 4 years: $3.00, $4.00, $5.00, and $6.00. After that, it expects to pay dividends that grow at 4%/year. If the required equity return is 15%, what should be today's share price?

KFA has issued a 100-year coupon bond with par of $1,000, and a 6.50% annual coupon paid semi-annually. Calculate its price for each of the following three YTM scenarios: 4.0%, 6.0%, and 8.0%.

The following financials are presented for Apple, Inc. for the years 2017 and 2018. (All values in USD million)

Required:

1. Determine the operating Cycle and Cash Cycle for the year 2018.
2. Based on the operating cycle and cash cycle determined above, comment on the liquidity position of Apple, Inc.

James Horner is considering an investment scheme, to fund his house purchase after 6 years, with following cash deposits for a period of 6 years.

1. The rate of interest on the deposits is 9% per annum. If James requires an amount of $115,000 at the end of 6 years to purchase the property, how much will be the shortfall or surplus of this investment scheme? Show all the necessary calculations
2. If the rate of interest increases to 11%, what will be the surplus/shortfall
3. What will be your answer for a) above, If James deposits at the beginning of each year, instead of depositing at the end of the year?

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%

A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27,200 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 10%. Ignore inflation. a. Calculate project NPV for each company. b. What is the IRR of the after-tax cash flows for each company?

A restaurant prepares 200.00 pizza slices and sells them at a rate of $15.00/slice. Expenses for the restaurant include raw material for pizza at $6.00 per slice, $124.00 for monthly rental and monthly insurance of $20.00. Lost sale are taken as $5.00 per unhappy customer. Leftover pizza can be sold for $2.00. The restaurant is open only for 25 days in a month. Today there was a party at nearby office so the demand for pizza went up to 224.00 slices. How much profit could the restaurant earn today?

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          Case Study: Rent vs Own

You are considering an option to purchase or rent a single residential property. You can rent it for $4,000 per month and the owner would be responsible for maintenance, property insurance, and property taxes.

Alternatively, you can purchase this property for $300,000 and finance it with an 80% mortgage at 7% interest, 25 year - fixed. The loan can be prepaid at any time with no penalty.

You have done research in the market and found that properties have historically appreciated at an annual rate of 4% per year. Rents on similar properties have also increased at the same rate. Maintenance and insurance are currently $2,500 each per year and they have been increasing at a rate of 4% per year. Property taxes have generally been about 3% of the property value each year.   

If you purchase, the plan is to occupy the property for at least four years. Selling costs would be 7% in the year of sale.

Based on this information you must decide:

• In order to earn a 10% internal rate of return, should you buy the property or rent it for a four-year period of ownership?

A Restaurant is open only for 25 days in a month.

Expenses for the restaurant include raw material for each sandwich at $6.00 per slice, $1,004.00 as monthly rental and $470.00 monthly as insurance. They consider the cost of lost sales as $5.00 per item. They are able to sell any leftover sandwiches for $3. They prepares 200.00 sandwiches and sells them at a rate of $12.00/sandwich.
Today there was a party at nearby office so the demand for sandwiches rose to 226.00. How much profit did the restaurant earn today?

Using the Vehicle Ratings Excel file, create formulas using nested IF, AND, and OR functions to implement the three rating schemes described on the spreadsheet.

you have the choice of two investments of equal risk. The required return for both is 8%. The first pays 1500 per month for 30 years and starts in 2 years. The second pays 15000 per year in perpetuity, but starts in 3 years. If the cost of both the investments is the same, which one would you prefer and why?

Bond X is noncallable and has 20 years to maturity, a 7% annual coupon, and a $1,000 par value. Your required return on Bond X is 10%; and if you buy it, you plan to hold it for 5 years. You (and the market) have expectations that in 5, years the yield to maturity on a 15-year bond with similar risk will be 7%. How much should you be willing to pay for Bond X today? (Hint: You will need to know how much the bond will be worth at the end of 5 years.) Round your answer to the nearest cent.

Woodbridge Manufacturing is also considering developing a new assembly line on which to build another new product (not covered in the text). In what category should the costs listed below be placed:

Initial investment outlay (time0)
Supplemental annual cash flows (time1 through timeN)
Terminal value (timeN), or Disregarded?

Also state your reasoning for choosing that classification. Consider each element individually.
This product has been developed over the past three years, at a total cost of $125,000.
The building that Woodbridge is planning to be used is currently rented out to another company for $10,000 per month, and they are on a month-to-month lease so the lease can be terminated with 90 days' notice.
The new product will replace a current product, which is currently generating $12,000 per month in free cash flow (cash earnings less applicable costs).
The machines will cost $750,000.
Travel to see similar machines in operation at another company's factory costed $3,500.
Freight and installation for the machines will cost $75,000.
It is projected that the additional inventories valued at $80,000 will be required to support sales of the product.
Woodbridge will offer 90 day credit terms to purchasers of the new product which are expected to expand accounts receivable by an average of $145,000.
The gross profit (or gross margin) on the sales of the product is expected to be $360,000 per year for the five years of the project.
Purchases of material for the project is expected to increase the balance of the accounts payable by $32,000 during the project life.
Interest on a loan taken out around the time of starting the project will be $12,000 per year.
The salvage value of the machines is expected to be $236,000 at the end of the project.

A project has an initial cost of $52,125, expected net cash inflows of $12,000 per year for 7 years, and a cost of capital of 12%. What is the project's discounted payback period? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to two decimal places.