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Calligraphy Pens is deciding when to replace its old machine. The machine's current salvage value is $3,050,000. Its current book value is $1,800,000. If not sold, the old machine will require maintenance costs of $710,000 at the end of the year for the next five years. Depreciation on the old machine is $360,000 per year. At the end of five years, it will have a salvage value of $155,000 and a book value of $0. A replacement machine costs $4,650,000 now and requires maintenance costs of $380,000 at the end of each year during its economic life of five years. At the end of the five years, the new machine will have a salvage value of $745,000. It will be fully depreciated by the straight-line method. In five years, a replacement machine will cost $3,650,000. The company will need to purchase this machine regardless of what choice it makes today. The corporate tax rate is 25 percent and the appropriate discount rate is 7 percent. The company is assumed to earn sufficient revenues to generate tax shields from depreciation. |
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Calculate the NPV for the new and old machines. |
In: Finance
Explain your understanding of how business goals are influenced by the form of organization and ownership.
In: Finance
What additional strategies might a firm employ to send money to another part of the company if the firm is operating in a country that blocks funds? In otherwords, Subsidiary A wants to send money to its parent and Subsidiary A is located in a country that regularly blocks funds? In addition, what techniques might the parent use to send money to the subsidiary if its subsidiary is located in a country that blocks funds?
Please help me answer this international financial management question.
In: Finance
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Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.18 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,730,000 in annual sales, with costs of $640,000. The project requires an initial investment in net working capital of $290,000, and the fixed asset will have a market value of $240,000 at the end of the project.
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In: Finance
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.5%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 15% 35% Bond fund (B) 6% 29% The correlation between the fund returns is 0.0517. What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
In: Finance
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LO, Inc., is considering an investment of $454,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be $292,100 and $90,800, respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 4 percent. The company will use the straight-line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be $74,000 in nominal terms at that time. The one-time net working capital investment of $24,500 is required immediately and will be recovered at the end of the project. The corporate tax rate is 24 percent. |
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What is the project’s total nominal cash flow from assets for each year? Year 0? Year 1? Year 2? Year 3? Year 4? Year 5? |
In: Finance
The following table shows the prices of a sample of Treasury
strips. Each strip makes a single payment at maturity.
| Years to Maturity | Price, (% of face value) | |
| 1 | 97.752 | % |
| 2 | 94.251 | |
| 3 | 90.444 | |
| 4 | 86.380 | |
a. What is the 1-year interest rate?
b. What is the 2-year interest rate?
c. What is the 3-year interest rate?
d. What is the 4-year interest rate?
In: Finance
Consider three bonds with 5.20% coupon rates, all making annual
coupon payments and all selling at face value. The short-term bond
has a maturity of 4 years, the intermediate-term bond has a
maturity of 8 years, and the long-term bond has a maturity of 30
years.
a. What will be the price of the 4-year bond if
its yield increases to 6.20%?
b. What will be the price of the 8-year bond if
its yield increases to 6.20%?
c. What will be the price of the 30-year bond if
its yield increases to 6.20%?
d. What will be the price of the 4-year bond if
its yield decreases to 4.20%?
e. What will be the price of the 8-year bond if
its yield decreases to 4.20%?
f. What will be the price of the 30-year bond if
its yield decreases to 4.20%?
In: Finance
1. You have decided to purchase 1,000 shares of Caterpillar and short 600 shares of Home Depot. Complete these transactions on Stock-Trak.
2. Stock Transactions The next day, you decide that you want only 600 shares of Caterpillar and want to short 200 more shares of Home Depot. Complete the necessary transactions.
3. Stock Transactions You have now decided to close your long position in Caterpillar and close out your short position in Home Depot. Complete the necessary transactions. What is your total dollar gain or loss on these transactions?
(use any dollar amount)
In: Finance
In: Finance
IBM just paid a dividend of $1.6 per share. You expect IBM's dividend to grow at a rate of 9%
per year for the next three years, and then you expect constant dividend growth of 4% forever.
Based on the risk of IBM stock, you require a return of 13%. Using the dividend discount model,
what is the value of IBM stock?
In: Finance
Why might a student who is claimed as a dependent on another person's tax filing (e.g. that of their spouse or their parents) be prohibited from taking the student loan interest deduction? If the student is permitted to take the deduction on their tax filing, why might the deductible amount be reduced depending on the student's Modified AGI?
In: Finance
Chapter 3 Homework
You are considering an investment in the common stock of Target (Ticker: TGT). Calculate the missing ratios (Current Ratio, Debt Ratio, and Profit Margin). Discuss the company’s strengths and weakness in the areas of liquidity, asset management, debt management and profitability relative to the competitor, Walmart Inc. (Ticker: WMT). Summarized Financial Data and Ratios from Hoovers.
Target: 2017 Annual Balance Sheet (In Millions)
|
Total Current Assets |
$ 11,990 |
|
Total Current Liabilities |
$ 12,708 |
|
Net Fixed Assets |
25,441 |
Long-term Debt |
13,770 |
|
|
Shareholder’s (Common) Equity |
10,953 |
|||
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Total Assets |
$ 37,431 |
Total Liabilities and Equity |
$ 37,431 |
Target: 2017 Income Statement (In Millions)
|
Sales |
$ 69,495 |
|
Cost of Goods Sold |
48,872 |
|
Gross Profit |
20,623 |
|
Other Expenses |
16,590 |
|
Earnings Before Taxes |
4,033 |
|
Taxes |
1,296 |
|
Net Income |
$ 2,737 |
|
Ratio |
Target 2017 |
Walmart 2017 |
|
|
Current Ratio |
? |
0.81 |
|
|
Quick Ratio |
0.29 |
0.22 |
|
|
Inventory Turnover |
6.73 |
9.90 |
|
|
Account Receivable Turnover |
92.78 |
88.32 |
|
|
Total Asset Turnover |
1.86 |
1.73 |
|
|
Debt Ratio |
? |
60.87% |
|
|
Times Interest Earned |
6.70 |
9.93 |
|
|
Profit Margin |
? |
3.60% |
|
|
Return on Assets |
7.31% |
5.50% |
|
|
Return on Equity |
24.99% |
14.88% |
In: Finance
Stock C is expected to pay a dividend of $5.80 next year. Thereafter, dividend growth is expected to be 19.00% a year for five years (i.e., years 2 through 6) and zero thereafter.
If the market capitalization rate for each stock is 9.00%, what is the stock price for each of the stock C?
In: Finance
Why is a home a good inflation hedge? Should a home be included as an asset if its occupants aren’t sure they could sell it?
In: Finance