Stock price $ 56 Number of shares 50,000 Total assets $ 8,800,000 Total liabilities $ 5,100,000 Net income $ 900,000 The company is considering an investment that has the same PE ratio as the firm. The cost of the investment is $640,000, and it will be financed with a new equity issue. The return on the investment will equal the company's current ROE. What is the current book value per share and the book value per share with the investment? What is the current market-to-book ratio and the market-to-book ratio with the investment? What is the current EPS and the EPS with the investment? What is the NPV of this investment? I found all answers except - New market to book and NPV. Please help!

There are no cash flows - in answer to the comment. This is all the info I have.

Stock price	56
Number of shares	50,000
Total assets	8,800,000
Total liabilities	5,100,000
Net income	900,000
cost of investment	640,000
Equity	3700000.000
ROE	0.2432
new net income	4340000.0000
NI	1055675.6757
EPS0	18.00
# new shares	11428.5714
EPS1	17.19
(P/E)0	3.2586
P1	56.00
BVPS0	74.00
BVPS1	70.65
market to book0	0.7568
market to book1	0.7926
NPV	0.0000

Northwest Utility Company faces increasing needs for capital. Fortunately, it has an Aa3 credit rating. The corporate tax rate is 40 percent. Northwest’s treasurer is trying to determine the corporation’s current weighted average cost of capital in order to assess the profitability of capital budgeting projects.
Historically, the corporation’s earnings and dividends per share have increased about 7.2 percent annually and this should continue in the future. Northwest’s common stock is selling at $62 per share, and the company will pay a $2.50 per share dividend (D₁).
The company’s $92 preferred stock has been yielding 5 percent in the current market. Flotation costs for the company have been estimated by its investment banker to be $4.00 for preferred stock.

The company’s optimal capital structure is 30 percent debt, 20 percent preferred stock, and 50 percent common equity in the form of retained earnings. Refer to the following table on bond issues for comparative yields on bonds of equal risk to Northwest.

   

Data on Bond Issues
Issue	Moody’s Rating		Price	Yield to Maturity
Utilities:
Southwest electric power––7 1/4 2023	Aa2	$	885.18		8.54	%
Pacific bell––7 3/8 2025	Aa3		889.25		8.53
Pennsylvania power & light––8 1/2 2022	A2		960.66		8.55
Industrials:
Johnson & Johnson––6 3/4 2023	Aaa		860.24		8.34	%
Dillard’s Department Stores––7 3/8 2023	A2		940.92		8.66
Marriott Corp.––10 2015	B2		1,025.10		9.75

a. Compute the cost of debt, K_d (use the accompanying table—relate to the utility bond credit rating for yield.) (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
  

b. Compute the cost of preferred stock, K_p. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
  

c. Compute the cost of common equity in the form of retained earnings, K_e. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)
  

d. Calculate the weighted cost of each source of capital and the weighted average cost of capital. (Do not round intermediate calculations. Input your answers as a percent rounded to 2 decimal places.)
  

IBM stock currently sells for 100 dollars per share. The implied volatility equals 20.0. The risk-free rate of interest is 4.0 percent continuously compounded. If you owned a 200 shares of IBM stock, how many call options with a strike price of 95 and a maturity of 6 months would you have to buy (sell) to create a delta-neutral hedge? Assume each option controls one share of IBM stock. Answer should be rounded to 2 decimal places.

IBM stock currently sells for 100 dollars per share. The implied volatility equals 20.0. The risk-free rate of interest is 4.0 percent continuously compounded. If you owned a 200 shares of IBM stock, how many call options with a strike price of 95 and a maturity of 6 months would you have to buy (sell) to create a delta-neutral hedge? Assume each option controls one share of IBM stock. Answer should be rounded to 2 decimal places.

Joi Chatman recently received her finance degree and has decided to enter the mortgage broker

business. Rather than working for someone else, she will open her own shop. Her cousin Mike

has approached her about a mortgage for a house he is building. The house will be completed in

three months, and he will need the mortgage at that time. Mike wants a 25-year, fixed-rate

mortgage in the amount of $400,000 with monthly payments.

Joi has agreed to lend Mike the money in three months at the current market rate of 6 percent.

Because Joi is just starting out, she does not have $400,000 available for the loan; she

approaches Ian Turnbell, the president of IT Insurance Corporation, about purchasing the

mortgage from her in three months.

Ian has agreed to purchase the mortgage in three months, but he is unwilling to set a price on the

mort-gage. Instead, he has agreed in writing to purchase the mortgage at the market rate in three

months. There are Treasury bond futures contracts available for delivery in three months. A

Treasury bond contract is for $100,000 in face value of Treasury bonds.

1. What is the monthly mortgage payment on Mike’s mortgage?

2. What is the most significant risk Joi faces in this deal?

3. Treasury bond prices have a __________ relationship with interest rates.

a. positive

b. negative

4. As interest rates rise, Treasury bonds become _________.

a. less valuable

b. more valuable

5. Since Joi will _____ when interest rates rise.

a. loss money

b. gain money

6.

In order to protect Joi from decreases in the price of Treasury bonds, she

should take a _____ position in Treasury bond futures to hedge the risk.

a.

Long

b.

Short

7. Suppose that in the next three months the market rate of interest falls to 5 percent. a.

How much will Ian be willing to pay for the mortgage?

Suppose that an investor has 8-year investment horizon. The investor is
considering a 15-year semi-annual coupon bond selling at $990 (par value is
$1000) and having a coupon rate of 4%. The investor expectations are as follows:
• The first 4 semi-annual coupon payments can be reinvested from the time of
receipt to the end of the investment horizon at an annual interest rate of 4%,
• the first 8 semi-annual coupon payments can be reinvested from the time of
receipt to the end of the investment horizon at an annual interest rate of 4.25%,
• the last 4 semi-annual coupon payments can be reinvested from the time of
receipt to the end of the investment horizon at a 3.75% annual interest rate, and
• the required market interest/discount rate on 7-year bonds at the end of the
investment horizon is 3.6%.
A) What is the YTM of the bond?
B) What is the total return on bond equivalent basis from investing in the
bond?
C) Please explain your result carefully.

Advance Engineering is considering opening a new location with an initial cost of $398,0000. This location is expected to generate cash flows of $117,000, $121,000, $126,000, $133,000, and $142,000 in Years 1 to 5. What is the payback period?

Lowell Flooring has assigned a discount rate of 15.2 percent to a new project that has an initial cost of $285,400 and cash flows of $87,400, $98,300, and $131,700 for Years 1 to 3, respectively. What is the net present value of this project?

Ghost, Inc., has no debt outstanding and a total market value of $185,000. Earnings before interest and taxes, EBIT, are projected to be $29,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 30 percent higher. If there is a recession, then EBIT will be 40 percent lower. The company is considering a $65,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 7,400 shares outstanding. Ignore taxes for questions a and b. Assume the company has a market-to-book ratio of 1.0 and the stock price remains constant.

Assume the firm has a tax rate of 21 percent.

  

c-1.	Calculate return on equity (ROE) under each of the three economic scenarios before any debt is issued. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-2.	Calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-3.	Calculate the return on equity (ROE) under each of the three economic scenarios assuming the firm goes through with the recapitalization. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)
c-4.	Given the recapitalization, calculate the percentage changes in ROE when the economy expands or enters a recession. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Suppose you have 25 years until you retire, and that you desire a retirement nest-egg of $2,500,000 on the day you retire. Suppose also that you’ve saved $100,000 toward your retirement so far, and that your investment account earns a nominal rate of 7.5% per year, compounded monthly. In addition, suppose you expect a windfall inheritance of $200,000 five years from now that you will invest in this account.

a) What is the effective interest rate, or annual percentage yield, of your investment account?

b) How much money should you deposit into that account every year in order to reach your goal?

Two years ago the Krusty Krab Restaurant purchased a grill for $50,000. The owner, Eugene Krabs, has learned that a new grill is available that will cook Krabby Patties twice as fast as the existing grill. This new grill can be purchased for $80,000 and would be depreciated straight line over 8 years, after which it would have no salvage value. Eugene Krab expects that the new grill will produce EBITDA of $50,000 per year for the next eight years while the existing grill produces EBITDA of only $35,000 per year. The current grill is being depreciated straight line over its useful life of 10 years after which it will have no salvage value. All other operating expenses are identical for both grills. The existing grill can be sold to another restaurant now for $30,000.

The Krusty Krab's tax rate is 35%. he incremental cash flow that the Krusty Krab will incur today (Year 0) if they elect to upgrade to the new grill is closest to:

The incremental cash flow that the Krusty Krab will incur in year 1 if they elect to upgrade to the new grill is closest to:

Suppose a​ ten-year, $1,000 bond with an 8.8% coupon rate and semiannual coupons is trading for $1,035.28.

a. What is the​ bond's yield to maturity​ (expressed as an APR with semiannual​ compounding)?

b. If the​ bond's yield to maturity changes to 9.4% APR, what will be the​ bond's price?

a. What is the​ bond's yield to maturity​ (expressed as an APR with semiannual​ compounding)?

The​ bond's yield to maturity is blank%. (Round to two decimal​ places.)b. If the​ bond's yield to maturity changes to 9.4%​APR, what will be the​ bond's price?The new price for the bond is $blank. (Round to the nearest​ cent.)

Please show all work in steps with explanation. thanks.

One year​ ago, your company purchased a machine used in manufacturing for $110,000. You have learned that a new machine is available that offers many​advantages; you can purchase it for $140,000 today. It will be depreciated on a​ straight-line basis over ten​ years, after which it has no salvage value. You expect that the new machine will contribute EBITDA​ (earnings before​ interest, taxes,​ depreciation, and​ amortization) of $55,000 per year for the next ten years. The current machine is expected to produce EBITDA of $22,000 per year. The current machine is being depreciated on a​ straight-line basis over a useful life of 11​ years, after which it will have no salvage​ value, so depreciation expense for the current machine is $10,000 per year. All other expenses of the two machines are identical. The market value today of the current machine is $50,000. Your​ company's tax rate is 38%​, and the opportunity cost of capital for this type of equipment is 11%. Is it profitable to replace the​ year-old machine?

The NPV of the replacement is ​$_________ (Round to the nearest​ dollar.)

1. Explain four of the basic principles of lending.

2. List twelve elements that should be included in a banks credit policy.

1. consider the use of mergers verses corporate alliances in growing a company.
2. 1. Discuss the differences between a merger and a corporate alliance.
   1. In 5 sentences. Explain the pros and cons of both and how taxes influence the use of each approach.