Bilateral/multilateral international flow of funds- effect of government restrictions on this.

You just got hired at a brand new hospital as a financial analyst and the Board wants to buy an MRI machine but they are unsure if this makes financial sense. You gather some figures so you can make an informed decision to present to the Board. (questions 40-44) Use CF’s given, no further calculation has to be done for CF’s.

Cost of the MRI machine 1.5 million

Salvage value after 5 years 50k

Working capital to hire an operator 200k only initially and not recoverable.

CF yr 1-3 400k

CF yr 4-5 300k

The hospital currently has no common stock or preferred stock or debt in their capital structure as it was funded with a 25 million dollar gift from Bill Gates. The machine is to be financed with a 5%, 5 year loan. Interest is tax deductible and the tax rate is 30%

Assume now that the hospital was financed with 60% debt and 40% equity. The cost of debt is 6% and taxes are 20%, while the risk free rate is 3%, beta is .8 and the return of the market is 9%. If cash flow in years 1-3 are now assumed to increase to 500k instead of 400k, what would you recommend to the board?

a. Yes as it adds 136k in value

b. Yes as it adds 98k in value

c. no as the IRR

d. Yes as it adds 100k in value

44. T/F the payback under the original MRI assumptions is 4.67 years

1. In class, we address the importance of maximizing shareholders’ wealth. However, it seems like maximizing stock prices does not make sense, because investors focus on short-term results and do not care about long-term consequences. What do you think? Please discuss.

2. In February, Cap Inc. announced that it would split into two independent publicly traded companies: one comprised of its Old Navy brand, and the second a yet-to-be-named company that includes its other brands like Banana Republic and Athleta. The planned breakup is an acknowledgment of the two chains' diverging fortunes and how much Gap has lost its once-powerful grip on American consumers. For several years, Old Navy has outperformed its sister brands Gap and Banana Republic with its lower price-points and catchy marketing. Old Navy now exceeds the original brand in sales, making up nearly half of Gap Inc.'s $16.6 billion of sales in 2018.

In your opinion, what are the benefits and downsides to splitting Gap into two firms? How did Gap's stock react to the news in after-market trading? How would you explain this reaction? Will the separation save the company in the long run? Please elaborate on your answers.

1.         A(n) ________________ mutual fund invests funds in short-term securities like Treasury bills, jumbo CDs, and commercial paper.

A.     REIT
B.      hybrid fund
C.      closed-end investment company
D.     equity mutual fund
E.      money market mutual fund

2.         A(n) __________________ has customer demand for the shares determining the number of shares outstanding.

A.     general partnership
B.      limited partnership
C.      open-end
D.     REIT
E.      closed-end

3.         A no-load mutual fund:

A.     has zero operating expenses.
B.      is typically marketed directly to customers, charging no commission.
C.      is a type that no longer exists.
D.     does not invest in common stocks.
E.      has a zero or negative rate of return in the most recent year.

4.         Fees considered “12b-1 fees” are:

A.     fees that investment companies must pay to the SEC.
B.      fees charged by some mutual funds, due to distribution and marketing costs.
C.      up-front “load” fees, charged by some mutual funds.
D.     back-end “load” fees, charged by some mutual funds.
E.      fees charged by mutual funds, to compensate the portfolio manager.

5.         Verysmall Mutual Fund’s investment portfolio is comprised of the following: 1,000 shares of General Mills (GIS, current price is $50 per share); 3,000 shares of Bank of America Corp (BAC, current price is $30 per share); and 2,500 shares of United Airlines Holdings (UAL), current price is $90 per share). Verysmall Mutual Fund has sold a total of 15,000 of its own shares to customers. What is Verysmall Mutual Fund’s net asset value?

A.     $21.00
B.      $24.33
C.      $41.67
D.     $40.56
E.      $125.00

Company Alpha ltd has a market value of N$6 billion and an issued share capital of 60 million shares. Company Beta ltd, a company in the same industry as Company Alpha, has an issued share capital of 20 million shares and a market value of N$1 billion. Company Alpha wishes to take over company Beta, and believes that the combined company value will be N$8 billion. Company Beta has agreed to a takeover value of N$1, 5 billion.

Required:

Discuss the effect (s) the takeover of company Beta will have on the existing shareholders of company Alpha, if company Beta is acquired by:

a) An issue of new shares to existing shareholders;

b) An issue of shares to new shareholders;

c) Borrowing; or

d) A share exchange.

Calculation of individual costs and WACC:   Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following​ weights: 40% ​long-term debt, 15​% preferred​ stock, and 45% common stock equity​ (retained earnings, new common​ stock, or​ both). The​ firm's tax rate is 26​%.

Debt The firm can sell for ​$1010 a 17​-year, ​1,000​-par-value bond paying annual interest at a 8.00​% coupon rate. A flotation cost of 3​% of the par value is required.

Preferred stock  9.00​% ​(annual dividend) preferred stock having a par value of ​$100 can be sold for ​$98. An additional fee of ​$4 per share must be paid to the underwriters.

Common stock  The​ firm's common stock is currently selling for ​$80 per share. The stock has paid a dividend that has gradually increased for many​ years, rising from ​$2.75 ten years ago to the ​$4.07 dividend​ payment, D0​, that the company just recently made. If the company wants to issue new new common​ stock, it will sell them ​$2.50 below the current market price to attract​ investors, and the company will pay ​$2.50 per share in flotation costs.  

a.  Calculate the​ after-tax cost of debt.

b.  Calculate the cost of preferred stock.

c.  Calculate the cost of common stock​ (both retained earnings and new common​ stock).

d.  Calculate the WACC for Dillon Labs

Problem 16-11 (Algorithmic)

In preparing for the upcoming holiday season, Fresh Toy Company (FTC) designed a new doll called The Dougie that teaches children how to dance. The fixed cost to produce the doll is $100,000. The variable cost, which includes material, labor, and shipping costs, is $34 per doll. During the holiday selling season, FTC will sell the dolls for $42 each. If FTC overproduces the dolls, the excess dolls will be sold in January through a distributor who has agreed to pay FTC $10 per doll. Demand for new toys during the holiday selling season is extremely uncertain. Forecasts are for expected sales of 60,000 dolls with a standard deviation of 15,000. The normal probability distribution is assumed to be a good description of the demand. FTC has tentatively decided to produce 60,000 units (the same as average demand), but it wants to conduct an analysis regarding this production quantity before finalizing the decision.

1. Create a what-if spreadsheet model using a formula that relate the values of production quantity, demand, sales, revenue from sales, amount of surplus, revenue from sales of surplus, total cost, and net profit. What is the profit corresponding to average demand (60,000 units)?
   
   $ ____________________
   
2. Modeling demand as a normal random variable with a mean of 60,000 and a standard deviation of 15,000, simulate the sales of the Dougie doll using a production quantity of 60,000 units. What is the estimate of the average profit associated with the production quantity of 60,000 dolls? Round your answer to the nearest dollar.
   
   $ ____________________
   
   How does this compare to the profit corresponding to the average demand (as computed in part (a))?
   
   Average profit is MORE THAN/ LESS THAN/ EQUAL TO the profit corresponding to average demand.
   
3. Before making a final decision on the production quantity, management wants an analysis of a more aggressive 70,000-unit production quantity and a more conservative 50,000-unit production quantity. Run your simulation with these two production quantities. What is the mean profit associated with each? Round your answers to the nearest dollar.
   
   50,000-unit production quantity: $ ______________
   
   70,000-unit production quantity: $ ______________
   
4. In addition to mean profit, what other factors should FTC consider in determining a production quantity?
   
   _______________________________________________________
   
   
   Compare the three production quantities (50,000, 60,000, and 70,000) using all these factors. What trade-offs occur? Round your answers to 3 decimal places.
   
   50,000 units: ________________
   
   60,000 units: ________________
   
   70,000 units: ________________
   
   What is your recommendation?
   
   ________________________________________________

Manufacturing overhead cost was applied to jobs, Rmb ?

One of the ways to reduce economic and transaction exposure is to restructure. This restructuring involves shifting sources of revenues and costs to other locations in order to match cash inflows and outflows in foreign currencies. Explain the basics of this approach and did the MNC that you chose to write your report on, undertake any such restructuring? Would this restructuring increase translational risk? Does it make sense for an MNC to reduce one risk at the cost of exposing itself to another. Explain.

Purchasing power parity have merit. What is the Fischer effect?

Name one company that benefited and one company that suffered due to the slump in the British Pound post Brexit. What was the type of exposure that resulted in the profit or loss? Did the companies not hedge?

please write a brief essay describing the important concepts you have learned so far on FIN555. Be as specific as possible and provide example of things you consider important. 1) present value concept 2) alter ative to npv; stock valuation 3)financial statements; free cash flow 4)capital budgeting; bond valuation