Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.5 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $113,400 after 3 years. The project requires an initial investment in net working capital of $162,000. The project is estimated to generate $1,296,000 in annual sales, with costs of $518,400. The tax rate is 33 percent and the required return on the project is 10 percent. (Do not round your intermediate calculations.)

    

Required:
(a)	What is the project's year 0 net cash flow?
	(Click to select)-1,495,800-617,378-651,677-1,578,900-1,662,000

   

(b)	What is the project's year 1 net cash flow?
	(Click to select)617,378754,573651,677685,976720,274

  

(c)	What is the project's year 2 net cash flow?
	(Click to select)703,969778,070720,274741,020617,378

  

(d)	What is the project's year 3 net cash flow?
	(Click to select)912,407782,063720,274825,511868,959

  

(e)	What is the NPV?

Jerome Corporation’s bonds have 15 years to maturity, an 8.75% coupon paid semiannually, and a $1,000 par value. The bond has a 6.00% nominal yield to maturity, but it can be called in 6 years at a price of $1,050. What is the bond’s nominal yield to call?

a.5.27%

b.5.54%

c.4.34%

d.6.10%

e.5.81%

A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 0 1 2 3 4 Project S -$1,000 $896.74 $240 $10 $10 Project L -$1,000 $0 $240 $400 $792.04 The company's WACC is 10.5%. What is the IRR of the better project? (Hint: The better project may or may not be the one with the higher IRR.) Round your answer to two decimal places.

The required return for Williamson Heating's stock is 12%, and the stock sells for $40 per share. The firm just paid a dividend of $1.00, and the dividend is expected to grow by 25% per year for the next 4 years, so D₄ = $1.00(1.25)⁴ = $2.4414. After t = 4, the dividend is expected to grow at a constant rate of X% per year forever. What is the stock's expected constant growth rate after t = 4, i.e., what is X?

a.6.02%

b.5.44%

c.7.21%

d.5.72%

e.5.17%

1. Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no debt, and its cost of equity is 18 percent. The tax rate is 31 percent. Bruce will borrow $61,000 and use the proceeds to repurchase shares. What will the WACC be after recapitalization

   		16.30 percent
   		16.87 percent
   		17.15 percent
   		18.29 percent

The Rivoli Company has no debt outstanding, and its financial position is given by the following data:

Assets (Market value = book value)	$3,000,000
EBIT	$500,000
Cost of equity, rs	10%
Stock price, Po	$15
Shares outstanding, no	200,000
Tax rate, T (federal-plus-state)	40%

The firm is considering selling bonds and simultaneously repurchasing some of its stock. If it moves to a capital structure with 35% debt based on market values, its cost of equity, r_s, will increase to 11% to reflect the increased risk. Bonds can be sold at a cost, r_d, of 8%. Rivoli is a no-growth firm. Hence, all its earnings are paid out as dividends. Earnings are expected to be constant over time.

1. What effect would this use of leverage have on the value of the firm?
   I. Increasing the financial leverage by adding debt results in an increase in the firm's value.
   II. Increasing the financial leverage by adding debt results in a decrease in the firm's value.
   III. Increasing the financial leverage by adding debt has no effect on the firm's value.
   -Select-IIIIIIItem 1
   
2. What would be the price of Rivoli's stock? Do not round intermediate calculations. Round your answer to the nearest cent.
   $   per share
   
3. What happens to the firm's earnings per share after the recapitalization? Do not round intermediate calculations. Round your answer to the nearest cent.
   The firm -Select-increaseddecreasedItem 3 its EPS by $   .
   
4. The $500,000 EBIT given previously is actually the expected value from the following probability distribution:

   Probability	EBIT
   0.10	($ 95,000)
   0.20	250,000
   0.40	350,000
   0.20	750,000
   0.10	1,695,000

   
   Determine the times-interest-earned ratio for each probability. Use a minus sign to enter negative values, if any. Do not round intermediate calculations. Round your answers to two decimal places.

   Probability	TIE
   0.10
   0.20
   0.40
   0.20
   0.10

   
   What is the probability of not covering the interest payment at the 35% debt level? Do not round intermediate calculations. Round your answer to two decimal places.
   
     %

a)Compute the Internal Rate of Return (IRR) of the prospective project: Estimated cash flows are $18,200 at the end of every year for 6 years. Cost today is $67,000.

b) Should the company accept the project if the company's cost of capital is 7%, and why or why not?

Please show all work using the TI BAII Plus Calculator like the example below:

Make sure that 2nd I/Y which is P/Y is set to 1.0.
Make sure that 2nd PMT which is BGN is set to END (not BGN).

10 N
7    I/Y
50 PMT
1000 FV
Cpt PV
$859.53 is today’s value of the bond.

McCann Co. has identified an investment project with the following cash flows. Year Cash Flow 1 $900 2 1,040 3 1,280 4 1,110 a. If the discount rate is 12 percent, what is the present value of these cash flows? b. What is the present value at 19 percent?

Consider the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 –$272,703 –$15,035 1 27,800 4,583 2 52,000 8,185 3 58,000 13,305 4 389,000 9,509 Whichever project you choose, if any, you require a 6 percent return on your investment.

a. What is the payback period for Project A?

b. What is the payback period for Project B?

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.