Discuss a short and long-term plan for a perennially losing team and identify specific steps that could be taken to increase income or generate victories.

At 6.5​% ​APR, what is the present value of ​$2263 per year​ forever, if the first payment will be received 16 years from​ today? ​ (Rounded to the nearest 10​ cents.)

SUBJECT is FINANCE

Free Cash Flows

Rhodes Corporation’s financial statements are shown below.

Rhodes Corporation: Income Statements for Year Ending December 31
(Millions of Dollars)

Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)

Suppose the federal-plus-state tax corporate tax is 25%. Answer the following questions.

1. What is the net operating profit after taxes (NOPAT) for 2020? Enter your answer in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answer to the nearest whole number.
2. What are the amounts of net operating working capital for both years (2020 and 2019)? Enter your answers in millions. Round your answers to the nearest whole number.

   2020: $   million

   2019: $   million

3. What are the amounts of total net operating capital for both years? Enter your answers in millions.

   2020: $   million

   2019: $   million

4. What is the free cash flow for 2020? Enter your answer in millions. Cash outflow, if any, should be indicated by a minus sign. Round your answer to the nearest whole number.

   $    million

5. What is the ROIC for 2020? Round your answer to two decimal places.

     %

6. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.) Enter your answers in millions.

   After-tax interest payment	$    million
   Reduction (increase) in debt	$    million
   Payment of dividends	$   million
   Repurchase (Issue) stock	$   million
   Purchase (Sale) of short-term investments	$   million

You are the director of operations for your company, and your vice president wants to expand production by adding new and more expensive fabrication machines. You are directed to build a business case for implementing this program of capacity expansion. Assume the company's weighted average cost of capital is 13%, the after-tax cost of debt is 7%, preferred stock is 10.5%, and common equity is 15%. As you work with your staff on the first cut of the business case, you surmise that this is a fairly risky project due to a recent slowing in product sales. As a matter of fact, when using the 13% weighted average cost of capital, you discover that the project is estimated to return about 10%, which is quite a bit less than the company's weighted average cost of capital. An enterprising young analyst in your department, Harriet, suggests that the project is financed from retained earnings (50%) and bonds (50%). She reasons that using retained earnings does not cost the firm anything since it is cash you already have in the bank and the after-tax cost of debt is only 7%. That would lower your weighted average cost of capital to 3.5% and make your 10% projected return look great.

Based on the scenario above, post your reactions to the following questions and concerns:

What is your reaction to Harriet's suggestion of using the cost of debt only? Is it a good idea or a bad idea? Why? Do you think capital projects should have their own unique cost of capital rates for budgeting purposes, as opposed to using the weighted average cost of capital (WACC) or the cost of equity capital as computed by CAPM? What about the relatively high risk inherent in this project? How can you factor into the analysis the notion of risk so that all competing projects that have relatively lower or higher risks can be evaluated on a level playing field?

Exercise Example - Capital Budgeting Project Analysis - Chapter 5

As director of capital budgeting, you are reviewing three potential investment projects with the following cost and cash flow projections.  

1. Calculate the Payback Period for each project.

2. If the discount rate for all three projects is 12.5%, calculate the Net Present Value for each project.

You are the director of operations for your company, and your vice president wants to expand production by adding new and more expensive fabrication machines. You are directed to build a business case for implementing this program of capacity expansion. Assume the company's weighted average cost of capital is 13%, the after-tax cost of debt is 7%, preferred stock is 10.5%, and common equity is 15%. As you work with your staff on the first cut of the business case, you surmise that this is a fairly risky project due to a recent slowing in product sales. As a matter of fact, when using the 13% weighted average cost of capital, you discover that the project is estimated to return about 10%, which is quite a bit less than the company's weighted average cost of capital. An enterprising young analyst in your department, Harriet, suggests that the project is financed from retained earnings (50%) and bonds (50%). She reasons that using retained earnings does not cost the firm anything since it is cash you already have in the bank and the after-tax cost of debt is only 7%. That would lower your weighted average cost of capital to 3.5% and make your 10% projected return look great.

Based on the scenario above, post your reactions to the following questions and concerns:

What is your reaction to Harriet's suggestion of using the cost of debt only? Is it a good idea or a bad idea? Why? Do you think capital projects should have their own unique cost of capital rates for budgeting purposes, as opposed to using the weighted average cost of capital (WACC) or the cost of equity capital as computed by CAPM? What about the relatively high risk inherent in this project? How can you factor into the analysis the notion of risk so that all competing projects that have relatively lower or higher risks can be evaluated on a level playing field?

You want to borrow $60,000 for a new tricked-out Hummer H2 for your high school basketball star son.  If you can somehow qualify for an outrageously low interest rate of 4.5%, compounded monthly for a six-year (60 month) loan, what amount will your monthly payment be?

Growth for the sake of growth is not always in the best interest of the firm and shareholder value. What are some of the things the firm can do to increase its growth potential, and when might an action to increase growth be contrary to the interest of increasing the firm's value?

Which do you​ prefer: a bank account that pays 5.1 % per year​ (EAR) for three years or

A. An account that pays 2.8 % every six months for three​ years?

B. An account that pays 6.8 % every 18 months for three​ years?

C. An account that pays 0.65 % per month for three​ years? ​

(Note: Compare your current bank EAR with each of the three alternative accounts. Be careful not to round any intermediate steps less than six decimal​ places.)

-----------------------

If you deposit $ 1 into a bank account that pays 5.1 % per year for three​ years: The amount you will receive after three years is ​[...]?

All else constant, an increase in the days inventory held period will have what effect on the net present value (NPV) of working capital

a. it depends

b. decrease in NPV

c. increase in NPV

d. no change in NPV

A project has an initial requirement of $195,422 for new equipment and $14,626 for net working capital. The installation costs to get the new equipment in working condition are 2,873. The fixed assets will be depreciated to a zero book value over the 5-year life of the project and have an estimated salvage value of $115,708. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $76,206 and the cost of capital is 13% What is the project's NPV if the tax rate is 34%?

Derek currently has $13,896.00 in an account that pays 6.00%. He will withdraw $5,447.00 every other year beginning next year until he has taken 5.00 withdrawals. He will deposit $13896.0 every other year beginning two years from today until he has made 5.0 deposits. How much will be in the account 26.00 years from today?

What is the essential idea underlying Risk - adjusted return on Capital Models and how does this model relate to the concept of duration?

Healthcare Financing

Explain the meaning of corporate status in relation to healthcare organizations, and the advantages corporate status provides.

A bicycle manufacturer currently produces 274 000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $ 1.80 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 $ 1.50 per chain. The necessary machinery would cost $ 242000 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 $ 33000 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 $ 18150. 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?
Project the annual free cash flows ​(FCF​) of buying the chains.
The annual free cash flows for years 1 to 10 of buying the chains is ​$ ____________. ​ (Round to the nearest dollar. Enter a free cash outflow as a negative​ number.)
Compute the NPV of buying the chains from the FCF. The NPV of buying the chains from the FCF is ​$ ________. ​(Round to the nearest dollar. Enter a negative NPV as a negative​ number.)
Compute the initial FCF of producing the chains. The initial FCF of producing the chains is ​$ ___________. ​(Round to the nearest dollar. Enter a free cash outflow as a negative​ number.)
Compute the FCF in years 1 through 9 of producing the chains. The FCF in years 1 through 9 of producing the chains is ​$ _____. ​(Round to the nearest dollar. Enter a free cash outflow as a negative​ number.)
Compute the FCF in year 10 of producing the chains. The FCF in year 10 of producing the chains is ​$ ______. ​(Round to the nearest dollar. Enter a free cash outflow as a negative​ number.)
Compute the NPV of producing the chains from the FCF. The NPV of producing the chains from the FCF is ​$ ______. ​ (Round to the nearest dollar. Enter a negative NPV as a negative​ number.)
Compute the difference between the net present values found above. The net present value of producing the chains​ in-house instead of purchasing them from the supplier is ​$__________. ​ (Round to the nearest​ dollar.)