V
|
The technique for calculating a bid price can be extended to many other types of problems. Answer the following questions using the same technique as setting a bid price; that is, set the project NPV to zero and solve for the variable in question. Guthrie Enterprises needs someone to supply it with 159,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost $1,990,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $169,000. Your fixed production costs will be $284,000 per year, and your variable production costs should be $11.30 per carton. You also need an initial investment in net working capital of $149,000. The tax rate is 24 percent and you require a return of 13 percent on your investment. Assume that the price per carton is $17.90. |
| a. |
Calculate the project NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. |
What is the minimum number of cartons per year that can be supplied and still break even? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| c. |
What is the highest fixed costs that could be incurred and still break even? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. |
In: Finance
CURRENT ASSETS INVESTMENT POLICY
Rentz Corporation is investigating the optimal level of current assets for the coming year. Management expects sales to increase to approximately $2 million as a result of an asset expansion presently being undertaken. Fixed assets total $3 million, and the firm plans to maintain a 50% debt-to-assets ratio. Rentz's interest rate is currently 9% on both short-term and long-term debt (which the firm uses in its permanent structure). Three alternatives regarding the projected current assets level are under consideration: (1) a restricted policy where current assets would be only 45% of projected sales, (2) a moderate policy where current assets would be 50% of sales, and (3) a relaxed policy where current assets would be 60% of sales. Earnings before interest and taxes should be 13% of total sales, and the federal-plus-state tax rate is 40%.
| Restricted policy | % | |
| Moderate policy | % | |
| Relaxed policy | % |
b. In this problem, we assume that expected sales are independent of the current assets investment policy. Is this a valid assumption?
-Select-IIIIIIIVV
In: Finance
Why would be good to work in JP Morgan multinational company?
In: Finance
An investor buys a bond with the following characteristics:
The yield to maturity at the time of purchase is 8.50%. The investor sells the bond immediately after the sixth coupon payment, when the yield to maturity rises to 9.50%.
In: Finance
A) Mr. Logan expects that British inflation will rise substantially in the future. In previous years when the British inflation was high, the pound depreciated. The prevailing British interest rate is slightly higher than the prevailing U.S. interest rate. The pound has risen slightly over each of the last several months. Mr. Logan wants you to forecast the value of the pound for each of the next 20 months. You explain to him that this will result in an additional fee, but that your firm will explain how the extra service would work?
1. Explain how you can use technical forecasting to forecast the future value of the pound. Based on the information provided, do you think that a technical forecast will predict future appreciation or depreciation in the pound?
2. Explain how you can use fundamental forecasting to forecast the future value of the pound. Based on the information provided, do you think that a technical forecast will predict future appreciation or depreciation in the pound?
3. Explain how you can use market-based forecasting to forecast the future value of the pound. Based on the information provided, do you think that a technical forecast will predict future appreciation or depreciation in the pound?
4. Does it appear that all of the forecasting techniques will lead to the same forecast of the pound’s future value? Which technique would you prefer to use in this situation?
In: Finance
NPV and maximum return: A firm can purchase new equipment for a $21,000 initial investment. The equipment generates an annual after-tax cash inflow of $8,000 for 55 years.
a. Determine the net present value (NPV) of the asset, assuming that the firm has a cost of capital of 12%. Is the project acceptable?
b. Determine the maximum required rate of return that the firm can have and still accept the asset.
Please show and explain work!
In: Finance
A project with a life of 10 years has an initial fixed asset investment of $50000, an initial NWC investment of $10000 and an annual OCF of -$705000. the fixed asset is fully depreciated over the life of the project and has no salvage. If the required return is 12% what is the projects EAC?
In: Finance
|
Light emitting diode (LEDs) light bulbs have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.54 and lasts for 1,000 hours. A 15-watt LED, which provides the same light, costs $3.85 and lasts for 12,000 hours. A kilowatt hour of electricity costs $.130. A kilowatt-hour is 1,000 watts for 1 hour. However, electricity costs actually vary quite a bit depending on location and user type. An industrial user in West Virginia might pay $.04 per kilowatt-hour whereas a residential user in Hawaii might pay $.25. |
|
You require a return of 10 percent and use a light fixture 500 hours per year. What is the break-even cost per kilowatt-hour? (Do not round intermediate calculations and round your answer to 6 decimal places, e.g., 32.161616.) |
In: Finance
The CEO of your company is concerned that a natural disaster could make your company's information systems unavailable long enough to significantly impact business. Currently, critical systems like file servers, e-mail services, and applications, such as HR, Payroll, Billing, and Customer Relationship Management (CRM), are hosted in a local datacenter. Your job is to educate the board on the benefits and risks associated with using cloud services for business continuity and disaster recovery in order to aid their decision on whether to move to a cloud-based service or continue working from a local datacenter.
Prepare a 4- to 5-page Microsoft® Word document discussing the use of cloud services for business continuity and disaster recovery. Include the following:
Cloud Services for Business Continuity and Disaster Recovery:
Define business continuity and disaster recovery in the context of the cloud services
Show the importance of disaster continuity and disaster recovery to the function of the business
Risk Assessment:
Identify which risks can be transferred to the cloud provider based on the functions of the business
Explain new risks associated with using cloud services based on the functions of the business Cost/Benefit Analysis: Show the costs associated with a cloud-based solution for the business Outline the benefits associated with a cloud-based solution for the business
Conclusion:
Relate the risk assessment and cost/benefit analysis to the business continuity and disaster recovery for the needs the business
In: Finance
|
To solve the bid price problem presented in the text, we set the project NPV equal to zero and found the required price using the definition of OCF. Thus the bid price represents a financial break-even level for the project. This type of analysis can be extended to many other types of problems. |
| Martin Enterprises needs someone to supply it with 130,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $935,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that, in five years, this equipment can be salvaged for $100,000. Your fixed production costs will be $510,000 per year, and your variable production costs should be $17.85 per carton. You also need an initial investment in net working capital of $100,000. Assume your tax rate is 25 percent and you require a return of 11 percent on your investment. |
| a. |
Assuming that the price per carton is $27.00, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| b. | Assuming that the price per carton is $27.00, find the quantity of cartons per year you can supply and still break even. (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) |
| c. | Assuming that the price per carton is $27.00, find the highest level of fixed costs you could afford each year and still break even. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
In: Finance
The portfolio manager of XYZ bank recently used reports from its securities analysts to develop the following efficient portfolios;
Expected
Rate of Return Variance
1
8%
25
2
10%
36
3
15%
64
4
20%
169
5
25%
324
a. If the risk free rate of interest is 3% which
portfolio is best?
b. Assume that the portfolio manager would like to earn an expected
rate of return of 10% with a standard deviation of 4%, is this
possible?
c. If a standard deviation of 12% was acceptable to the portfolio
manager, what would be the expected return and how would it best be
achieved?
d. What is the expected rate of return on a combined portfolio made
up of all the above 5 portfolios with an equal weighting given to
each portfolio? Would the standard deviation of this combined
portfolio be higher or lower than that of portfolio 3 or is it not
possible to say?
In: Finance
St. Johns River Shipyards' welding machine is 15 years old, fully depreciated, and has no salvage value. However, even though it is old, it is still functional as originally designed and can be used for quite a while longer. The new welder will cost $82,000 and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $26,000 to $52,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 40%, and the project cost of capital is 15%. Should the old welder be replaced by the new one?
In: Finance
2 Assume that a bond will make payments every six months as shown on the following timeline (using six-month periods):
The timeline starts at Period 0 and ends at Period 50. The timeline shows a cash flow of $ 19.31 each from Period 1 to Period 49. In Period 50, the cash flow is $ 19.31 plus $ 1,000.
Period012nothing4950
Cash Flows nothing$ 19.31$ 19.31nothing$ 19.31$ 19.31 plus $ 1,000
a. What is the maturity of the bond(in years)?
b. What is the coupon rate(as apercentage)?
c. What is the facevalue?
a. What is the maturity of the bond(in years)?
The maturity is
Nothing years. (Round to the nearestinteger.)
b. What is the coupon rate(as apercentage)?
The coupon rate is
Nothing%. (Round to two decimalplaces.)
c. What is the facevalue?
The face value is $
Nothing. (Round to the nearestdollar.)
In: Finance
List and describe some of the more important financial factors, as opposed to operational factors, that you would take into account when considering acquiring another company? 10 marks
In: Finance
An All-Pro defensive lineman is in contract negotiations. The team has offered the following salary structure: Time Salary 0 $ 7,400,000 1 $ 6,000,000 2 $ 6,500,000 3 $ 7,000,000 4 $ 8,400,000 5 $ 9,100,000 6 $ 9,900,000 All salaries are to be paid in lump sums. The player has asked you as his agent to renegotiate the terms. He wants a $10.9 million signing bonus payable today and a contract value increase of $2,900,000. He also wants an equal salary paid every three months, with the first paycheck three months from now. If the interest rate is 6.4 percent compounded daily, what is the amount of his quarterly check? Assume 365 days in a year. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
In: Finance