A firm borrows $5000 and the loan is to be repaid in 4 equal payments at the end of each of the next 4 years so that the ending balance at the end of year 4 is 0. The interest rate on the loan is 10 percent. The principal repayment in year 3 is:

A firm borrows $5000 and the loan is to be repaid in 4 equal payments at the end of each of the next 4 years so that the ending balance at the end of year 4 is 0. The interest rate on the loan is 10 percent. The beginning balance in year 2 is:

Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.35 (given its target capital structure). Vandell has $11.42 million in debt that trades at par and pays an 8% interest rate. Vandell’s free cash flow (FCF0) is $2 million per year and is expected to grow at a constant rate of 4% a year. Both Vandell and Hastings pay a 40% combined federal and state tax rate. The risk-free rate of interest is 4% and the market risk premium is 5%. Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.5 million, $3.1 million, $3.3 million, and $3.95 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 4% rate. Hastings plans to assume Vandell’s $11.42 million in debt (which has an 8% interest rate) and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.6 million each year for Years 1, 2, and 3. After Year 3, a target capital structure of 30% debt will be maintained. Interest at Year 4 will be $1.441 million, after which the interest and the tax shield will grow at 4%. Indicate the range of possible prices that Hastings could bid for each share of Vandell common stock in an acquisition. Round your answers to the nearest cent. Do not round intermediate calculations.

The bid for each share should range between $ per share and $ per share.

Assume that today is December 31, 2019, and that the following information applies to Abner Airlines:

After-tax operating income [EBIT(1 - T)] for 2020 is expected to be $500 million.
The depreciation expense for 2020 is expected to be $190 million.
The capital expenditures for 2020 are expected to be $225 million.
No change is expected in net operating working capital.
The free cash flow is expected to grow at a constant rate of 5% per year.
The required return on equity is 15%.
The WACC is 9%.
The firm has $202 million of non-operating assets.
The market value of the company's debt is $3.462 billion.
230 million shares of stock are outstanding.

Using the corporate valuation model approach, what should be the company's stock price today? Do not round intermediate calculations. Round your answer to the nearest cent.

$  

Dantzler Corporation is a fast-growing supplier of office products. Analysts project the following free cash flows (FCFs) during the next 3 years, after which FCF is expected to grow at a constant 8% rate. Dantzler's WACC is 13%.

1. What is Dantzler's horizon, or continuing, value? (Hint: Find the value of all free cash flows beyond Year 3 discounted back to Year 3.) Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.
   $   million
   
2. What is the firm's market value today? Assume that Dantzler has zero non-operating assets. Enter your answer in millions. For example, an answer of $13,550,000 should be entered as 13.55. Do not round intermediate calculations. Round your answer to two decimal places.
   $   million
   
3. Suppose Dantzler has $49.60 million of debt and 15 million shares of stock outstanding. What is your estimate of the current price per share? Write out your answer completely. For example, 0.00025 million should be entered as 250. Do not round intermediate calculations. Round your answer to the nearest cent.
   $  

Suppose you are the money manager of a $5.14 million investment fund. The fund consists of four stocks with the following investments and betas:

If the market's required rate of return is 13% and the risk-free rate is 5%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places.

%

Choco Inc. buys chocolate from Switzerland and resells it in the U.S. It just purchased chocolate invoiced
at SF50,000. Payment for the invoice is due in 30 days. Assume that the current exchange rate of the
Swiss franc is $1.00. Also assume that three call options for the franc are available. The first option has a
strike price of $1.00 and a premium of $.03; the second option has a strike price of $1.03 and a premium
of $.01; the third option has a strike price of $1.06 and a premium of $.005. Choco Inc. expects a modest
appreciation in the Swiss franc.
a) (5 points) Describe how Choco Inc. could construct a bullspread using the first two options. What is
the cost of this hedge? When is this hedge most effective? When is it least effective?
b) (5 points) Describe how Choco Inc. could construct a bullspread using the first and the third options.
What is the cost of this hedge? When is this hedge most effective? When is it least effective?
c) (5 points) Given your answers to parts (a) and (b), what is the tradeoff involved in constructing a
bullspread using call options with a higher exercise price?

Mortgage affordability. Dhuha and Omar have an annual income of $183,408 and want to buy a home. Currently, mortgage rates are 4.25 percent. They want to take out a mortgage for 30 years. Real estate taxes are estimated to be $9,764 per year for homes similar to what they would like to buy, and homeowner’s insurance would be about $2,504 per year.

• Using a 28 percent front end ratio, what are the total monthly expenditures for which they would qualify? (5 points)

• Using a 36 percent back end ratio, what monthly mortgage payment (including taxes and insurance) could they afford given that they have an automobile loan payment of $479, a student loan payment of $280, and credit card payments of $364? (5 points)

Assume that the United States invests heavily in government and corporate securities of South Korea (hereafter, ‘Korea’). In addition, residents of Korea invest heavily in the United States. Approximately $20 billion worth of investment transactions occur between these two countries each year. The total dollar value of trade transactions per year is about $15 million. This information is expected to also hold in the future.
Explain how each of the following conditions will affect the value of Korean currency, won, holding other things equal.
a) U.S. inflation has suddenly increased substantially, while Korean inflation remains low.
b)U.S. interest rates have increased substantially, while Korean interest rates remain low. Investors of both countries are attracted to high interest rates.
c) The U.S. income level increased substantially, while Korean income level has remained unchanged
d) The U.S. is expected to impose a small tariff on goods imported from Korea.
e) Combine all expected impacts to develop an overall forecast.

Happy Times, Inc., wants to expand its party stores into the Southeast. In order to establish an immediate presence in the area, the company is considering the purchase of the privately held Joe’s Party Supply. Happy Times currently has debt outstanding with a market value of $160 million and a YTM of 7 percent. The company’s market capitalization is $400 million, and the required return on equity is 12 percent. Joe’s currently has debt outstanding with a market value of $31.5 million. The EBIT for Joe’s next year is projected to be $14 million. EBIT is expected to grow at 8 percent per year for the next five years before slowing to 4 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 7 percent, 13 percent, and 6 percent, respectively. Joe’s has 1.95 million shares outstanding and the tax rate for both companies is 30 percent.

a. What is the maximum share price that Happy Times should be willing to pay for Joe’s? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Maximum share price            $

After examining your analysis, the CFO of Happy Times is uncomfortable using the perpetual growth rate in cash flows. Instead, she feels that the terminal value should be estimated using the EV/EBITDA multiple. The appropriate EV/EBITDA multiple is 10.

b. What is your new estimate of the maximum share price for the purchase? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Part A is $60.71 but Part B is not $62.46 though. Need assistance with this problem.

You are considering an investment in Justus Corporation's stock, which is expected to pay a dividend of $2.25 a share at the end of the year (D₁ = $2.25) and has a beta of 0.9. The risk-free rate is 4.8%, and the market risk premium is 4.5%. Justus currently sells for $40.00 a share, and its dividend is expected to grow at some constant rate, g. Assuming the market is in equilibrium, what does the market believe will be the stock price at the end of 3 years? (That is, what is ?) Round your answer to two decimal places. Do not round your intermediate calculations.

Over time many large companies in the US have increased exponentially the amount of long-term debt taken out to finance operations. What are some other alternatives to long-term financing needs in an organization and is it less expensive than long term debt?

1. If you are offered to invest an amount of $ 100,000 in a business opportunity that expected to achieve operating cash inflow after considering taxes (net of taxes & before depreciation) in the future as follows:

Year (1) $ 32,000, Year (2) $ 35,000, Year (3) $ 40,000, & Year (4) $ 25,000

Would you accept this business opportunity if the required rate of returns is 15%?

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2. If you have the following information about an investment opportunity:
   1. Initial investment (cash out- required capital) is $ 500,000
   2. Expected operating cash inflows( after considering taxes) in year (1) $ 200,000, in year (2) $ 260,000, in year (3) $ 250,000, & in year (4) $ 150,000

Calculate the payback period, the net present value if the cost of capital is % 15%, & also calculate the internal rate of return?

In 400 words explain the following:

1. What is the relationship between interest rate level and bond price? Why must this relationship be true? How has the current rate environment impacted the prices of bonds?

2. What are some factors to consider in evaluating a company's ability to make payments on outstanding debt? Please explain the factors rather than just providing a list.

• Apply appropriate examples that illustrate your points - feel free to bring your workplace experiences into the discussion. It helps us all learn when we can relate our past workplace experiences to what we're learning here in the discussions.
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