You currently have $620k in savings. You plan on living off of a growing perpetuity which grows at 3% per year (and passing it on to your kids). You plan on retiring exactly 12 years from today, at which point you collect your first cash payment. You will not contribute any more money to the savings account before retirement, but your current $620k in savings will grow at the discount rate until you retire. How much will the first payment of the growing perpetuity be if the appropriate discount rate is 6%?
In: Finance
A bond issued for the purpose of building a tunnel between New Jersey and New York in which tolls are expected to pay the coupon and principal payments to the bondholders is most likely characterized as a(n):
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a. General obligation bond |
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b. Treasury bond |
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c. Industrial development bond |
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d. Revenue bond |
The most likely reason an organization would issue commercial paper is to:
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a. Finance a budget deficit |
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b. Manage working capital |
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c. Invest in long-term projects |
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d. Refinance a long-term bond issue |
Which of the following is (are) correct regarding average returns?
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a. The geometric mean is equivalent to IRR |
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b. The arithmetic mean is the average return for a series of returns and will always be greater than or equal to the geometric mean |
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c. Both a and b |
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d. Neither a nor b |
A mortgage-backed security can be characterized as having:
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a. Prepayment risk |
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b. Little price risk |
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c. Extremely low default risk levels |
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d. Annual coupon payments |
Which of the following statements concerning risk is not correct?
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a. Country risk, or political risk, is the variability in a security’s returns resulting from the instability of a country’s economy or government |
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b. Financial risk is associated with the use of equity as part of a company’s capital structure |
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c. Market risk is the variability in a security’s returns resulting from fluctuations in the overall market |
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d. Business risk is the risk associated with the industry or environment in which a business operate |
A financial institution hopes to form an equity mutual fund that invests solely in blue-chip stocks. The most likely piece of legislation that dictates the law surrounding the fund is the:
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a. Dodd Frank Act of 2010 |
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b. Banking Act of 1933 |
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c. Financial Services Modernization Act of 1999 |
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d. Investment Company Act of 1940
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In: Finance
I included the chart I would develop to identify the problem's time value of money variables for the calculation. Please use a financial calculator or financial calculator application for all problems. To receive credit for your calculations, please include the appropriate time value of money variables chart with your response. There is no need to document the time value of money formula used, as provided in the textbook.
Using a financial calculator or online application, calculate the following:
(a) The amount a person would need to deposit today to be able to withdraw $6,000 each year for ten years from an account earning 6 percent.
| N | 10 |
| I/Y | 6 |
| PV | CPT |
| PMT | 6,000 |
| FV | 0 |
(b) A person is offered a gift of $5,000 now or $8,000 five years from now. If such funds could be expected to earn 8 percent over the next five years, which is the better choice?
| N | 5 | 5 |
| I/Y | 8 | 8 |
| PV | 5,000 | CPT |
| PMT | 0 | 0 |
| FV | CPT | 8,000 |
(c) A person wants to have $3,000 available to spend on an overseas trip four years from now. If such funds could be expected to earn 6 percent, how much should be invested in a lump sum to realize the $3,000 when needed?
| N | 4 |
| I/Y | 6 |
| PV | CPT |
| PMT | 0 |
| FV | 3,000 |
(d) A person invests $50,000 in an investment that earns 6 percent. If $6,000 is withdrawn each year, how many years will it take for the fund to run out?
| N | CPT |
| I/Y | 6 |
| PV | -50,000 |
| PMT | 6,000 |
| FV | 0 |
In: Finance
Topperton Company has developed a new industrial product. An outlay of $8 million is required for equipment to produce the new product, and additional net working capital of $400,000 is required to support production and marketing. In addition, a one-time $400,000 (before-tax) expense will be incurred the year that the equipment is placed into service. The equipment will be depreciated on a straight-line basis to a zero book value over 6 years. Although the depreciable life is 6 years, the project is expected to have a productive life of 8 years, and it is estimated that the equipment can be sold for $1 million at that time. Revenues minus expenses are expected to be $3 million per year. The cost of capital for this project is 14%, and the relevant tax rate is 30%. What is the NPV of the new product?
Group of answer choices
$2,956,923
$3,326,891
$3,002,696
None of these
In: Finance
You are planning on buying $100,000 face value of Australian Commonwealth Government Bonds. The bonds mature on 15 February 2027 and have a coupon rate of 4.75%. If your purchase will settle on 27 April 2012, and the quoted yield for the bond is 5.81%, what is the cash price of the bonds to the nearest dollar?
In: Finance
The Securities and Exchange Commission (SEC) has the legal authority to regulate the form and content of financial statements. However, the SEC relies on the following organizations for implementation:
Financial Accounting Standards Board (FASB). Industry Committees of the American Institute of Certified Public Accountants (AICPA.)Principles and Practices Board of the Healthcare Financial Management Association (HFMA). Should the preparation and presentation of financial accounting data be regulated?
In: Finance
Consider the following stock price and shares outstanding information.
| DECEMBER 31, Year 1 | DECEMBER 31, Year 2 | |||||||
Price |
Shares Outstanding |
Price |
Shares Outstanding |
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| Stock K | $23 | 110,000,000 | $34 | 110,000,000 | ||||
| Stock M | 82 | 2,100,000 | 50 | 4,200,000a | ||||
| Stock R | 36 | 29,000,000 | 38 | 29,000,000 | ||||
| aStock split two-for-one during the year. | ||||||||
Compute the beginning and ending values for a price-weighted index and a market-value-weighted index. Assume a base value of 100 and Year 1 as the base period. Do not round intermediate calculations. Round your answers to two decimal places.
PWIYear 1:
PWIYear 2:
VWIYear 1:
VWIYear 2:
Compute the percentage change in the value of each index during the year. Do not round intermediate calculations. Round your answers to two decimal places.
Percentage change in PWI: %
Percentage change in VWI: %
Compute the percentage change for an unweighted index assuming $1,000 is invested in each stock. Do not round intermediate calculations. Round your answer to two decimal places.
%
In: Finance
In: Finance
1.
| PRICE | SHARES | |||||||||||
| Company | A | B | C | A | B | C | ||||||
| Day 1 | $14 | $21 | $55 | 500 | 390 | 270 | ||||||
| Day 2 | 11 | 22 | 60 | 500 | 390 | 270 | ||||||
| Day 3 | 15 | 42 | 58 | 500 | 195a | 270 | ||||||
| Day 4 | 10 | 44 | 27 | 500 | 195 | 540b | ||||||
| Day 5 | 12 | 43 | 29 | 500 | 195 | 540 | ||||||
| aSplit at close of day 2. bSplit at close of day 3. |
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Calculate a Standard& Poor's Index for days 1 through 5 using a beginning index value of 10. Do not round intermediate calculations. Round your answers to three decimal places.
Day 1:
Day 2:
Day 3:
Day 4:
Day 5:
2.
| PRICE | SHARES | |||||||||||
| Company | A | B | C | A | B | C | ||||||
| Day 1 | $13 | $25 | $53 | 450 | 400 | 210 | ||||||
| Day 2 | 11 | 20 | 58 | 450 | 400 | 210 | ||||||
| Day 3 | 14 | 50 | 60 | 450 | 200a | 210 | ||||||
| Day 4 | 15 | 52 | 28 | 450 | 200 | 420b | ||||||
| Day 5 | 11 | 50 | 30 | 450 | 200 | 420 | ||||||
| aSplit at close of day 2. bSplit at close of day 3. |
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Calculate a Dow Jones Industrial Average for days 1 through 5. Do not round intermediate calculations. Round your answers to three decimal places.
Day 1:
Day 2:
Day 3:
Day 4:
Day 5:
In: Finance
You need to accumulate $10,000. To do so, you plan to make deposits of $1,400 per year - with the first payment being made a year from today - into a bank account that pays 11% annual interest. Your last deposit will be less than $1,400 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal? Do not round intermediate calculations. Round your answer up to the nearest whole number.
In: Finance
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McGilla Golf is evaluating a new line of golf clubs. The clubs will sell for $1,000 per set and have a variable cost of $450 per set. The company has spent $157,500 for a marketing study that determined the company will sell 50,500 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,500 sets of its high-priced clubs. The high-priced clubs sell at $1,500 and have variable costs of $630. The company also will increase sales of its cheap clubs by 12,100 sets. The cheap clubs sell for $450 and have variable costs of $180 per set. The fixed costs each year will be $9,650,000. The company has also spent $1,175,000 on research and development for the new clubs. The plant and equipment required will cost $31,150,000 and will be depreciated on a straight-line basis to a zero salvage value. The new clubs also will require an increase in net working capital of $2,530,000 that will be returned at the end of the project. The tax rate is 22 percent and the cost of capital is 15 percent. |
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Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? |
In: Finance
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We are evaluating a project that costs $1,140,000, has a life of 10 years, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 36,000 units per year. Price per unit is $50, variable cost per unit is $20, and fixed costs are $720,000 per year. The tax rate is 23 percent and we require a return of 12 percent on this project.
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In: Finance
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Bridgton Golf Academy is evaluating new golf practice equipment. The "Dimple-Max" equipment costs $140,000, has a 5-year life, and costs $10,100 per year to operate. The relevant discount rate is 10 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $10,300 at the end of the project’s life. The relevant tax rate is 24 percent. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment? |
In: Finance
Current Position Analysis
The following data were taken from the balance sheet of Nilo Company at the end of two recent fiscal years:
| Current Year | Previous Year | |||||||
| Current assets: | ||||||||
| Cash | $334,400 | $249,600 | ||||||
| Marketable securities | 387,200 | 280,800 | ||||||
| Accounts and notes receivable (net) | 158,400 | 93,600 | ||||||
| Inventories | 798,600 | 585,600 | ||||||
| Prepaid expenses | 411,400 | 374,400 | ||||||
| Total current assets | $2,090,000 | $1,584,000 | ||||||
| Current liabilities: | ||||||||
| Accounts and notes payable | ||||||||
| (short-term) | $319,000 | $336,000 | ||||||
| Accrued liabilities | 231,000 | 144,000 | ||||||
| Total current liabilities | $550,000 | $480,000 | ||||||
a. Determine for each year (1) the working capital, (2) the current ratio, and (3) the quick ratio. Round ratios to one decimal place.
| Current Year | Previous Year | |||||
| 1. Working capital | $ | $ | ||||
| 2. Current ratio | ||||||
| 3. Quick ratio | ||||||
b. The liquidity of Nilo has from the preceding year to the current year. The working capital, current ratio, and quick ratio have all . Most of these changes are the result of an in current assets relative to current liabilities.
In: Finance
Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.37 million. The fixed asset falls into the 3-year MACRS class (MACRS schedule). The project is estimated to generate $1,765,000 in annual sales, with costs of $664,000. The project requires an initial investment in net working capital of $360,000, and the fixed asset will have a market value of $345,000 at the end of the project.
| a. |
If the tax rate is 21 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? |
| b. | If the required return is 11 percent, what is the project's NPV? |
In: Finance