What are relevant cash flows? Why should we only include these cash flows in our capital budgeting analysis? Please also give some examples.

Consider the following information:

• Cash and cash equivalents at 31 December 2010 = $1.50 million
• Cash and cash equivalents at 31 December 2011 = $1.85 million
• Interest expense = $0.48 million
• Net borrowings = $0.25 million
• Cash dividends = $1.25 million

Given a tax rate of 40%, the firm's FCFF at the end of 2011 is closest to:

Select one:

a. $1,830,000

b. $1,638,000

c. $388,000

Question 13

Question text

Assuming a tax rate of 40%, a $100 increase in which of the following would not impact FCFF and decrease FCFE by $60?

Select one:

a. Notes payable

b. Interest expense

c. Accounts payable

Question 14

Question text

How do net income and EBITDA, respectively, rate as proxies for cash flows in the FCFE and FCFF formulas?

Select one:

a. Good

b. No use

c. Poor

We are evaluating a project that costs $856,800, has a nine-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 90,000 units per year. Price per unit is $56, variable cost per unit is $40, and fixed costs are $770,000 per year. The tax rate is 25 percent, and we require a return of 12 percent on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within ±15 percent. Calculate the best-case and worst-case NPV figures. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Locomotive Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt–equity ratio is expected to rise from 35% to 50%. The firm currently has $3.1 million worth of debt outstanding. The cost of this debt is 6.7% per year. Locomotive expects to earn $1.075 million per year in perpetuity. Locomotive pays no taxes.
a. What is the market value of Locomotive Corporation before and after the repurchase announcement?
b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan?
c. What is the expected return on the equity of an otherwise identical all-equity firm?
d. What is the expected return on the firm’s equity after the announcement of the stock repurchase plan?

The following table summarizes the yields to maturity on several​ one-year, zero-coupon​ securities:

Security	Yield ​(%)
Treasury	3.063.06
AAA corporate	3.133.13
BBB corporate	4.124.12
B corporate	4.884.88

a. What is the price​ (expressed as a percentage of the face​ value) of a​ one-year, zero-coupon corporate bond with a AAA​ rating?

b. What is the credit spread on​ AAA-rated corporate​ bonds?

c. What is the credit spread on​ B-rated corporate​ bonds?

d. How does the credit spread change with the bond​ rating? Why?

a. What is the price​ (expressed as a percentage of the face​ value) of a​ one-year, zero-coupon corporate bond with a AAA​ rating?

The price of this bond will be

nothing​%.

​(Round to three decimal​ places.)

Suppose the Schoof Company has this book value balance sheet:

Current assets		$30,000,000		Current liabilities		$20,000,000
Fixed assets		70,000,000		Notes payable		$10,000,000
				Long-term debt		30,000,000
				Common stock (1 million shares)		1,000,000
				Retained earnings		39,000,000
Total assets		$100,000,000		Total liabilities and equity		$100,000,000

The notes payable are to banks, and the interest rate on this debt is 7%, the same as the rate on new bank loans. These bank loans are not used for seasonal financing but instead are part of the company's permanent capital structure. The long-term debt consists of 30,000 bonds, each with a par value of $1,000, an annual coupon interest rate of 8%, and a 20-year maturity. The going rate of interest on new long-term debt, r_d, is 11%, and this is the present yield to maturity on the bonds. The common stock sells at a price of $56 per share. Calculate the firm's market value capital structure. Do not round intermediate calculations. Round your answers to two decimal places.

Short-term debt		$ ___________		___________ %
Long-term debt		___________		___________
Common equity		___________		___________
Total capital		$ ___________		___________ %

List several reasons (and give real life examples for each) a company may choose external growth by a merger over internal growth

1.

2.

3.

4.

5.

6.

A three-month European put option on a non-dividend-paying stock is currently selling for $3. The stock price is $20, the strike price is $25, and the risk-free interest rate is 5% per annum. Is there an arbitrage opportunity? Show the arbitrage transactions now and in three months.

1. Cost Classification: The Lee’s have provided you with the following costs and relevant information that are assumed for year 20XY.

A. Classify each of the costs (a. through j.) below under C. as a variable cost or a fixed cost.

B. Explain the importance of distinguishing between variable and fixed costs.

C. Prepare a budgeted income statement, assuming 600 units to be produced and sold, a per unit selling price of $85, an income tax rate of 28% and the following information.

1. 1. Cost of goods sold of $35 per unit
   2. Labor = $400/month
      • One part-time employee will be hired to take care of packaging and shipping. This employee will be paid $10 per hour. He or she is estimated to work 40 hours total per month.
   3. Advertising fees = $3,000
   4. Bank fees = $200
   5. Phone/internet = $150 per month
   6. Shipping = $3 per unit
   7. Utilities = $100 per month
   8. Office Supplies = $900
   1. Conference Exhibitor Fee = $3000
   10. Travel Expenses for Conference (e.g. airfare, meals, taxi) = $1200
2. Budget Preparation: The Lees believe that production and sales could double after being on Shark Tank which is scheduled in December of 20XY. They want to be prepared for this. Based on the budgeted income statement calculated above for 20XY, create a new budgeted income for 20XZ assuming that the production and sales is double the level of 20XY.

Can you give reasons to use derivatives and was there any role of these in recent financial crisis? Explain with appropriate examples.

The next three questions are based on the following information.

Sam has a cleaning service. To better allocate his resources, he would like to forecast his weekly orders based on the order number he received in the past 13 weeks as shown in the following table.

Week	Demand
Week 1	11
Week 2	14
Week 3	16
Week 4	10
Week 5	15
Week 6	17
Week 7	11
Week 8	14
Week 9	17
Week 10	12
Week 11	14
Week 12	16
Week 13	15

1. Using a three week moving average, Sam's forecast for his Week 14 order number is ________ . (Please round to two decimal points and include no units.)
2. Using a three week weighted moving average with weights 3, 2, and 1 given to the most recent, second most recent, and third most recent week, respectively, Sam’s forecast for his week 14 order number is _____________ . (Please round to two decimal points and include no units.)
3. If the MAD for moving average is 4.17 and the MAD for weighted moving average is 2.38, then which forecast is more accurate?

1. Moving average
2. Weighted moving average
3. The same
4. Not enough information to evaluate

Consider the following financial statement information for the Newk Corporation: Item Beginning Ending Inventory $ 11,500 $ 12,500 Accounts receivable 6,500 6,800 Accounts payable 8,700 9,100 Credit sales $ 95,000 Cost of goods sold 75,000 Calculate the operating and cash cycles.

(Use 365 days a year. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Operating cycle ____ days

Cash cycle ____ days

You purchase one MBI July 134 call contract (equaling 100 shares) for a premium of $15. You hold the option until the expiration date, when MBI stock sells for $141 per share. You will realize a ________ on the investment. $800 loss $700 loss $800 profit $700 profit

Explain how managing your student loans (or personal loans and debt if you don’t have student loans) can contribute to personal financial success and growth.

Profitability Ratios The following data came from the financial statements of St. James Corp. for 2019 and 2018. 2019 2018 Net income $150,500 $120,000 Cash dividends paid on preferred stock $15,000 $15,000 Cash dividends paid on common stock $42,000 $38,000 Weighted average number of preferred shares outstanding 20,000 20,000 Weighted average number of common shares outstanding 105,000 95,000 Required: Calculate St. James' earnings per share as it would be reported on the 2019 income statement. Round your answer to the nearest cent. $