What are the major differences between virtual storefronts, such as Bluefly, and bricks-and-clicks operations, such as Walmart? What are the advantages and disadvantages of each?

Please Use TI BAII Plus Calculator and Show How You Get the Answer with it.

The Company is evaluating an asset that may increase sales by $120,000 every year for 4 years. There is no expected change in net operating working capital. The company's cost of capital is 6.5%. The proposed asset costs $400,000, will require $20,000 to modify for operations, and falls in the 3-year class MACRS for depreciation rates: .33, .45, .15, and .07 for years 1 through 4, respectively. At the end of the 4 years, it is expected that the asset may sell for $5,000. The company's tax rate is 21%. SHOW ALL WORK.

a) What is the initial outlay for this project?

b) What are the operating cash flows in Years 1 through 4?

c) As part of the terminal cash flow in Year 4, what is the after-tax salvage value of the asset?

d) What is the net present value of this proposed asset investment? Should it be accepted or rejected? SHOW ALL WORK ON THE TI BAII Plus Calculator.

Jack is planning to buy a 9-year bond with semi-annual coupons and a coupon rate of 6.9 percent p.a. The face value is $1,000. Given an annual yield of 5.4 percent, what is the bond’s current price? (to the nearest cent)?

Boston Technologies is considering whether or not to refund a $100 million, 14% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $6 million of flotation costs on the 14% bonds over the issue's 30-year life. Boston's investment banks have indicated that the company could sell a new 25-year issue at an interest rate of 9% in today's market. Neither they nor Boston's management anticipate that interest rates will fall below 9% any time soon, but there is a chance that rates will increase.

A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $6 million. Boston's marginal federal-plus-state tax rate is 40%. The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short-term government securities returning 6% annually during the interim period.

What is the bond refunding's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.60 (given its target capital structure). Vandell has $9.55 million in debt that trades at par and pays an 7.4% interest rate. Vandell’s free cash flow (FCF₀) is $2 million per year and is expected to grow at a constant rate of 6% a year. Both Vandell and Hastings pay a 40% combined federal and state tax rate. The risk-free rate of interest is 7% and the market risk premium is 7%.

Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.3 million, $3.1 million, $3.3 million, and $3.93 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 6% rate. Hastings plans to assume Vandell’s $9.55 million in debt (which has an 7.4% interest rate) and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.5 million each year for Years 1, 2, and 3. After Year 3, a target capital structure of 30% debt will be maintained. Interest at Year 4 will be $1.419 million, after which the interest and the tax shield will grow at 6%.

Indicate the range of possible prices that Hastings could bid for each share of Vandell common stock in an acquisition. Round your answers to the nearest cent. Do not round intermediate calculations.

The bid for each share should range between $ per share and $ per share.

Finance companies are net creators of private money in the financial system.

A. True

B. False

Cash Budgeting

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently run out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,300 per month, and the rent is $1,700 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $200, but Koehl has agreed to maintain an average bank balance of $4,500 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $100,000.

1. Prepare a cash budget for December, January, and February.

   I. Collections and Purchases:
   	December	January	February
   Sales	$	$	$
   Purchases	$	$	$
   Payments for purchases	$	$	$
   Salaries	$	$	$
   Rent	$	$	$
   Taxes	$	---	---
   Total payments	$	$	$
   Cash at start of forecast	$	---	---
   Net cash flow	$	$	$
   Cumulative NCF	$	$	$
   Target cash balance	$	$	$
   Surplus cash or loans needed	$	$	$

   
   
2. Suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)
   $

A mutual fund manager achieve 12.7% annual return during last year. Is it possible that this is associated with inferior performance?

Titan Mining Corporation has 7.5 million shares of common stock outstanding, 250,000 shares of 4.2 percent preferred stock outstanding, and 140,000 bonds with a semiannual coupon of 5.1 percent outstanding, par value $1000 each. The common stock currently sells for $51 per share and has a beta of 1.15, the preferred stock currently sells for $103 per share, and the bonds have 15 years to maturity and sells for 107 percent of par. The market risk premium is 7.5 percent, T-bills are yielding 2.4 percent, and the company's tax rate is 22 percent.

a. what is the firm's market value capital structure?

b. If the company is evaluating a new investment project that has the same risk as the firm's typical project, what rate should the firm use to discount the project's cash flows?

QUESTION 1: INTRODUCTION TO FINANCIAL MANAGEMENT [30 MARKS]

Assume that you recently graduated and have just reported to work as an investment advisor at the Bill Morrisons Wealth Management Sdn. Bhd. One of the firm’s clients is Dato’ Lee Chong Wei, a Malaysian male professional badminton player who was ranked first worldwide for 349 weeks from 21 August 2008 to 14 June 2012. After retiring, he would like to set up a badminton academy in Malaysia to develop and nurture good athletes from the grassroots. In line with his passion for drawing, he also wishes to have his own product design company. He also expects to invest substantial amounts of money through Bill Morrisons Wealth Management Sdn Bhd. Dato’ Lee Chong Wei is very bright, and he would like to understand in general terms what will happen to his money. Your boss has developed the following set of guideline you must answer to explain the Malaysian Financial System to Dato’ Lee.

a) Describe three (3) organizational forms a company might have as it evolves from a startup to a major corporation.

[9 Marks]

b) Elaborate the statement that high concentration of ownership in corporation gives rise to the agency problem.

[9 Marks]

c) Justify whether social, stakeholder or shareholders should be the primary objective of managers based on the below conditions:

(1) Do firms have any responsibilities to society at large?

(2) Is stock price maximization good or bad for society?

[12 Marks]

QUESTION 2: FINANCIAL MARKETS AND INSTITUTIONS [15 MARKS]

Leading Malaysian scientist Prof Teo Soo-Hwang has been awarded an Honorary Order of the British Empire from Queen Elizabeth II for her outstanding work in cancer research. Prof Teo, who is the Chief Executive Officer of Cancer Research Malaysia, was recognised not only for her efforts in improving the diagnosis and treatment for a variety of cancers but for developing research collaborations between Malaysia and Britain, specialising in Asian genetics and cancers prevalent within Asian communities.

Prof Teo and her team need a machine to detect cancer cells in a blood sample long before a tumour can be found with standard imaging techniques. Unfortunately, they do not have sufficient funds to produce the machine. Tan Sri Dato' Seri Syed Mokhtar Shah bin Syed Nor AlBukhary is a Malaysian businessman, entrepreneur and philanthropist has plenty of savings, which he and his wife have accumulated over the years.

Based on the scenario above, illustrate a Flows of Funds through the Financial System that provides and facilities lending and borrowing money that basically could fulfil the needs of people like Prof Teo and Tan Sri Dato’ Syed Mokhtar.

[15 Marks]

20. Project Analysis. McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $845 per set and have a variable cost of $405 per set. The company has spent $150,000 for a marketing study that determined the company will sell 60,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of its high-priced clubs. The high- priced clubs sell at $1,175 and have variable costs of $620. The company will also increase sales of its cheap clubs by 12,000 sets. The cheap clubs sell for $435 and have variable costs of $200 per set. The fixed costs each year will be $9.75 million. The company has also spent $1 million on research and development for the new clubs. The plan and equipment required will cost $37.1 million and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1.7 million that will be returned at the end of the project. The tax rate is 25 percent, and the cost of capital if 10 percent. Calculate the payback period, the NPV, and the IRR.

21. Sensitivity Analysis. In the previous problem, you feel that the values are accurate to within +/ 10 percent. What are the best-case and worst-case NPVs? Hint: The price and variable costs for the two existing sets of clubs are known with certainty only the sales gained or lost are uncertain.

A project has the following estimated data: Price=$62 per unit; variable costs =$28 per unit; fixed costs=$27,300; required return= 12 percent; initial investment= $34,800; life= four years. Ignoring the effect of taxes, what is the accounting break-even quantity? The cash break-even quantity? The financial break-even quantity? What is the degree of operating leverage at the financial break-even level of output?

QUESTION 2: STOCK CHARACTERISTICS AND VALUATION
a) Compute the value of a share of common stock of Lexus Hotel Berhad whose most recent dividend was RM2.50 and is expected to grow at 3.50 percent per year for the next 5 years, 5 percent per year for the next 3 years, after which the dividend growth rate will increase to 6 percent per year indefinitely. Assume 10.00 percent required rate of return.

b) Glass Art Manufacturing Berhad has a beta of 1.50, the risk-free rate of interest is currently 12 percent, and the required return on the market portfolio is 18.00 percent. The company plans to pay a dividend of RM1.96 per share in the coming year and anticipates that its future dividends will increase at an annual rate consistent with that experienced over the 2016-2018 period.

Estimate the value of Glass Art Manufacturing's stock.

c) Tina's Medical Equipment Berhad paid RM1.15 common stock dividend last year. The company's policy is to allow its dividend to grow at 5.50 percent per year indefinitely. Estimate the value of the stock if the required rate of return is 8.50 percent.

The semiannual tuition payment at a major university is expected to be $40,000 for the 4 years beginning 18 years from now. What lump sum payment should the university accept now, in lieu of tuition payments beginning 18 years, 6 months from now? Assume that money is worth 9%, compounded semiannually, and that tuition is paid at the end of each half-year for 4 years. (Round your answer to the nearest cent.)

Use appropriate theories of capital structure to offer reasoned explanations of why the following phenomenon are observed in reality: i. Utility and airline companies are likely to have high levels of debt; ii. High-technology companies are likely to rely on equity financing; iii. The most profitable companies, such as Google, Microsoft, have little debt.