Pantaloon Beer is considering opening a microbrewery near campus. To open the brewery, they must purchase $250 in equipment. Shipping of the equipment will cost $40 and installation of the equipment will be $30. Pantaloon will lease a building for $384 per year. The building will need modifications costing $100. Both the modifications and equipment are depreciated using the 5 year MACRS schedule. Pantaloon will operate the brewery for four years, and then expects to sell the brewery to an investor for $500 plus any working capital. The firm will have some one-time expenses in year 1 of $120, primarily licenses and legal fees. To operate the brewery, Pantaloon will need an increase in Inventory of $17, an increase of Accounts Receivables of $19, and will have an increase in Accounts Payable of $15. Working capital will be recovered when we sell the brewery. Annual sales will begin at $600, the increase at $600 per year. Thus year 2 sales are $1200, year 3 are $1800 and year 4 are $2400. Cost of Goods Sold (excluding overhead, depreciation, and lease payments) are 60% of annual sales. To operate the company, executives and administrators must be hired, at an annual fixed cost of $500. Over the past two years, Pantaloon has been testing the concept by using a contract brewer. Last year’s sales were $100 with a cost of goods sold of $120. 40% of the project financing will come from a three-year 6% annual coupon bond. The firm needs new equity investors to fund the expansion and Pantaloon has only been able to find one equity investor. This equity investor requires that the firm have audited financial statements. The outside investor gets to choose the auditor and the auditor would cost the company $30 per year. The firm’s tax rate is 30%. The cost of capital is 13%. What are the Initial Cash Flows in Year 0? What are the Operating Cash Flows in Year 2? What are the Terminal Cash Flows in Year 4? (I want only Terminal Cash Flows, not operating cash flows in year 4)

A company has determined that its optimal capital structure consists of 40 percent debt and 60 percent equity. Given the following information, calculate the firm's weighted average cost of capital. Cost of Debt = 7.0%, Tax rate = 40%, Current Stock Price = $23.72, Long Run Growth rate = 3.8%, Next Year's Dividend = $2.26. Show your answer to the nearest .1%. Do not use the % sign in your answer. Enter your answer as a whole number, thus 9.2% would be 9.2 rather than .092 or 9.2%.

California Health Center, a for-profit hospital, is evaluating the purchase of new diagnostic equipment. The equipment, which costs $600,000 has an expected life of five years and an estimated pre-tax salvage value of $200,000 at that time. The equipment is expected to be used 15 times a day for 250 days a year for each year of the project's life. On average, each procedure is expected to generate $80 in collections, which is net of bad debt losses and contractual allowances, in its first year of use. Thus, net revenues for Year 1 are estimated at 15 x 250 x $80 = $300,000.

Labor and maintenance costs are expected to be $100,000 during the first year of operation, while utilities will cost another $10,000 and cash overhead will increase by $5,000 in Year 1. The cost for expendable supplies is expected to average $5 per procedure during the first year. All costs and revenues, except depreciation, are expected to increase at a 5 percent inflation rate after the first year.

The equipment falls into the MACRS five-year class for tax depreciation and its subject to the following depreciation allowances:

The hospital's tax rate is 40 percent, and its corporate cost of capital is 10 percent.

QUESTION:

a. Estimate the project's net cash flows over its five-year estimated life:

b. What are the project's NPV and IRR? (Assume for now that the project has average risk).

PLEASE SHOW ALL WORK.

Many firms have devised defenses that make it more difficult or costly for other firms to take them over. How might such defenses affect the firm’s agency problems? Are managers of firms with formidable takeover defenses more or less likely to act in the shareholders’ interests rather than their own? What would you expect to happen to the share price when management proposes to institute such defenses?

Lawrence comp paid $2.00 per share in common stock dividends last year. The company will allow its dividend to grow at 8 percent for 7 years, and after that the rate of growth will be 6 percent forever. What is the value of the stock if the required rate of return is 10 percent?

the Lawrence company is subject to capital rationing and has a capital budget of $2,000,000; the firm's cost of capital is 16 percent.

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Richard recently inherited $12,000 and is considering purchasing 12 bonds of the Lucky Corporation. The bond has a par value of $2,000 with 12 percent coupon rate and will mature in 12 years. Does richard have enough money to buy 12 bonds if the required rate of return is 10 percent?

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1. Which of the following variables does not impact the after tax cost of debt for a firm??

2. Which of the following is the lowest investment grade bond rating?

3. Which of the following is usually true concerning the cost of capital (the weighted average cost of capital or WACC)?

4. If evaluating the results of a regression, which of the following is the best indicator that the independent variable is strongly correlated to the dependent variable?

5. The capital Asset pricing model measure the sensitivity of the firm to which of the following types of risk?

Richard borrowed 50,000 from a bank at 12% (APR) semiannually compounded interest to be repaid in 10 years (12 equal installments) . Calculate the interest and principal paid in the fourth year. USE EXCEL FORMULAS SO I CAN SEE THE INPUTS PLEASE AND SHOW THE WORK I WANT TO LEARN IT!