The price of Build A Fire Corp. stock will be either $61 or $86 at the end of the year. Call options are available with one year to expiration. T-bills currently yield 4 percent. a. Suppose the current price of the company's stock is $70. What is the value of the call option if the exercise price is $60 per share? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of the call option $ b. Suppose the exercise price is $80 and the current price of the company's stock is $70. What is the value of the call option now? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of the call option $

Yolanda and Mack are negotiating a contract deal for sale of goods. Yolanda offers Mack $2 per pound for Mack’s peanuts. Mack wants to sell them for $2.50. Under UCC, what happens when Mack asks for the higher amount, assuming both parties are merchants?

What is a P/E ratio, and why is it important in stock valuation? Choose a company stock, and discuss its P/E ratio. Do you believe the P/E ratio provides an accurate assessment of the company’s performance?

National Scan, Inc., sells radio frequency inventory tags. Monthly sales for a seven-month period were as follows:

b. Forecast September sales volume using each of the following:

(1) A linear trend equation.(Round your intermediate calculations and final answer to 2 decimal places.)

Yt            thousands

(2) A five-month moving average. (Round your answer to 2 decimal places.)

Moving average            thousands

(3) Exponential smoothing with a smoothing constant equal to .25, assuming a March forecast of 17(000). (Round your intermediate forecast values and final answer to 2 decimal places)

Forecast            thousands

(4) The naive approach.

Naive approach            thousands

(5) A weighted average using .50 for August, .15 for July, and .35 for June. (Round your answer to 2 decimal places.)

Weighted average            thousands

This week the lesson is Financial Planning. The text focuses on two approaches for coming up with an answer to the same question; how much external financing will be needed next year. One is the final step in projecting financial statements for the next period and the other is the AFN Equation. Which approach do you consider superior and why?

What are the five stages of industry life cycles? Choose five industries that you believe represent each part of the cycle, and explain why each industry may fall under each respective stage. How will investor expectations related to capital needs, dividend payments, and returns change under each stage?

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

What are the variety of capital budgeting tools including net present value (NPV), internal rate of return (IRR), payback period, and profitability index (PI). Only evaluate the incremental changes to cash flows.

Use an Excel spreadsheet showing the required cash flow forecasts and capital budgeting tool calculations.

Major Equipment Purchase

• A new major equipment purchase, which will cost $10 million; however, it is projected to reduce cost of sales by 5% per year for 8 years.
• The equipment is projected to be sold for salvage value estimated to be $500,000 at the end of year 8.
• Being a relatively safe investment, the required rate of return of the project is 8%.
• The equipment will be depreciated at a MACRS 7-year schedule.
• Annual sales for year 1 are projected at $20 million and should stay the same per year for 8 years.
• Before this project, cost of sales has been 60%.
• The marginal corporate tax rate is presumed to be 25%.

Promo Pak has compiled the following financial data: Source of Capital Book Value Market Value Cost Long-term debt $ 10,000,000 $ 12,000,000 6.0% Preferred stock 1,000,000 1,200,000 12.0 Common stock equity 12,000,000 15,000,000 15.0 ------------ ------------ $23,000,000 $28,200,000 a. Calculate the weighted average cost of capital using book value weights. b. Calculate the weighted average cost of capital using market value weights.

MNO Corp. has a market capitalization of $13,500,000 and has 500,000 shares outstanding. MNO currently pays a $2 per-share dividend. Bob currently owns 100 shares of MNO. Answer the following questions. Assume no taxes.

a. What is the value of Bob’s investment after the dividend is paid (ie cash from the dividend plus share value)? Keep in mind the share price change after the dividend is paid.

b. Bob would prefer to receive a $1 per-share dividend. Show how Bob could achieve an equivalent cash flow while still invested in MNO. Also show that Bob’s investment in MNO has the same value as in part (a).

c. Bob would prefer to receive a $3 per-share dividend. If it is possible, show how Bob could achieve an equivalent cash flow while still invested in MNO. Also show that Bob’s investment in MNO has the same value as in part (a).

d. Now assume Bob pays a 15% tax on dividends. Repeat (a), (b), and (c). Are the results different? Explain.

e. What are two other ‘real-world’ factors that were ignored in a), b), and c) that would alter the results? Explain.

In 20X5 MyEducator had sales of $5,521 (in millions), EBIT of $1,720 (in millions), and net income of $528 (in millions). Its DOL, DFL, and DCL are 3.21, 3.26 and 10.46, respectively. If the sales decreases to $5,200 (in millions) in 20X6, what is the earnings before interest and taxes of MyEducator in 20X6?

A)$1,399

B)$674

C)$1,394

D)$1,775

E)$2,041

Pear Orchards is evaluating a new project that will require equipment of $237,000. The equipment will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company plans to shut down the project after 4 years. At that time, the equipment could be sold for $59,300. However, the company plans to keep the equipment for a different project in another state. The tax rate is 40 percent. What after tax salvage value should the company use when evaluating the current project?

Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an interest rate of r_d = 11% as long as it finances at its target capital structure, which calls for 45% debt and 55% common equity. Its last dividend (D₀) was $1.70, its expected constant growth rate is 5%, and its common stock sells for $29. EEC's tax rate is 25%. Two projects are available: Project A has a rate of return of 14%, and Project B's return is 8%. These two projects are equally risky and about as risky as the firm's existing assets.

1. What is its cost of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

   %

2. What is the WACC? Do not round intermediate calculations. Round your answer to two decimal places.

   part two

   barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 25%. Assume that the firm's cost of debt, r_d, is 10.3%, the firm's cost of preferred stock, r_p, is 9.5% and the firm's cost of equity is 12.9% for old equity, r_s, and 13.2% for new equity, r_e. What is the firm's weighted average cost of capital (WACC₁) if it uses retained earnings as its source of common equity? Do not round intermediate calculations. Round your answer to two decimal places.

   %

   What is the firm’s weighted average cost of capital (WACC₂) if it has to issue new common stock? Do not round intermediate calculations. Round your answer to two decimal places.

   %

Havana, Inc., has identified an investment project with the following cash flows. If the discount rate is 9 percent, what is the future value of these cash flows in Year 5? (Hint: Be careful with the number of periods.) If the picture doesn't load, the cash flows shown in the picture are as follows: 910 in year 1; 1140 in year 2; 1360 in year 3; and 2100 in year 4.

What is the PV of $100 per year for 5 years with a lump sum in year 5 of $1,000 if the rate is 5%