Geography and the Foreign Exchange Market

a. What is the geographical location of the foreign exchange market?

b. What are the two main types of trading systems for foreign exchange?

c. How are foreign exchange markets connected for trading activities?

Pharoah Manufacturing Co. is evaluating two projects. The company uses payback criteria of three years or less. Project A has a cost of $901,000, and project B’s cost is $1,268,100. Cash flows from both projects are given in the following table. Year Project A Project B 1 $86,212 $586,212 2 313,562 413,277 3 427,594 231,199 4 285,552 What are their discounted payback periods? (Round answers to 2 decimal places, e.g. 15.25. If discounted payback period exceeds life of the project, enter 0.00 for the answer.) Discounted payback period of project A 0.00 Discounted payback period of project B 0.00 Which will be accepted with a discount rate of 8 percent? Pharoah should choose

Please show not using excel or financial calculator functions

Seth Bullock, the owner of Bullock Gold Mining, is evaluating a new gold mine in South Dakota. Dan Dority, the company's geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company's financial officer. Alma has been asked by Seth to perform an analysis of the new mine and present her recommendation on whether the company should open the new mine.

Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $635 million today, and it will have a cash outflow of $45 million nine years from today in costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the table. Bullock Mining has a 12 percent required return on all of its gold mines.

Questions: 1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, and the net present value of the proposed mine.

2. Based on your analysis, should the company open the mine?

3. Bonus question: Most spreadsheets does not have a built-in formula to calculate the payback period. Write a VBA script that calculates the payback period for a project.

Crane Incorporated management is considering investing in two alternative production systems. The systems are mutually exclusive, and the cost of the new equipment and the resulting cash flows are shown in the accompanying table. The firm uses a 8 percent discount rate for production system projects.

YearSystem 1System 2

0

-$12,900-$43,800

1

12,900 32,500

2

12,900 32,500

3

12,900 32,500

When determining incremental unlevered net income, should all the expenses listed be included? If not, what expenses should we exclude and why?

The Robinson Corporation has $39 million of bonds outstanding that were issued at a coupon rate of 12.150 percent seven years ago. Interest rates have fallen to 11.150 percent. Mr. Brooks, the Vice-President of Finance, does not expect rates to fall any further. The bonds have 17 years left to maturity, and Mr. Brooks would like to refund the bonds with a new issue of equal amount also having 17 years to maturity. The Robinson Corporation has a tax rate of 30 percent. The underwriting cost on the old issue was 3.90 percent of the total bond value. The underwriting cost on the new issue will be 2.40 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a 9 percent call premium starting in the sixth year and scheduled to decline by one-half percent each year thereafter. (Consider the bond to be seven years old for purposes of computing the premium.) Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole percent (e.g. 4.06 percent should be rounded up to 5 percent).

a. Compute the discount rate. (Do not round intermediate calculations. Input your answer as a percent rounded up to the nearest whole percent.)
  

b. Calculate the present value of total outflows. (Do not round intermediate calculations and round your answer to 2 decimal places.)
  

c. Calculate the present value of total inflows. (Do not round intermediate calculations and round your answer to 2 decimal places.)
   

d. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
  

4. Cash conversion cycle

Consider the case of Cranked Coffee Company:

Cranked Coffee Company is a mature firm that has a stable flow of business. The following data was taken from its financial statements last year:

Cranked Coffee’s CFO is interested in determining the length of time funds are tied up in working capital. Use the information in the preceding table to complete the following table. (Note: Use 365 days as the length of a year in all calculations, and round all values to two decimal places.)

B: Both the inventory conversion period and payables deferral period use the average daily COGS in their denominators, whereas the average collection period uses average daily sales in its denominator. Why do these measures use different inputs?

Inventory and accounts payable are carried at cost on the balance sheet, whereas accounts receivable are recorded at the price at which goods are sold.

Current assets should be divided by sales, but current liabilities should be divided by the COGS.

C. Is there generally a positive or negative relationship between net working capital and the cash conversion cycle? (In other words, if a firm has a high level of net working capital, is it likely to have a high or low cash conversion cycle?)

There is a positive relationship between net working capital and the cash conversion cycle.

There is a negative relationship between net working capital and the cash conversion cycle.

D. What are the four key factors in a firm’s credit policy?

Credit terms, discounts, credit standards, and collection policy

Credit period, discounts, credit standards, and collection policy

E. If the credit terms as published by a firm were 2/15, net 60, this means the firm will:

allow a 2% discount if payment is received within 15 days of the purchase, and if the discount is not taken the full amount is due in 60 days.

allow a 15% discount if payment is received within 2 days of the purchase, and if the discount is not taken the full amount is due in 60 days.

F. The management at Cranked Coffee Company wants to continue its internal discussions related to its cash management. One of the finance team members presents the following case to his cohorts:

Case in Discussion

Cranked Coffee Company’s management plans to finance its operations with bank loans that will be repaid as soon as cash is available. The company’s management expects that it will take 40 days to manufacture and sell its products and 35 days to receive payment from its customers. Cranked Coffee’s CFO has told the rest of the management team that they should expect the length of the bank loans to be approximately 75 days.

Which of the following responses to the CFO’s statement is most accurate?

The CFO is not taking into account the amount of time the company has to pay its suppliers. Generally, there is a certain length of time between the purchase of materials and labor and the payment of cash for them. The CFO can reduce the estimated length of the bank loan by this amount of time.

The CFO’s approximation of the length of the bank loans should be accurate, because it will take 75 days for the company to manufacture, sell, and collect cash for its goods. All these things must occur for the company to be able to repay its loans from the bank.

Setting and implementing a credit policy is important for three main reasons:

It has a minor effect on sales, it influences the amount of funds tied up in receivables, and it affects bad debt losses.

It has a major effect on sales, it influences the amount of funds tied up in receivables, and it affects bad debt losses.

Please answer the following questions in your initial post:

• What is the importance of small business in the United States?
• How did the Telfers finance their start-up?
• Why is it difficult for budding entrepreneurs to secure bank financing or venture capital?
• What is an intrapreneur? How does it differ from an entrepreneur?
• How does the notion of taking an existing idea and making it better relate to the successful launch of Pillow Pets?
• Have you or a friend ever had an idea for a product or a service that would make it better? What was it? What is stopping you from implementing it?

Woodbridge crop. is assessing the viability of a new condo project. It would need to spend $2 million to purchases the land today and then $2 million per year for each of the next two years to build the condo development which would have 20 units.

Woodbridge will conduct an auction at the end of the year one to sell the first 10 units which are expected to sell for an average price of $350,000 each.

At the end of year two the remaining 10 units would be auctioned and are expected to sell for an average price of $375,000 each. There is no residual value to the developer.

If the appropriate discount rate is 15% - what is the NPV of this project? Assume that all cost and revenue items occur at the end of the year( except of course the initial land acquisition.) What is the NPV if the appropriate discount rate is 30%?

You bought a car three years ago for $20,000 and financed $16,000 at 6 percent APR for 60 months. You are now thinking about trading in your vehicle for a new one and would like to know how much you still owe on the loan. Assuming that you have made 36 payments so far, what is the balance remaining on your loan?

Below is a table of expected cash flows for a potential project. Select all of the capital budgeting rules that tell you to accept the project

Doak Corp. is evaluating a project with the following cash flows: Year Cash Flow 0 –$ 15,300 1 6,400 2 7,600 3 7,200 4 6,000 5 – 3,400 The company uses an interest rate of 9 percent on all of its projects. Calculate the MIRR of the project using all three methods.

Answer must be in three full paragraphs with one resource given

The age-old saying for investing is “buy low and sell high,” but this is easier said than done. Investors who are scared of falling prices sell their investments, which in turn lowers the price and then creates a snowball effect. Consider a situation where all of your investments are exposed to the stock market and prices are starting to fall. You do not need the money until retirement, which is in 20 years. How would you react to this situation and why? If you decide to sell, what would you purchase instead

3. Assuming the following yields: Week 1: 3.84% Week 2: 3.51% Week 3: 3.95% (1) Compute the absolute yield change and percentage yield change from week 1 to week 2. (1.5 points) (2) Compute the absolute yield change and percentage yield change from week 2 to week 3. (1.5 points)