FMA Co. analyzed the project whose cash flows are shown below. However, before the decision to accept or reject the project, the Federal Reserve took actions that changed interest rates and therefore the firm's interest rate. The Fed's action did not affect the forecasted cash flows. By how much did the change in the interest rate affect the project's forecasted NPV? Should the project be accepted? Old interest rate: 10.00% New interest rate: 12% Year 0 1 2 3 Cash flows -$1,200 $400 $500 $600

A firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO wants to use the IRR criterion, while the CFO favors the NPV method. You were hired to advise the firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose? Interest rate: 10.00% Year 0 1 2 3 4 CFS -$1,000 $380 $380 $380 $380 CFL -$2,100 $765 $765 $765 $765

Yield to maturity The Salem Company bond currently sells for $1,046.92, has a coupon interest rate of 14% and a $1000 par value, pays interest annually, and has 15 year to maturity.

1. Calculate the yield to maturity (YTM) on this bond.
2. Explain the relationship that exists between the coupon interest rate and yield to maturity and the par value and market value of a bond.

WACC. ​Grey's Pharmaceuticals has a new project that will require funding of ​$5.4 million. The company has decided to pursue an​ all-debt scenario. ​ Grey's has made agreements with four lenders for the needed financing. These lenders will advance the following amounts at the interest rates​ shown: Lender Amount Interest Rate Steven $2,029,278 12% , Yang $1,597,982 11% , Shepherd $1,192,408 8% , Bailey $580,332 9% . What is the weighted average cost of capital for the ​$5,400,000​?

Brock Florist Company bought a new delivery truck for

​$29,000.

It was classified as a​ light-duty truck. The company sold its delivery truck after three years of service. If a​ five-year life and​ MACRS,

LOADING...

​,

was used for the depreciation​ schedule, what is the​ after-tax cash flow from the sale of the truck​ (use a

40​%

tax​rate) if

a.  the sales price was

​$16,000​?

b.  the sales price was

​$10,000​?

c.  the sales price was

​$1,000​?

Year   3-Year   5-Year   7-Year   10-Year
1   33.33%   20.00%   14.29%   10.00%
2   44.45%   32.00%   24.49%   18.00%
3   14.81%   19.20%   17.49%   14.40%
4   7.41%   11.52%   12.49%   11.52%
5       11.52%   8.93%   9.22%
6       5.76%   8.93%   7.37%
7           8.93%   6.55%
8           4.45%   6.55%
9               6.55%
10               6.55%
11               3.28%

analyses and explain amazon stock price in July

Marian Plunket owns her own business and is considering an investment. If she undertakes the​ investment, it will pay $12000 at the end of each of the next 3 years. The opportunity requires an initial investment of $3000 plus an additional investment at the end of the second year of $15000. What is the NPV of this opportunity if the interest rate is 9 % per​ year? Should Marian take​ it?

A company considers investing in a project that will cost $80 million up front. The company expects the project to generate the following cash flows over the next 4 years:

The applicable discount rate is 10%. What is the project's discounted payback period?

Palooka is a new cosmetics firm which is about to make an initial public offering. It has no physical assets and no debt. Palooka is coming out with an equity issue to raise $100 million from the markets. The funds raised will be invested in the commercial production of Stumblebum (a new fragrance for men). There is a 0.8 probability that Stumblebum will catch on with the 'young and beautiful' set. In that case, earnings will be $1 million immediately (at date 0) and will grow at 50% a year for 15 years and then stabilize at that same value forever. There is a 0.2 probability that Stumblebum will not make a noticeable impact, in which case all the investment will then be wasted (the company will have no earnings ever). Assume the market discounts cash flows at 10%. For simplicity, you can assume that the IPO happens on January 1, the investment occurs on January 2, and the earnings (if any) happen on January 3 of that year. In other words, we’re assuming that the IPO, the investment, and the initial earnings (if any) will all occur at date 0. a.) What is the value of the equity before the issue? Assume that no one knows whether Stumblebum will succeed. [HINT: Use the following formula: Value of Equity = Present value of cash flows from existing assets + Net Present Value of cash flows from future investments - Present Value of debt (if any)]. b.) If there are 1 million Palooka shares before the issue, what is the value of each share? c.) What is the price investors will pay for shares in the new issue? (Hint: What happens if it differs from the price of shares before the issue?)

(a) Whole life insurance has a savings component and term life insurance does not. What are the advantages of saving within a life insurance policy?

(b) Provide an example of a family situation for which you would recommend term life insurance and include the disadvantages of the savings component in whole life.

Gluon Inc. is considering the purchase of a new high pressure glueball. It can purchase the glueball for $120,000 and sell its old low-pressure glueball, which is fully depreciated, for $20,000. The new equipment has a 10-year useful life and will save $28,000 a year in expenses. The opportunity cost of capital is 12%, and the firm’s tax rate is 40%. What is the equivalent annual savings from the purchase if Gluon uses straight-line depreciation? Assume the new machine will have no salvage value. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Note: I tried $2545.81 and $2545.71, but those answers are showing as wrong.

The returns on a stock for the last 5 years have been 32%, 18%, -20%, 16%, and -16%. Assume that you purchased the stock 5 years ago for $34.25 and that all returns have come in the form of either capital gains or losses (i.e., there have been no dividends). (4 points) a. What is the price of the stock today? b. Compute the average (arithmetic) annual return. c. Compute the geometric average annual return.

You are evaluating two machines. Machine I costs $240,000 and it has a three-year life. It has pre-tax operating costs of $60,000 per year. Machine II costs $450,000 and it has a five-year life. It has pre-tax operating costs of $40,000 per year. For both machines, we use straight-line depreciation to zero over the machine’s life. The pre-tax salvage value of Machine I is $50,000 at the end of its life. The pre-tax salvage value of Machine II is $150,000 at the end of its life. The marginal tax rate is 30% and the appropriate discount rate is 10%.

(1) What is the NPV of investing in each machine?

(2) Should your decision be based on the calculated NPVs in part (1)? If not, which metric you should use to make a decision? Writing down the name of the metric is enough for this part.

(3) What is your decision? Calculate the relevant metric for each machine and do the comparison.