​​​​​​Hewlitt Corporation established an early retirement program as part of its corporate restructuring. At the close of the voluntary sign-up period, 68 employees had elected early retirement. As a result of these early retirements, the company incurs the following obligations over the next eight years:

The cash requirements (in thousands of dollars) are due at the beginning of each year.

The corporate treasurer must determine how much money must be set aside today to meet the eight yearly financial obligations as they come due. The financing plan for the retirement program includes investments in government bonds as well as savings. The investments in government bonds are limited to three choices:

The government bonds have a par value of $1000, which means that even with different prices each bond pays $1000 at maturity. The rates shown are based on the par value. For purposes of planning, the treasurer assumed that any funds not invested in bonds will be placed in savings and earn interest at an annual rate of 4%.

a. write an LP to minimize the funds that Hewlitt must invest today in order that they can meet their yearly obligations.

b. what is the minimum amount of funds needed, and how much is invested in bond 1, bond 2, bond 3, and how much is put in savings each year.

A mutual fund timing the market...

Although the assumption that operating assets and operating liabilities grow proportionally to sales is a very good approximation for most companies, there are a few circumstances that might require more complicated modeling techniques. We describe four possible refinements in section 12-8: economics of scale, nonlinear relationships, lumpy purchases of assets, and excess capacity adjustments. However, always keep in mind that additional complexity in a model might not be worth the incremental improvement in accuracy.

a.which items comprise operating current assets Why is it reasonable to assume that they grow proportionally to sales?

b.What are some reasons that net PP&E might grow proportionally to sales, and what are some reasons that it might not?

c.What are spontaneous liabilities?

Problem 3: You have access to two investment opportunities. Mutual Fund A, which promises 20% expected return with a variance of 0.36, and Mutual Fund B, which promises 15% expected return with a variance 0f 0.12. The correlation between the two is 0.084.

2. In addition to the funds A and B in the previous question, now you decide to include fund C to your portfolio. Its expected return is 10%, its variance 0.0625, its correlation with A is 0.1050 and its correlation with B is 0.07. You want to achieve an expected return of 16% on your portfolio, with the minimum possible risk (measured by the standard deviation). Derive analytically (that is, without the help of solver, but through calculus) the weights of such desired portfolio, and its standard deviation.

5. What is the difference between the payback period and the discounted payback?

6. Define the Average Accounting Return (AAR). What are the disadvantages of the AAR?

7. What is the Internal Rate of Return (IRR)? What is the IRR rule? How is the IRR calculated?

8. Do the NPV rules and IRR rules lead to identical investment decisions? If so, under what circumstances?

Packaging Solutions Corporation manufactures and sells a wide variety of packaging products. Performance reports are prepared monthly for each department. The planning budget and flexible budget for the Production Department are based on the following formulas, where q is the number of labor-hours worked in a month:

The Production Department planned to work 4,300 labor-hours in March; however, it actually worked 4,100 labor-hours during the month. Its actual costs incurred in March are listed below:

Required:

1. Prepare the Production Department’s planning budget for the month.

2. Prepare the Production Department’s flexible budget for the month.

3. Calculate the spending variances for all expense items

You have the following data: FCF1 = $-2 million; FCF2 = $2 million; FCF3 = $4 million; FCF4 = $6 million; free cash flow grows at a rate of 3% for year 5 and beyond. The weighted average cost of capital is 10%. Assume they have 15 million in debt and 7 million shares outstanding. Find the price per share.

The answer is $7.46. Not sure how to do the work.

Problem 5-01
Bond Valuation with Annual Payments

Jackson Corporation's bonds have 5 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 7%. The bonds have a yield to maturity of 12%. What is the current market price of these bonds? Round your answer to the nearest cent.

Problem 5-02
Yield to Maturity for Annual Payments

Wilson Wonders' bonds have 15 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 12%. The bonds sell at a price of $1,100. What is their yield to maturity? Round your answer to two decimal places.

Problem 5-06
Maturity Risk Premium

The real risk-free rate is 3%, and inflation is expected to be 4% for the next 2 years. A 2-year Treasury security yields 8.5%. What is the maturity risk premium for the 2-year security?

Problem 5-07
Bond Valuation with Semiannual Payments

Renfro Rentals has issued bonds that have a 11% coupon rate, payable semiannually. The bonds mature in 14 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds? Round your answer to the nearest cent.

Problem 5-13
Yield to Maturity and Current Yield

You just purchased a bond that matures in 15 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.37%. What is the bond's yield to maturity? Round your answer to two decimal places.

Problem 7-02
Constant Growth Valuation

Boehm Incorporated is expected to pay a $3.20 per share dividend at the end of this year (i.e., D₁ = $3.20). The dividend is expected to grow at a constant rate of 5% a year. The required rate of return on the stock, r_s, is 11%. What is the estimated value per share of Boehm's stock? Round your answer to the nearest cent.

Problem 7-04
Preferred Stock Valuation

Nick's Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $4 at the end of each year. The preferred sells for $40 a share. What is the stock's required rate of return (assume the market is in equilibrium with the required return equal to the expected return)? Round the answer to two decimal places.

Problem 7-05
Nonconstant Growth Valuation

A company currently pays a dividend of $1 per share (D₀ = $1). It is estimated that the company's dividend will grow at a rate of 17% per year for the next 2 years, and then at a constant rate of 8% thereafter. The company's stock has a beta of 1.8, the risk-free rate is 5%, and the market risk premium is 4%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

Problem 7-07
Horizon Value of Free Cash Flows

Current and projected free cash flows for Radell Global Operations are shown below.

Growth is expected to be constant after 2018, and the weighted average cost of capital is 10.4%. What is the horizon (continuing) value at 2019 if growth from 2018 remains constant? Round your answer to the nearest dollar. Round intermediate calculations to two decimal places.

1.Use the data given to calculate annual returns for Stock A, Stock B, and the Market Index, and then calculate average annual returns for the two stocks and the index. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and then dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2011 because you do not have 2010 data.)

2. Calculate the standard deviations of the returns for Stock A, Stock B, and the Market Index. (Hint: Use the sample standard deviation formula given in the chapter, which corresponds to the STDEV function in Excel.)

3. What dividends do you expect for Stock A over the next three years if you expect the dividend to grow at the rate of 3% per year for the next three years? In other words, calculate D1, D2, and D3. Note that D0 = $1.50.

4. Assume that Stock A has a required return of 13%. You will use this required return rate to discount the dividends calculated earlier. If you plan to buy the stock, hold it for three years, and then sell it for $27.05, what is the most you should pay for it?

How much is my pension worth in today's dollars?

It is a fixed 34,000 per year. I am currently 44 years old and I start collecting at age 62 and plan to live until age 95. The pension does not adjust for inflation. Inflation is estimated to be 3% per year.

Cully Company needs to raise $45 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Flotation costs for issuing new common stock are 7 percent, for new preferred stock, 4 percent, and for new debt, 2 percent. What is the true initial cost figure the company should use when evaluating its project? (Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole dollar amount, e.g., 1,234,567.)

A US-based exporter anticipated receiving 100 million EURO in six months, and took a long forward position, locking-in an exchange rate of $1.3/EURO. If six months later at maturity, the exporter calculates that she has made a profit of $14 million from the currency forward contract, the spot exchange rate at maturity must be __________ USD/EURO

Round your final answers to TWO decimal points.

Given the following information:

Percent of capital structure:

Additional information:

Calculate the weighted average cost of capital for Digital Processing Inc. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)
  

Hunter Corporation expects an EBIT of $61,000 every year forever. The company currently has no debt and its cost of equity is 12 percent. The corporate tax rate is 25 percent.

a. What is the current value of the company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b-1. Suppose the company can borrow at 6 percent. What will the value of the company be if takes on debt equal to 50 percent of its unlevered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

b-2. Suppose the company can borrow at 6 percent. What will the value of the company be if takes on debt equal to 100 percent of its unlevered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c-1. What will the value of the company be if takes on debt equal to 50 percent of its levered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c-2. What will the value of the company be if takes on debt equal to 100 percent of its levered value? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Compare and contrast the fundamental differences in tax characteristics across different entity types.