Robbins Inc. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's NPV? Note that if a project's expected NPV is negative, it should be rejected.

Reed Enterprises is considering a project that has the following cash flow and cost of capital (r) data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected.

Spence Company is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the cost of capital or negative, in both cases it will be rejected.

Module 20: Long-Term Financing 1. Why do public organizations use municipal bonds to finance long-term capital projects?

2. A major urban center is planning to issue a $100 million, 20-year, semiannual-interest-paying municipal bond for the construction of a stadium.

a. The interest rate is 5.875%, based on the economic and financial conditions of the city and city government.

b. The design and issuance costs are estimated to be $10 million and 1%, respectively.

c. What is the total interest paid if the city decides to adopt a level debt service structure?

d. How much will the city still owe on this bond at the end of each year?

2. The city administration is considering refurbishing the lighting system of its administration building. After an initial investigation, the city procurement office has narrowed down the choices to the following two options: a. Option 1 is an Ergolight system that costs $500,000 to purchase and install. The energy cost for option 1 is $20,000, and its maintenance cost is $2,000. b. Option 2 is a conventional system that costs $100,000 to purchase and install. The energy cost for option 2 is $50,000, and its maintenance cost is $10,000. Both systems are expected to last for 20 years. Assume that the discount rate is 4% and all future costs are paid at the end of the year. 3. Which lighting system should the city select based on LCC considerations?

"Bond Risk Management" Please respond to the following:

• Given the Federal Reserve Board’s current and forward-looking position on interest rates, predict the level of risk associated with investing in bonds and recommend a portfolio percentage for investment in bonds for a financial institution. Provide support for your recommendation.
• Assess how an increase in the interest rate would change your recommendation provided above. Indicate the basis for your rationale.

Problem 12-01
AFN equation

Broussard Skateboard's sales are expected to increase by 15% from $7.4 million in 2016 to $8.51 million in 2017. Its assets totaled $5 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 4%, and the forecasted payout ratio is 70%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.

Create an excel spreadsheet with the following information

Mary Fernandez is a student in the Spring Quarter class of Enterprise Finance. It is now 7:30 AM and she is attending the October meeting of the San Diego Venture Group. There are approximately 300 people attending the meeting: bankers, accountants, lawyers, headhunters and entrepreneurs. Mary is a bit lost and wanders to the back of the room to get a cup of coffee. Looking for the cream for her coffee she stumbles into John Thompson.

John is the son of a doctor who majored in Computer Science while at UCLA. He has relocated back to San Diego and for the last four years he has been a software engineer.

John is an avid waterman. He surfs, swims, paddles and stand up paddles every day and hopes to do so the remainder of his life. John has found that FitBit, the Apple Watch and other devices do not work for him. John needs something that is waterproof, can track his efforts if he is running or biking and calculate his calorie and level of exercise if he is swimming, surfing, paddling, etc. There are devices that handle part of what he is looking for but nothing seems to have it all. John decides to write the programing that will be the basis for the “Iron Fit” that keep track off John’s exercise activities no matter what he is doing.

After a year plus of effort John has written the necessary software and through friends has come up with a product design. After going through a number of prototypes John has finally come up with a product and is looking to roll it out. Friends have told him that the surf and action sport market is where he should first launch the product. John wants to immediately roll out to bicycle shops, running shops and others. The ultimate goal is to sell the product through the major sporting goods retailers and big box stores. The initial reactions to the Iron Fit have been overwhelmingly positive. The next step is for John to raise some money and build a company but he is at a loss as to how to build the financial statements required for presentations to Angel Investors and Venture Capitalists.

Mary tells John that she would be happy to build the model. John mentions that he will need to hire 3 additional engineers to continue to refine and expand the product. Each engineer makes approximately $120,000 per year. In addition, he will need two VPs of marketing. One to sell the product to the action sports industry and one to sell the product to traditional bicycle, running and fitness shops. Each VP will command a salary of $150,000 per year. In addition, they will manage 3 sales people each, six total within the Company, at approximately $80,000 per annum. The marketing budget, for advertising and other materials, will be $350,000 for each marketing group per year or $700,000 for the Company as a whole. Marketing expenses are expected to be spent in an equal amount per month. The initial back office will contain an accountant @ $80,000 and two receptionists/secretaries @ $40,000. Additional salary expenses, including payroll taxes, health insurance and other benefits, are budgeted at 30% of total salaries. John hopes to make a salary of $175,000. Annual office expenses including occupancy are expected to be $25,000. John expects his salary expenses to increase by 5% in the second year and the other expenses to increase by 10%.

Capital expenses include a computer for each individual, $1,000, two network printers, $1,000, telephone, $1,000, two servers, $5,000 each, software, $10,000, and networking, $1,000.

John expects his gross margin as a % of sales to be 50%. The sales price of the Iron Fit will be $125.00 to stores with the retail price being approximately $160.00.   John is planning to keep the sale price constant in the second year in order to grab more market share.

Please complete an initial model for John’s company for the first two years. (This will require a month by month analysis.) What is the amount of capital needed? Assuming a required rate of return by investors of 20% per annum and the sale of the company at the end of the second year at seven times Year 2 EBITDA what is the company worth? (Please note that when discounting monthly cash flows you will need to divide the interest rate by 12.) What do you think about this deal? What questions do you need to ask if you were an investor?

Estimated Number of Units Sold

Month       Month         Month       Month         Month       Month      

1                2                3                4                5                6

0                250            500            1,000         5,000         6,000

Month       Month         Month       Month         Month       Month      

7                8                9                10              11              12

7,000         8,000         8,000         8,000         9,000         9,000

Month       Month         Month       Month         Month       Month      

13              14              15              16              17              18

10,000       10,000         12,000       12,000         15,000       15,000

Month       Month         Month       Month         Month       Month      

19              20              21              22              23              24

17,000       17,000         20,000       20,000         20,000       20,000

Daniel Sawyer, the CEO of the Sawyer Group, is initiating planning for the company's operations next year, and he wants you to forecast the firm's additional funds needed (AFN). The firm is operating at full capacity. Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year? Dollars are in millions.

Select the correct answer.

Problem 12-03
AFN Equation

Broussard Skateboard's sales are expected to increase by 20% from $7.0 million in 2016 to $8.40 million in 2017. Its assets totaled $5 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 4%. Assume that the company pays no dividends. Under these assumptions, what would be the additional funds needed for the coming year? Do not round intermediate calculations. Round your answer to the nearest dollar.
$

Why is this AFN different from the one when the company pays dividends?
I. Under this scenario the company would have a higher level of retained earnings which would increase the amount of additional funds needed.
II. Under this scenario the company would have a higher level of retained earnings but this would have no effect on the amount of additional funds needed.
III. Under this scenario the company would have a lower level of retained earnings which would reduce the amount of additional funds needed.
IV. Under this scenario the company would have a lower level of retained earnings but this would have no effect on the amount of additional funds needed.
V. Under this scenario the company would have a higher level of retained earnings which would reduce the amount of additional funds needed.
-Select-IIIIIIIVV

You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington (HHW), which is planning its operation for the coming year. The firm is operating at full capacity. Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 65%, which the firm's investment bankers have recommended. Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions.

Select the correct answer.

Problem 12-07
Forecasted Statements and Ratios

Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2016, is shown here (millions of dollars):

Sales for 2016 were $450 million and net income for the year was $13.5 million, so the firm's profit margin was 3.0%. Upton paid dividends of $5.4 million to common stockholders, so its payout ratio was 40%. Its tax rate was 40%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2017. Do not round intermediate calculations.

1. If sales are projected to increase by $50 million, or 11.11%, during 2017, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.
   $ million
   
2. Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.
   %
   
3. Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2017. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt).
   Assume Upton's profit margin and dividend payout ratio will be the same in 2017 as they were in 2016. What is the amount of the line of credit reported on the 2017 forecasted balance sheets? (Hint: You don't need to forecast the income statements because the line of credit is taken out on last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2017 addition to retained earnings for the balance sheet without actually constructing a full income statement.) Round your answers to the nearest cent.

   Upton Computers Pro Forma Balance Sheet December 31, 2017 (Millions of Dollars)
   Cash	$
   Receivables	$
   Inventories	$
   Total current assets	$
   Net fixed assets	$
   Total assets	$
   Accounts payable	$
   Notes payable	$
   Line of credit	$
   Accruals	$
   Total current liabilities	$
   Mortgage loan	$
   Common stock	$
   Retained earnings	$
   Total liabilities and equity	$

Flo's Frozen Yogurt shop is evaluating new dispensing machines.

The Flownator has a first cost of $31665 and annual expenses of $9985 that will increase by $402 per year. It will require an overhaul at the end of year 5 at a cost of $5098. The Flownator will save $19666 per year in labor costs. The Flownator has a salvage value of $9706 and a lifespan of 11 years.

The YogGoo300 has a first cost of $22414 and annual expenses of $3837 that will increase by 3% per year. The YogGoo300 will save Flo's $10246 per year in labor costs. The YogGoo300 has a lifespan of 5 years.

What must the salvage value of the YogGoo30 be to make it equally desirable to the Flownator? Use a MARR of 3% to make your calculation.

1) How does a CMO differ from a CDO?

2) What does a CDO offer to someone with credit risk from lending that is not available otherwise.

Please provide a well-written/detailed answer for both please!

WRITE A RESPONSE TO THE FOLLOWING

BlackRock lowered its global growth outlook, based on expectations that trade and geopolitical frictions will continue. The outlook for U.S stocks remains positive, and the firm upgraded European stocks from negative to neutral. Bolvin believes that tariffs are making costs higher for corporations and forcing some companies to change their supply chains altogether. The U.S economy is adjusted for a lowered pace of growth, at about 1.8% in the second half of the year. The firm said central banks are responding to the weaker outlook, and are loosening policy, creating a constructive environment for U.S. and European stocks. The firm said central banks are responding to the weaker outlook, and are loosening policy, creating a constructive environment for U.S. and European stocks. This outlook weakens the economy as a result of the geopolitical and trade frictions. In turn it has increases the potential for easier policy by central banks, including the Federal Reserve and European Central Bank. Bolvin, head of the BlackRock Investment Institute, states “China has become less positive , as a result we were expecting in Europe is not in the cards anymore. It is a downgrade in the broader global picture, and it is directly driven by European and China view.” The firm believes that it is risky but central banks are providing a backstop. BlackRock upgraded emerging market debt but no longer favors emerging market equities, lowering them to neutral from overweight as the outlook for global growth dimmed. The BlackRock investment Institute has downgraded its global growth outlook for the second half, and while it is still sees a good environment for U.S. stocks, it no longer favors market equities. There is a lowered risk of recession, based on that the market looks constructive for the next few months. For that reason, inflation could be a surprise the markets aren’t expecting, at some point after this year.