Danielsen's has 15,000 shares of stock outstanding and projected annual free cash flows of $48,200, $57,900, $71,300, and $72,500 for the next four years, respectively. After that, the cash flows are expected to increase at a constant annual rate of 1.6 percent. What is the current value per share of stock at a discount rate of 15.4 percent?
In: Finance
The pure expectations theory, or the expectations hypothesis, asserts that long-term interest rates can be used to estimate future short-term interest rates.
Based on the pure expectations theory, is the following statement true or false?
1. The pure expectations theory assumes that investors do not consider long-term bonds to be riskier than short-term bonds.
True
False
2. The yield on a one-year Treasury security is 5.1500%, and the two-year Treasury security has a 6.9525% yield. Assuming that the pure expectations theory is correct, what is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)
10.0159%
11.1581%
8.7859%
7.468%
3. Recall that on a one-year Treasury security the yield is 5.1500% and 6.9525% on a two-year Treasury security. Suppose the one-year security does not have a maturity risk premium, but the two-year security does and it is 0.45%. What is the market’s estimate of the one-year Treasury rate one year from now? (Note: Do not round your intermediate calculations.)
8.9745%
7.8724%
9.9979%
6.6915%
4. Suppose the yield on a two-year Treasury security is 5.83%, and the yield on a five-year Treasury security is 6.20%. Assuming that the pure expectations theory is correct, what is the market’s estimate of the three-year Treasury rate two years from now? (Note: Do not round your intermediate calculations.)
6.45%
7.10%
6.69%
6.61%
In: Finance
In: Finance
Aria Acoustics, Inc., (AAI) projects unit sales for a new
seven-octave voice emulation implant as follows:
| Year | Unit Sales | |
| 1 | 113,000 | |
| 2 | 132,000 | |
| 3 | 120,000 | |
| 4 | 103,000 | |
| 5 | 89,000 | |
Production of the implants will require $2,250,000 in net working
capital to start and additional net working capital investments
each year equal to 25 percent of the projected sales increase for
the following year. Total fixed costs are $1,450,000 per year,
variable production costs are $235 per unit, and the units are
priced at $355 each. The equipment needed to begin production has
an installed cost of $28,000,000. Because the implants are intended
for professional singers, this equipment is considered industrial
machinery and thus qualifies as seven-year MACRS (MACRS Table)
property. In five years, this equipment can be sold for about 20
percent of its acquisition cost. AAI is in the 40 percent marginal
tax bracket and has a required return on all its projects of 16
percent.
What is the NPV of the project?
What is the IRR of the project?
In: Finance
In: Finance
Richard and Linda Butler decide that it is time to purchase a high-definition (HD) television because the technology has improved and prices have fallen over the past 3 years. From their research, they narrow their choices to two sets, the Samsung 64-inch plasma with 1080p capability and the Sony 64-inch plasma with 1080p features. The price of the Samsung is $2,375 and the Sony will cost $2,740. They expect to keep the Samsung for 3 years; if they buy the more expensive Sony unit, they will keep the Sony for 4 years. They expect sell the Samsung for $405 by the end of 3 years; they expect to sell the Sony for $365 at the end of the year 4. Richard and Linda estimate that the end-of-year entertainment benefits (i.e., not going to movies or events and watching at home) from the Samsung to be $930 and for the Sony to be $970 .Both sets can be viewed as quality units and are equally risky purchases. They estimate their opportunity cost to be 8.6%. The Butlers wish to choose the better alternative from a purely financial perspective. To perform this analysis they wish to do the following:
a. Determine the NPV of the Samsung HD plasma TV.
b. Determine the ANPV of the Samsung HD plasma TV.
c. Determine the NPV of the Sony HD plasma TV.
d. Determine the ANPV of the Sony HD plasma TV.
In: Finance
Suppose that the current spot exchange rate of the EUR is USD 1.15 / EUR and the 3-month forward exchange rate is USD $1.10 / EUR. The 3-month interest rate is 6% per annum in the US and 4% per annum in Germany. Assume that you can borrow EUR 1,000,000 or USD 1,150,000. 1. Determine whether interest rate parity is currently holding. 2. If IRP is no holding, how would you carry out covered interest arbitrage (CIA)? Show all the steps and determine the arbitrage profit. Assume you choose to keep your profits in US dollars. 3. Do the problem again, assuming that you choose to keep your profits in euros.
In: Finance
Part A
A new project has an initial cost of $142,000. The equipment will be depreciated on a straight-line basis to a book value of $45,000 at the end of the four-year life of the project. The projected net income each year is $14,300, $17,600, $22,400, and $14,200, respectively. What is the average accounting return?
Part B
You are evaluating two projects with the following cash
flows:
| Year | Project X | Project Y | |||
| 0 | −$540,600 | −$511,000 | |||
| 1 | 219,700 | 209,400 | |||
| 2 | 229,600 | 219,200 | |||
| 3 | 236,800 | 227,100 | |||
| 4 | 196,500 | 187,900 | |||
What is the crossover rate for these two projects?
Part C
A project has the following cash flows :
| Year | Cash Flows | |
| 0 | −$12,300 | |
| 1 | 5,470 | |
| 2 | 7,900 | |
| 3 | 5,280 | |
| 4 | −1,520 | |
Assuming the appropriate interest rate is 9 percent, what is the
MIRR for this project using the discounting approach?
In: Finance
|
National Business Machine Co. (NBM) has $5.1 million of extra cash after taxes have been paid. NBM has two choices to make use of this cash. One alternative is to invest the cash in financial assets. The resulting investment income will be paid out as a special dividend at the end of three years. In this case, the firm can invest in either Treasury bills yielding 2.9 percent or a 5.3 percent preferred stock. IRS regulations allow the company to exclude from taxable income 50 percent of the dividends received from investing in another company’s stock. Another alternative is to pay out the cash now as dividends. This would allow the shareholders to invest on their own in Treasury bills with the same yield or in preferred stock. The corporate tax rate is 21 percent. Assume the investor has a 33 percent personal income tax rate, which is applied to interest income and preferred stock dividends. The personal dividend tax rate is 15 percent on common stock dividends. |
| Suppose the company reinvests the $5.1 million and pays a dividend in three years. | |
| a-1. |
What is the total aftertax cash flow to shareholders if the company invests in T-bills? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |
| a-2. | What is the total aftertax cash flow to shareholders if the company invests in preferred stock? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |
| Suppose instead that the company pays a $5.1 million dividend now and the shareholder reinvests the dividend for three years. | |
| b-1. | What is the total aftertax cash flow to shareholders if the shareholder invests in T-bills? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |
| b-2. | What is the total aftertax cash flow to shareholders if the shareholder invests in preferred stock? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) |
In: Finance
Part A
Bennett Co. has a potential new project that is expected to generate annual revenues of $260,300, with variable costs of $143,200, and fixed costs of $60,700. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $23,500. The annual depreciation is $24,800 and the tax rate is 35 percent. What is the annual operating cash flow?
Part B
Bruno's Lunch Counter is expanding and expects operating cash flows of $31,700 a year for 6 years as a result. This expansion requires $110,300 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $7,800 of net working capital throughout the life of the project. What is the net present value of this expansion project at a required rate of return of 11 percent?
Part C
A project with a life of 6 years is expected to provide annual sales of $300,000 and costs of $205,000. The project will require an investment in equipment of $550,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 40 percent. What is the annual operating cash flow for the best-case scenario?
Part D
A project with a life of 8 years is expected to provide annual sales of $440,000 and costs of $317,000. The project will require an investment in equipment of $760,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 35 percent. What is the annual operating cash flow for the best-case scenario?
In: Finance
Given info
Student loan
Annual 14667
4 year total 58558
Interest 4.45%
Home
Buying home in 7 years which is 4 years after graduation
30 year mortgage fixed interest 4.37%
House is 450kwith 15% downpayment
Cost of living
Utilities monthly
Electric 45
Phone 25
Internet/cable 115
Water 50
Natural gas 120
Gas 350
Food 400
Rent 0
Yearly expenses
Technology 1000
Car maintenance 500
Clothes 1000
Vacation 1000
Bar/clubs 1000
Salary
65k plus 5k for inflation 70k
First, let's compute your monthly (don't forget to modify your interest rate, for monthly compounding!!) debt of the student loan. Your payments will start on September 2022 and nish on September 2032. Please compute your monthly payment (using the assumptions or your real data [amount loaned, interest rate and duration]) and the total interest you will pay.
2. Compute the monthly payment of your house and the total interest you will pay on it. You have until 2025 to get the money for the down payment and you will start paying your mortgage on September 2025 and continue until September 2055. Compute the total interest you will pay.
In: Finance
You have just signed a 5-year contract with the ABB Group, a world-famous Engineering Consulting firm. Your compensation includes a $10,000 signing bonus payable today and monthly payments of $6000 at end of the month and an additional $10,000 completion bonus at the end of year 5. Your salary and bonuses are invested in a savings account that pays 4% compounded monthly.
a) What is the present value of this contract?
b) You plan to put both the signing bonus and the completion bonus into a separate savings account (also paying 4% compounded monthly) and use them for a down- payment on your first house in five years. At the end of five years you hope to have accumulated $40,000 for the down-payment, how much additional cash must you put into the separate savings account each month to reach your goal?
c) You found a house that sells for $321,000, put down your $40,000 as a down-pay- ment, and secured a mortgage for the remaining balance. If your mortgage has 20 years of amortization and a quoted mortgage rate of 6% with semi-annual com- pounding, what is your monthly payment?
d) Suppose your friend signed a 5-year contract with another firm. His compensation includes no payments in the first year of the contract and monthly payments at end of each month starting from the second year. His first monthly payment is $10,000 and it grows by 2% (APR compounded monthly) every year until the end of year 5. What is present value of his contract given the same savings interest rate? Does he earn more than you?
In: Finance
What countries want to invest in Japan? Why or Why not? support your answer with research.
In: Finance
Combined Communications is a new firm in a rapidly growing industry. The company is planning on increasing its annual dividend by 24 percent a year for the next 4 years and then decreasing the growth rate to 4 percent per year. The company just paid its annual dividend in the amount of $1.10 per share. What is the current value of one share of this stock if the required rate of return is 8.50 percent?
A. $41.75
B. $49.58
C. $46.86
D. $35.23
E. $38.82
In: Finance
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow: –$240,000 $66,300 $84,500 $141,500 $122,500 $81,700 Use the payback decision rule to evaluate this project
In: Finance