Calculate the durations and volatilities of securities A, B, and C. Their cash flows are shown below. The interest rate is 10%. (Do not round intermediate calculations. Round "Duration" to 4 decimal places and "Volatility" to 2 decimal places.)

Hayden Inc. has a number of copiers that were bought four years ago for $21,000. Currently maintenance costs $2,100 a year, but the maintenance agreement expires at the end of two years and thereafter the annual maintenance charge will rise to $8,100. The machines have a current resale value of $8,100, but at the end of year 2 their value will have fallen to $3,600. By the end of year 6 the machines will be valueless and would be scrapped.

Hayden is considering replacing the copiers with new machines that would do essentially the same job. These machines cost $26,000, and the company can take out an eight-year maintenance contract for $1,300 a year. The machines will have no value by the end of the eight years and will be scrapped.

Both machines are depreciated by using seven-year MACRS, and the tax rate is 40%. Assume for simplicity that the inflation rate is zero. The real cost of capital is 8%.

a. Calculate the equivalent annual cost, if the copiers are: (i) replaced now, (ii) replaced two years from now, or (iii) replaced six years from now. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)

b. When should Hayden replace its copiers?

Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $47,000. The object is to save on horse transporter rentals.

Marsha had been renting a transporter every other week for $212 per week plus $1.60 per mile. Most of the trips are 90 miles in total. Marsha usually gives the driver a $50 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $.57 per mile. Insurance costs for Marsha’s transporter are $1,800 per year.

The transporter will probably be worth $27,000 (in real terms) after eight years, when Marsha’s horse Nike will be ready to retire. Assume a nominal discount rate of 9% and a forecasted inflation rate of 3%. Marsha’s transporter is a personal outlay, not a business or financial investment, so taxes can be ignored. Hint: All numbers given in the questions are in real terms. Assume CF at end of year, for simplicity.

Calculate the NPV of the investment. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

NPV            $   

As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $77,000. Its operating costs are $23,600 a year, but in five years the machine will require a $18,200 overhaul. Thereafter operating costs will be $31,800 until the machine is finally sold in year 10 for $7,700.

The older machine could be sold today for $26,800. If it is kept, it will need an immediate $29,000 overhaul. Thereafter operating costs will be $38,000 a year until the machine is finally sold in year 5 for $7,700.   

Both machines are fully depreciated for tax purposes. The company pays tax at 35%. Cash flows have been forecasted in real terms. The real cost of capital is 10%.

a. Calculate the equivalent annual costs for selling the new machine and for selling the old machine. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)

b. Which machine should United Automation sell?

Problem 3-9 Current and Quick Ratios The Nelson Company has $1,200,000 in current assets and $500,000 in current liabilities. Its initial inventory level is $350,000, and it will raise funds as additional notes payable and use them to increase inventory. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 2.0? Round your answer to the nearest cent. $ What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.

Low-energy lightbulbs typically cost $3.75, have a life of nine years, and use about $1.85 of electricity a year. Conventional lightbulbs are cheaper to buy, for they cost only $.55. On the other hand, they last only about a year and use about $6.85 of energy.   

a. If the real discount rate is 6%, what is the equivalent annual cost of the two products? (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)

b. Which product is cheaper to use?

DecourcyW Inc. recently hired you as a consultant to estimate the company’s WACC. You have obtained the following information.

• The firm's noncallable bonds mature in 12 years. The bonds have a 10.50% annual coupon rate, a par value of $1,000, and a market price of $1,180.00. The bonds pay coupon payments semi-annually. The firm has 600,000 bonds outstanding.
• Common equity investors’ bond-yield risk premium is 5.5%.
• The risk-free rate is 1.85%, the market risk premium is 12.00%, and the common stock’s beta is 1.15.
• The firm has 40 million shares outstanding of common stocks that sell at $27 per share. The firm just paid a dividend of $2.30 per share, and the constant growth rate is expected to be 5.75%.
• The firm would like to use the median (i.e. mid-point) of the three methods (i.e. Bond-yield-risk premium method, CAPM, and DCF) to estimate the cost of equity, and it does not expect to issue any new common stock.
• The firm has 6.5%, $100 par value preferred stocks. There are 3 million shares outstanding. The preferred stock currently sells at $90 per share.
• The company’s tax rate is 21%.

What is its WACC? Do not round your intermediate calculations.

Charlestown Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable.

1. If the decision is made by choosing the project with the higher IRR, how much value will be forgone?
2. What is the payback period for Project S?
3. What is the discounted payback period for Project L?
4. What is the cross-over rate?
5. What is MIRR for project S?

Show your numerical answer(s) and the Excel function(s) and inputs you used to get the answer.  You may use up to 25 words (50 for #4) to supplement your numbers, tables and Excel functions.

1. State Retirement Funding (5 points – 1 page with table, functions and 25 words)

A state retirement plan has been frozen.  It is considered fully-funded, with $635,244,352.26 of assets on hand and makes payouts to 1,000 recipients.  It assumes it will earn 7.5% per year on these assets.  The most recent total payout was $50,000,000. Next year it will be $51,000,000, which includes a 2% COLA increase in benefits.  This payout amount is scheduled to increase by 2% per year for inflation.  All interest earned and payments occur at the end of the year.  For this cohort of retirees the final payment will be made in exactly22 years from today.  The fund balance at that time will be zero.

The effective rate for annuities like this is RATE = .

The PV was calculated as =PV(RATE,22,-50000000,0,0)

1. Create an amortization table that shows the pension is fully-funded.
2. Suppose that instead of 7.5% the assets earn 5% per year.  By how much is the pension under-funded assuming the 2% COLA adjustment continues.
3. At a 5% growth rate what total annual payments can the original asset balance support for 22 years with no inflation adjustment?  I.e., the same amount each year.
4. Given the initial balance of $635,244,352.26 and assuming a 2% COLA increase ever year, what initial payment can be made to beneficiaries?

Problem 10-09
NPVs and IRRs for Mutually Exclusive Projects

Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses.

1. Calculate the NPV for each type of truck. Do not round intermediate calculations. Round your answers to the nearest dollar.

   Electric-powered truck	$
   Gas-powered truck	$

2. Calculate the IRR for each type of truck. Do not round intermediate calculations. Round your answers to two decimal places.

   Electric-powered truck	%
   Gas-powered truck	%

   Which type of the truck should the firm purchase?
   -Select-Electric-poweredGas-powered

1. Based on the profitability index rule, should a project with the following cash flows be accepted if the discount rate is 12 percent? Why or why not?

Year

Your company has just taken out a 5-year installment loan for $600,000 at a nominal rate of 12.0% but with equal end-of-month payments.

1. How much will you still owe after Year 3?
2. How much total interests will you pay during the first two years?
3. How much principal will you pay off during Year 4?

I want to use public transportation/paratransit in my scenario thank you very much. Journey of the semester my focal point has been public transportation/paratransit can you apply the below question in that scenario thank you

in regards to Learn Manufacturing, discuss why it’s important to focus on the movement of goods and services based on customer demand

Your firm is contemplating the purchase of a new $2,072,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $201,600 at the end of that time. You will be able to reduce working capital by $280,000 (this is a one-time reduction). The tax rate is 31 percent and your required return on the project is 22 percent and your pretax cost savings are $933,900 per year. Requirement 1: What is the NPV of this project? Requirement 2: What is the NPV if the pretax cost savings are $672,400 per year? Requirement 3: At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

19. Mr. Dubofsky just won a “Name That Tune” contest and collected a grand prize of $100,000. However, the contest stipulates that the winner will receive $10,000 immediately, and $10,000 at the end of each of the next 9 years. Assuming that Mr. Dubofsky can earn 10% on his money, how much has he actually won?