Interest Rate Swaps ABC Company and XYZ Company need to raise funds to pay for capital improvements at their manufacturing plants. ABC Company is a well-established firm with an excellent credit rating in the debt market; it can borrow funds either at 11 percent fixed rate or at LIBOR + 1 percent floating rate. XYZ Company is a fledgling start-up firm without a strong credit history. It can borrow funds either at 10 percent fixed rate or at LIBOR + 3 percent floating rate.

a. Is there an opportunity here for ABC and XYZ to benefit by means of an interest rate swap?

b. Suppose you’ve just been hired at a bank that acts as a dealer in the swaps mar-ket, and your boss has shown you the borrowing rate information for your clients, ABC and XYZ. Describe how you could bring these two companies together in an interest rate swap that would make both firms better off while netting your bank a 2 percent profit.

**can you please show work or data

The Kretovich Company had a quick ratio of 1.1, a current ratio of 3.5, a days' sales outstanding of 32.0 days (based on a 365-day year), total current assets of $630,000, and cash and marketable securities of $115,000. What were Kretovich's annual sales? Do not round intermediate calculations. Round your answer to the nearest cent.

Question 1

a. Simpkins Corporation does not pay any dividends because it is expanding rapidly and needs to retain all of its earnings. However, investors expect Simpkins to begin paying dividends, with the first dividend of $1.50 coming 3 years from today. The dividend should grow rapidly - at a rate of 70% per year - during Years 4 and 5. After Year 5, the company should grow at a constant rate of 4% per year. If the required return on the stock is 12%, what is the value of the stock today (assume the market is in equilibrium with the required return equal to the expected return)? Round your answer to the nearest cent. Do not round your intermediate computations.

b. A company currently pays a dividend of $1.75 per share (D₀ = $1.75). It is estimated that the company's dividend will grow at a rate of 16% per year for the next 2 years, and then at a constant rate of 7% thereafter. The company's stock has a beta of 1.95, the risk-free rate is 6.5%, and the market risk premium is 4%. What is your estimate of the stock's current price? Do not round intermediate calculations. Round your answer to the nearest cent.

c. Crisp Cookware's common stock is expected to pay a dividend of $1.5 a share at the end of this year (D₁ = $1.50); its beta is 1.05. The risk-free rate is 4.9% and the market risk premium is 6%. The dividend is expected to grow at some constant rate g_L, and the stock currently sells for $47 a share. Assuming the market is in equilibrium, what does the market believe will be the stock's price at the end of 3 years (i.e., what is P3 )? Do not round intermediate steps. Round your answer to the nearest cent.

You must evaluate the purchase of a proposed spectrometer for the R&D department. The base price is $290,000, and it would cost another $72,500 to modify the equipment for special use by the firm. The equipment falls into the MACRS 3-year class and would be sold after 3 years for $101,500. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The equipment would require a $15,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $60,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 40%. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign. $ What are the project's annual cash flows in Years 1, 2, and 3? Round your answers to the nearest cent. In Year 1 $ In Year 2 $ In Year 3 $ If the WACC is 14%, should the spectrometer be purchased?

1. Kramerica Industries has a capital structure consisting of 65% debt and 35% common stock. The company’s CFO has obtained the following information: o The before-tax YTM on the company's bonds is 8.5%. o Kramerica will pay a $3.00 dividend on its common stock and the dividend is expected to grow at a constant rate of 6% a year. The common stock currently sells for $50 a share. o Assume the firm will be able to use retained earnings to fund the equity portion of its capital budget. o The company's tax rate is 35%.

a. What is Kramerica’s WACC?

b.   Two independent projects are available for Kramerica to invest in: Project A has an IRR of 10%, while Project B’s has an IRR of 12.5%. These two projects are equally risky and are of average risk. Which project(s) should Kramerica accept?

Factor Models Suppose a factor model is appropriate to describe the returns on a stock. The current expected return on the stock is 10.5 percent. Information about those factors is presented in the following:

a. What is the systematic risk of the stock return?

b. The firm announced that its market share had unexpectedly increased from 11 percent to 15 percent. Investors know from past experience that the stock return will increase by .58 percent for every 1 percent increase in its market share. What is the unsystematic risk of the stock?

c. What is the total return on this stock?

**can you please show excel formulas/details on work

Ross purchased a new commercial vehicle today for $25,000 with a down payment of $3,000. The amount was financed using a five-year loan with a 4 percent interest rate (compounded monthly). How much will Ross owe on his vehicle loan after making payments for three years?

Within the realm of capital budgeting the majority of projects are not new product lines or major corporate acquisitions. They are replacement projects or projects considered for efficiency gains. Projects taken on for efficiency gains are much less risky than new product lines or large acquisitions. A gain in efficiency or in other words a decreasing of expenses immeadetly increases net income and cash flow. It does not require one addtional item sold. Our case will review an efficiency gain capital budgeting project. Meadville Widgets is considering the purchase of a fully automated widget finishing machine to replace an older but still functioning but more labor intensive model. The machine being replaced was purchased 5 years ago for a price of $45,000.00 at which time it had an expected life of 10 years. This machine is being depreciated by the straight line method with an anticiapated salvage value of $0.00 The current market value of this machine is estimated to be $27,000.00. The current machine requires one operator with an annual cost of $37,500.00 in salary and benifits. The replacement machine has a purchase price of $79,500, a 5 year life, and an expected salvage value of $17,000. The new machine will require a 440 volt three phase electric service and a new concrete pad these installation expenses are $7,500. Meadville Widgets expect the maintence costs to be $5,000 as compared to the current costs of $6,000 and the defects to be $2,000 compared to current defect costs of $4,000. Before considering the purchase of the new machine Meadville Widgets conducted and engineering study to determine if the installation costs would be prohibitive, this study costs $5,000. In order to undertake this project the firm will add $30,000 in debt at 11.5% and the required rate of return is 15%. Meadville Widgets marginal tax rate is 34%.

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Assume that you own an annuity that will pay you $15,000 per year for 13 years, with the first payment being made today. You need money today to start a new business, and your uncle offers to give you $120,000 for the annuity. If you sell it, what rate of return would your uncle earn on his investment?

a. 8.25%

b. 9.45%

c. 10.97%

d. 7.78%

e. 11.07%

You took a short futures position in 10 contracts, covering each 100 ounces of gold at a price of $276.5 per ounce. The initial and the maintenance margin requirement are respectively $1500 and is $1100 per contract. No withdrawal in any excess margin will be made. Ignore any interest on the balance.

(b) The settlement prices per ounce of gold at the end of days 1, 2 and 3 are respectively $278, $281 and $276. Complete the table below assuming the contract is purchased at the settlement price of that day. [20]

A futures contract on a share, which pays dividend at a continuously compounded rate of 3%, is written when the share has a price of $790, and the continuously compounded risk-free interest rate is 5%. The contract is priced at $800 and expires in 3 months.

(b) Demonstrate how you could execute an arbitrage transaction and calculate arbitrage profit. [5]

A-Rod Manufacturing Company is trying to calculate its cost of capital for use in making a capital budgeting decision. Mr. Jeter, the vice-president of finance, has given you the following information and has asked you to compute the weighted average cost of capital.

The company currently has outstanding a bond with a 10.3 percent coupon rate and another bond with an 7.9 percent rate. The firm has been informed by its investment banker that bonds of equal risk and credit rating are now selling to yield 11.2 percent. The common stock has a price of $57 and an expected dividend (D₁) of $1.77 per share. The historical growth pattern (g) for dividends is as follows:

The preferred stock is selling at $77 per share and pays a dividend of $7.30 per share. The corporate tax rate is 30 percent. The flotation cost is 3.0 percent of the selling price for preferred stock. The optimal capital structure for the firm is 25 percent debt, 15 percent preferred stock, and 60 percent common equity in the form of retained earnings.

a. Compute the historical growth rate. (Do not round intermediate calculations. Round your answer to the nearest whole percent and use this value as g. Input your answer as a whole percent.)

b. Compute the cost of capital for the individual components in the capital structure. (Use the rounded whole percent computed in part a for g. Do not round any other intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)

c. Calculate the weighted cost of each source of capital and the weighted average cost of capital.

You find the following corporate bond quotes. To calculate the number of years until maturity, assume that it is currently January 15, 2016. The bonds have a par value of $2,000. Company (Ticker) Coupon Maturity Last Price Last Yield EST $ Vol (000’s) Xenon, Inc. (XIC) 6.600 Jan 15, 2032 94.303 ?? 57,374 Kenny Corp. (KCC) 7.240 Jan 15, 2029 ?? 6.26 48,953 Williams Co. (WICO) ?? Jan 15, 2035 96.855 6.51 43,814 What is the coupon rate for the Williams Co. bond?

Here is the ORIGINAL data of the Sport Hotel project: 1. Projected outflows First year (Purchase Right, Land, and Permits) $1,000,000 Second Year (Construct building shell $2,000,000 Third Year: (Finish interior and furnishings) $2,000,000 TOTAL $5,000,000 2. Projected inflows If the franchise is granted hotel will be worth: $8,000,000 when it opened If the franchise is denied hotel will be worth: $2,000,000 when it opened. The probability of the city being awarded the franchise is 50%. Suppose that everything is the same as in that problem except TWO things: the worth of the hotel, should the city be awarded the franchise, is not $8 million but some unknown smaller number; and the probability of getting the franchise is NOT 50% but is upgraded to 80%. What must the new worth of the hotel when the franchise is granted be in order for the NPV of the Sporthotel project to be equal to exactly zero?

The Book Store is considering a new four-year expansion project that requires an initial fixed asset investment of $2.8 million. The fixed asset will be depreciated straight-line to zero over its four-year life, after which time it will be worthless. The project is estimated to generate $1.49 million in annual sales, with costs of $.79 million. If the tax rate is 40 percent, what is the OCF for this project?