Projected sales for 2015 are 8,932. Determine the variable and fixed cost components of COGS and then project the gross profit for 2015.

a. 2,754

b. 2,831

c. 2,928

d. 2,864

One year ago your company purchased a machine for $110,000. You have learned that a new, much better machine is available for $150,000--it will be depreciated on a straight line basis and has no salvage value. You expect the machine to produce $60,000 per year in revenue and cost $20,000 per year to operate for the next ten years. The current machine is expected to produce $40,000 per year in revenue and also costs $20,000 per year to operate. The current machine’s depreciation expense is $10,000 per year for the next 10 years, after which it will be discarded. It will have no salvage value. The market value of the current machine today is $50,000. Your company’s tax rate is 45% and the opportunity cost of capital is 10%. Should your company replace its year-old machine?

PLEASE SHOW ALL WORK

Given that the risk-free rate is 5%, the expected return on the market portfolio is 20%, and the standard deviation of returns to the market portfolio is 20%, answer the following questions:

a. You have $100,000 to invest. How should you allocate your wealth between the risk free asset and the market portfolio in order to have a 15% expected return?

b. What is the standard deviation of your portfolio in (a)?

c. Now suppose that you want to have a portfolio, which pays 25% expected return. What is the weight in the risk free asset and in the market portfolio?

d. What do these weights mean: What are you doing with the risk free asset and what are you doing with the market portfolio?

e. What is the standard deviation of the portfolio in c?

f. What is your conclusion about the effect of leverage on the risk of the portfolio?

A stock is currently priced at $60. The stock will either increase or decrease by 10 percent over the next year. There is a call option on the stock with a strike price of $55 and one year until expiration.

If the risk-free rate is 3 percent, what is the risk-neutral value of the call option? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Call value $

XYZ Inc. is considering producing a new handheld, wireless internet device. Management spent $3.5 million last year on test marketing and has developed the following set of forecasts. Total cash costs (excluding depreciation) of the device will be $30 each, and they will sell them all for $100 each. They can produce and sell 55,000 devices each year for the next five years. XYZ would have to prepare a manufacturing facility and buy necessary equipment, which would cost $10 million to be spent immediately and be depreciable over 10 years using straight-line depreciation. They would have to invest $2.5 million in inventory beginning today, and this amount would not change over the life of the project. In 5 years, they will quit, dispose of the plant for $1.5 million, and recover working capital. The tax rate is 40%, the firm uses stock financing, and stockholders require a 15% return. Should XYZ accept the project? Show any needed calculations and justify the answer.

Consider the following mutually exclusive investments T=0, 1, 2 Investment A: -200, 40, 210 Investment B: -200, 170, 70

a. Find IRRs for both projects

b. “Draw” a graph of NPV schedules using Excel, in which you will show the NPV of each project as a function of its discount rate (i.e NPV on the vertical axis and r on the horizontal axis). Both NPV schedules should be on the same graph.

c. Solve for the crossover rate

d. Please describe as fully as possible which project is the best and under which circumstances.

Your task is to analyse a cost cutting project, where a new and more efficient machinery is installed. You have the following data:

• Cost of a new machinery: $250,000
• Decrease in the working capital requirement: $25,000 (reversed at the end of project)
• Annual (before tax and depreciation) cash savings from the improved efficiency: $60,000
• Lifespan of a new machine: 5 years
• Corporate marginal tax rate: 35%
• Depreciation: straight-line to zero book value in 5 years.
• Market value of the machinery in 5 years: 20,000
• Cost of capital: 10%

Compute the NPV of this cost cutting project and argue if the company should accept this project or not?

Your task is to find the cost of capital (WACC) for a company. The company has three sources of capital available. The marginal tax rate for the company is 35%.

Common stock: 100 000 shares outstanding with the book value of $20 but currently trading at P/B=2.0. One may apply CAPM to estimate the cost of equity. Inputs for estimations are: risk free rate 2.8%, market risk premium 10.0% and the stock beta is 1.20.

Debt: 2 000 discount bonds with $1 000 par value, with 4 year to maturity. Bonds currently offer 6% yield to bondholders.

Preferred stock: 14 000 shares outstanding with $90 market price and 7% yield.

Find the cost of each financing source, capital structure weights for each source and the WACC.

Linda Jones is deciding between two investment projects.

Choice 1 Linda can invest into a young biotech firm. She expects that she will need to pay this firm $35,000 at the end of each year for the next two years. After that, she expects to receive back from the firm $90,000 at the end of each year for 18 years.

Choice 2 Linda can invest $200,000 today into an AI firm. She expects to be paid $42,000 at the end of the year, and expects cash flows from the AI firm to increase by 5% every year, paid at the end of each year in perpetuity

a. “Draw” timelines (tables), showing cash flows of each investment.

b. Suppose Linda’s discount rate is 12%. Which project should she choose?

c. At which discount rate would Linda be indifferent between her two choices?

You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $200,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $86,000. The machine would require a $4,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $54,000 per year. The marginal tax rate is 25%, and the WACC is 12%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine.

1. How should the $4,500 spent last year be handled?
   1. Only the tax effect of the research expenses should be included in the analysis.
   2. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
   3. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   4. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   5. The cost of research is an incremental cash flow and should be included in the analysis.
   
   
   
2. What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.
   $ _______
   
3. What are the project's annual cash flows during Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
   Year 1: $ ______
   Year 2: $ ______
   Year 3: $ ______
   
4. Should the machine be purchased?
   YES/NO

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $180,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $59,000. The equipment would require a $14,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $56,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%.

1. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.
   $ _______
2. 
   
3. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
   Year 1: $ _____
   Year 2: $ _____
   Year 3: $ _____
4. 
   
5. If the WACC is 14%, should the spectrometer be purchased?
   _______ YES/NO

What will a beta book compute as the “adjusted beta” of this stock?What would be your predicted beta for next year?

A stock recently has been estimated to have a beta of 1.40:

a. What will a beta book compute as the “adjusted beta” of this stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Suppose that you estimate the following regression describing the evolution of beta over time:

β_t = 0.4 + 0.6β_t–1

What would be your predicted beta for next year? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

In the Australian Standard ISO 31000:2018 what are the 8 principles of Risk Management? please outline the 2018 version.