(Calculating free cash flows​) At​ present, Solartech Skateboards is considering expanding its product line to include​gas-powered skateboards;​ however, it is questionable how well they will be received by skateboarders. Although you feel there is a 50 percent chance you will sell 12,000 of these per year for 10 years​ (after which time this project is expected to shut down because​ solar-powered skateboards will become more​ popular), you also recognize that there is a 25 percent chance that you will only sell 2,000 and also a 25 percent chance you will sell 17,000. The gas skateboards would sell for $130 each and have a variable cost of ​$50 each. Regardless of how many you​ sell, the annual fixed costs associated with production would be $160,000. In​ addition, there would be an initial expenditure of $1,100,000 associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified​ straight-line method down to zero over 10 years. Because of the number of stores that will need​ inventory, the working capital requirements are the same regardless of the level of sales. This project will require a​ one-time initial investment of $60,000 in net working​ capital, and that​ working-capital investment will be recovered when the project is shut down.​ Finally, assume that the​ firm's marginal tax rate is 31 percent.

a. What is the initial outlay associated with the​ project?

b. What are the annual free cash flows associated with the project for years 1 through 9 under each sales​ forecast? What are the expected annual free cash flows for years 1 through​ 9?

c. What is the terminal cash flow in year 10​ (that is, what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the​ project)?

d. Using the expected free cash​ flows, what is the​ project's NPV given a required rate of return of 8 percent? What would the​ project's NPV be if 12,000 skateboards were​ sold?

Use Micrsoft Excel 2010 to run a linear regression analysis. What is the value of R² (R-squared)?

QUESTION 5

What does this value for R² (R-squared) suggest about the linear equation that Excel determines as the line of best fit?

QUESTION 6

Identify the coefficients from the Excel Output summary that are used to write the line of best fit for this data. If the equation was written as

                                                y = b₁x + b₀,

where y if the total return value and x is the risk,  what is the value of b₀?

QUESTION 7

Identify the coefficients from the Excel Output summary that are used to write the line of best fit for this data. If the equation was written as

                                                y = b₁x + b₀,

where y if the total return value and x is the risk,  what is  the value of b₁?

QUESTION 10

Use the line of best fit to predict the total return (y-value) for a risk of  x = 11?

Total Return = _________  ?

What is the present value of the following annuity?
$3,899 every year at the end of the year for the next 14 years, discounted back to the present at 12.57 percent per year, compounded annually?

Analyzing Foreign Currency Hedges

The Arizona Company, a U.S.-based manufacturer, ordered a piece of equipment from Sonora Inc., a Mexico-based supplier, agreeing to pay 300,000 Mexican pesos upon delivery of the equipment in three months time. At the time of the contract signing, the exchange rate between the U.S. dollar and the Mexican peso was 10P:$1.

With concerns about a weakening U.S. dollar, The Arizona Company decided to hedge its currency exposure by purchasing a forward foreign exchange contract from a local bank.

The forward contract committed The Arizona Company to pay $30,300 in three months in exchange for 300,000 pesos.

What was the forward foreign exchange rate implicit in the contract (assuming no transaction costs)?

Round to two decimal places. Hint - provide the number of Pesos to each US$.

1.) __________________

If the foreign exchange rate in three months was 9.8P:$1, how much did The Arizona Company save by purchasing the currency hedge?

Round to the nearest dollar.

2.) ________________

If the foreign exchange rate in three months was 9.0P:$1?, how much did the company save by purchasing the currency hedge?

Round answer to the nearest dollar.

3.) __________________

Problem 6

You are evaluating a project to build an oil pipeline in one of the emerging markets. Building the pipeline will take 8 annual investments, each of which is paid at the beginning of the year, starting immediately. The first of these investments is $20 million and the amount of the remaining 7 investments is expected to decrease by 3% per year. The pipeline will commence its operations in year 9 and will transport 3,500,000 barrels of oil per year in perpetuity. As the pipeline owner, you will collect an annual cash flow equal to 10% of the total value of transported oil, with cash flows occurring at the end of each year.

If the discount rate is 12%, what is the minimum price of oil per barrel under which the Profitability Index is 1.05? For simplicity, assume that oil prices are constant over time and that the costs of running the pipeline are negligible.

Company is Amazon

Short Description of Business: What does the company do? What are its key sources of revenue?

Product Mix: Identify the company’s product mix or key segments. Briefly describe each product line/segment. Include brand names if possible

You have been offered an investment that will pay you a lump sum of $30,000 25 years from today, along with a payment of $1,000 per year for 25 years starting one year from today. How much are you willing to invest today to have this investment in your portfolio assuming you wish to earn a rate of 6 percent compounded annually?

Round the answer to the nearest whole number.

1. An EBIT grows from $130.5 M to $404.5 M in 5 years i/ what is its overall growth over the period? ii/ what is its CAGR (i.e. its Compound Annual Growth Rate, also called annualized growth rate)?
2. An EBIT declines from $130.5 M to $44.5 M in 5 years i/ what is its overall decline over the period? ii/ what is its CAGR?

10. The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations. Some recent financial information for the company is shown here:

Stock Price $75

Number of shares 64,000

Total assets $9,400,000

Total liabilities $4,100,000

Net income $980,000

MHMM is considering an investment that has the same PE ration as the firm. The cost of the investment is $1.5 million, and it will be financed with a new equity issue The return on the investment will equal MHMM's current ROE. What will happen to the book value per share, and the EPS? What is the NPV of this investment? Does dilution take place?

11. In problem 10, what would the ROE on the investment have to be if we wanted the price after the offering to be $75 per share?(Assume the PE ration remains constant.) What is the NPV investment? Does any dilution take place?

What is the accumulated sum of the following stream of payments? $1,938 every year at the end of the year for 8 years at 5.51 percent, compounded annually.

You have been offered the opportunity to invest in a project that will pay $2,526 per year at the end of years one through three and $10,052 per year at the end of years four and five. If the appropriate discount rate is 12.2 percent per year, what is the present value of this cash flow pattern?

If the price of your bond is currently worth $1,030, has a maturity of twelve years with semiannual payments, what is the YTM if the coupon rate is 5%?