A project that provides annual cash flows of $17673 for eight years costs $80339 today. What is the NPV for the project if the required return is 19 percent? (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places. (e.g., 32.16))

Sunrise, Inc., has no debt outstanding and a total market value of $200,000. Earnings before interest and taxes, EBIT, are projected to be $24,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 15 percent higher. If there is a recession, then EBIT will be 30 percent lower. The company is considering a $70,000 debt issue with an interest rate of 7 percent. The proceeds will be used to repurchase shares of stock. There are currently 8,000 shares outstanding. Ignore taxes for this problem. Assume the stock price is constant under all scenarios. 1. Calculate earnings per share (EPS) under each of the three economic scenarios before any debt is issued. 2. Calculate the percentage changes in EPS when the economy expands or enters a recession. 3.Calculate earnings per share (EPS) under each of the three economic scenarios assuming the company goes through with recapitalization. 4. Given the recapitalization, calculate the percentage changes in EPS when the economy expands or enters a recession

You buy an eight-year bond that has a 5.50% current yield and a 5.50% coupon (paid annually). In one year, promised yields to maturity have risen to 6.50%. What is your holding-period return?

Problem 11-03

An investor with a required return of 14 percent for very risky investments in common stock has analyzed three firms and must decide which, if any, to purchase. The information is as follows:

Stock A: $  

Stock B: $  

Stock C: $  

%

Stock A: $  

Stock B: $  

Stock C: $  

1. • What is the maximum price that the investor should pay for each stock based on the dividend-growth model? Round your answers to the nearest cent.
   • If the investor does buy stock A, what is the implied percentage return? Round your answer to two decimal places.
   • If the appropriate P/E ratio is 11, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent.
2. If the appropriate P/E ratio is 5, what is the maximum price the investor should pay for each stock? Round your answers to the nearest cent.

   Stock A: $  

   Stock B: $  

   Stock C: $  

The risk-free rate of return is 4 percent, and the expected return on the market is 7.5 percent. Stock A has a beta coefficient of 1.6, an earnings and dividend growth rate of 8 percent, and a current dividend of $2.10 a share. Do not round intermediate calculations. Round your answers to the nearest cent.

a) What should be the market price of the stock?

b) If the current market price of the stock is $118.00, what should you do?

c) If the expected return on the market rises to 8.8 percent and the other variables remain constant, what will be the value of the stock?

d)If the risk-free return rises to 6 percent and the return on the market rises to 9.1 percent, what will be the value of the stock?

e) If the beta coefficient falls to 1.5 and the other variables remain constant, what will be the value of the stock?

Suppose there are two independent economic factors, M₁ and M₂. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 49%. Portfolios A and B are both well diversified.

What is the expected return–beta relationship in this economy? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Expected return–beta relationship E(r_P) = % + β_P1 + β_P2

Bilbo Bags & Things makes fashionable handbags. They are considering extending trade credit to some customers previously considered poor risks. The following estimations are made for this new customer base:

• Sales would increase by $100,000 if credit is extended to these new customers.
• Production and selling costs will be 80% of sales.
• All sales will be on credit, and 10% of them will prove to be uncollectible.
• Additional collection costs will be 5% of sales, and
• Customer Service costs will be 3% of Sales.
• The firm is in the 20 percent tax bracket.

What is the incremental income after taxes?

a). 2,000

b). 80,000

c). 1,600

d). 100,000

Your firm is contemplating the purchase of a new $475,000 computer based order entry system will be depreciated straight line to zero over its 6 year life . It will be worth $60 ,000 at the end of that time . You will save $165,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $45,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 25 percent, what is the IRR for this project?

Global company is considering replacing one of its equipment with a more efficient one. The old machine has a book value of $60,000 and a remaining useful life of 5 years. It can sell the old machine now for $ 265,000. The old machine is being depreciated by 120,000 per year straight line. The new machine has a purchase price of $ 1,175,000 an estimated useful life and 5 years MACRS class life and salvage value of $145,000. Annual economic savings is $255,000 if new machine is installed. Taxes 40% and WACC is 12%. Show your work the best you can with this problem.

1. Calculate the initial cash flow at time 0, which is today.
2. Calculate the cash flows for years 1 thru 5.
3. Calculate the terminal value at year 5
4. Calculate the NPV and IRR of the project and make a decision on wheather the company should accept or reject the investment and why?

A share of preferred stock pays a quarterly dividend of $1.00. If the price of the stock is $50, what is the effective annual (not nominal) rate of return on the preferred stock?

Teta Traders purchases 500 pen sets during the year at R100 per set. The pen sets are sold at R400 each at a steady rate during the year. The cost of placing a single order amounts to R40. Inventory holding cost is R10 per set. Calculate the economic order quantity.

Consider an unleveraged company worth $150 million. The average investor in the company faces a 15% tax rate on equity investments and a 40% tax rate on debt investments? If debt of $50 million is borrowed and invested by the company and the company faces a 40% corporate tax rate, what is the new value of the company?

Please show work on Excel if you can.

Thank you!

: A stock price is currently $60. It is known that at the end of eight months it will be either $65 or $55. The risk-free interest rate is 8% per annum with continuous compounding. (1) What is the value of an eight-month European put option with a strike price of $60? (2) Verify that no-arbitrage arguments and risk-neutral valuation arguments give the same answers.