Discuss how you can determine which is a better financial deal. Also, what are the non-financial aspects to winning the lottery and how do they influence which option to take?
In: Finance
The loss of jobs for many of target’s top management sometimes compels the managers to reject an offer that might be in the interest of the firm’s shareholders. Discuss how golden parachutes arrangements assist in overcoming this agency problem. Can golden parachutes provisions themselves also create agency problems for the firm?
In: Finance
Provide one example of contingent projects in the context of one or more companies in Australia or US.
In: Finance
|
Problem 16-17 The Raattama Corporation had sales of $3.4 million last year, and it earned a 5% return (after taxes) on sales. Recently, the company has fallen behind in its accounts payable. Although its terms of purchase are net 30 days, its accounts payable represent 59 days' purchases. The company's treasurer is seeking to increase bank borrowing in order to become current in meeting its trade obligations (that is, to have 30 days' payables outstanding). The company's balance sheet is as follows (in thousands of dollars):
|
In: Finance
Use a financial calculator or an Excel spreadsheet to estimate the IRR for each of the following investments:
The Yield for Investment A:
The Yield for Investment B:
| A | B | |
| Initial Investment | 6,400 | 9,535 |
| Year 1 | $1,822.65 | $2,200 |
| Year 2 | $1,822.65 | $2,500 |
| Year 3 | $1,822.65 | $3,100 |
| Year 4 | $1,822.65 | $3,600 |
| Year 5 | $1,822.65 | $4,100 |
In: Finance
|
Problem 12-07 Upton Computers makes bulk purchases of small computers, stocks them in conveniently located warehouses, ships them to its chain of retail stores, and has a staff to advise customers and help them set up their new computers. Upton's balance sheet as of December 31, 2016, is shown here (millions of dollars):
Sales for 2016 were $200 million and net income for the year was $6 million, so the firm's profit margin was 3.0%. Upton paid dividends of $2.4 million to common stockholders, so its payout ratio was 40%. Its tax rate was 40%, and it operated at full capacity. Assume that all assets/sales ratios, (spontaneous liabilities)/sales ratios, the profit margin, and the payout ratio remain constant in 2017. Do not round intermediate calculations.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In: Finance
You have just purchased a home and taken out a $480,000 mortgage. The mortgage has a 30-year term with monthly payments and an APR of 6.80%.
a. How much will you pay in interest, and how much will you pay in principal, during the first year?
b. How much will you pay in interest, and how much will you pay in principal, during the 20th year (i.e., between 19 and 20 years from now)?
In: Finance
Problem 12-04
Sales Increase
Maggie's Muffins Bakery generated $2,000,000 in sales during 2016, and its year-end total assets were $1,700,000. Also, at year-end 2016, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000 of accruals. Looking ahead to 2017, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 4%, and its payout ratio will be 70%. How large a sales increase can the company achieve without having to raise funds externally—that is, what is its self-supporting growth rate? Do not round intermediate calculations. Round your answers to the nearest whole.
Sales can increase by $ , that is by %.
In: Finance
|
Problem 14-11 Kendra Brown is analyzing the capital requirements for Reynold Corporation for next year. Kendra forecasts that Reynold will need $6 million to fund all of its positive-NPV projects, and her job is to determine how to raise the money. Reynold's net income is $6 million, and it has paid a $2.00 dividend per share (DPS) for the past several years (1.0 million shares of common stock are outstanding); its shareholders expect the dividend to remain constant for the next several years. The company's target capital structure is 30% debt and 70% equity.
|
In: Finance
A bank has Federal funds totaling $25 million with an interest rate sensitivity weight of 1.0. This bank also has loans of $105 million and investments of $65 million with interest rate sensitivity weights of 1.40 and 1.15 respectively. This bank also has $135 million in interest-bearing deposits with an interest rate sensitivity weight of .90 and other money market borrowings of $75 million with an interest rate sensitivity weight of 1.0. What is the weighted interest-sensitive gap for this bank?
In: Finance
Problem 12-09
Financing Deficit
Garlington Technologies Inc.'s 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016
| Cash | $ 180,000 | Accounts payable | $ 360,000 | |
| Receivables | 360,000 | Notes payable | 156,000 | |
| Inventories | 720,000 | Line of credit | 0 | |
| Total current assets | $1,260,000 | Accruals | 180,000 | |
| Fixed assets | 1,440,000 | Total current liabilities | $ 696,000 | |
| Common stock | 1,800,000 | |||
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 |
Income Statement for December 31, 2016
| Sales | $3,600,000 |
| Operating costs | 3,279,720 |
| EBIT | $ 320,280 |
| Interest | 18,280 |
| Pre-tax earnings | $ 302,000 |
| Taxes (40%) | 120,800 |
| Net income | 181,200 |
| Dividends | $ 108,000 |
Suppose that in 2017 sales increase by 5% over 2016 sales and that 2017 dividends will increase to $150,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 14%, and assume that any new debt will be added at the end of the year (so forecast the interest expense based on the debt balance at the beginning of the year). Cash does not earn any interest income. Assume that the all new-debt will be in the form of a line of credit. Round your answers to the nearest dollar. Do not round intermediate calculations.
| Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 |
|||
| Sales | $ | ||
| Operating costs | $ | ||
| EBIT | $ | ||
| Interest | $ | ||
| Pre-tax earnings | $ | ||
| Taxes (40%) | $ | ||
| Net income | $ | ||
| Dividends: | $ | ||
| Addition to RE: | $ | ||
| Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 |
|||
| Cash | $ | ||
| Receivables | $ | ||
| Inventories | $ | ||
| Total current assets | $ | ||
| Fixed assets | $ | ||
| Total assets | $ | ||
| Accounts payable | $ | ||
| Notes payable | $ | ||
| Accruals | $ | ||
| Total current liabilities | $ | ||
| Common stock | $ | ||
| Retained earnings | $ | ||
| Total liabilities and equity | $ | ||
In: Finance
Problem 12-08
Financing Deficit
Stevens Textile Corporation's 2016 financial statements are shown below:
Balance Sheet as of December 31, 2016 (Thousands of Dollars)
| Cash | $ 1,080 | Accounts payable | $ 4,320 | |
| Receivables | 6,480 | Accruals | 2,880 | |
| Inventories | 9,000 | Line of credit | 0 | |
| Total current assets | $16,560 | Notes payable | 2,100 | |
| Net fixed assets | 12,600 | Total current liabilities | $ 9,300 | |
| Mortgage bonds | 3,500 | |||
| Common stock | 3,500 | |||
| Retained earnings | 12,860 | |||
| Total assets | $29,160 | Total liabilities and equity | $29,160 |
Income Statement for January 1 - December 31, 2016 (Thousands of Dollars)
| Sales | $36,000 |
| Operating costs | 32,440 |
| Earnings before interest and taxes | $ 3,560 |
| Interest | 460 |
| Pre-tax earnings | $ 3,100 |
| Taxes (40%) | 1,240 |
| Net income | $ 1,860 |
| Dividends (45%) | $ 837 |
| Addition to retained earnings | $ 1,023 |
| Total assets | $ |
| AFN | $ |
In: Finance
On January 1, 2018, Winn Heat Transfer leased office space under a three year operating lease agreement. The arrangement specified three annual rent payments of $75,000 each, beginning December 31, 2018, and at each December 31 through 2020. The lessor, HVAC Leasing calculates lease payments based on an annual interest rate of 7%. Winn also paid a $330,000 advance payment at the beginning of the lease in addition to the first $75,000 rent payment. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $405,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2020. Winn’s fiscal year is the calendar year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to nearest whole dollars.)
1.Record the beginning of the lease for Winn.
2.Record the lease payment for Winn
3.Record the lease and interest payment for Winn.
4.Record the amortization of right-to-use asset for Winn.
5.Record the depreciation expense for Winn.
6.Record the lease and interest payment for Winn.
7.Record the amortization of right-to-use asset for Winn.
8.Record the depreciation expense for Winn.
9.Record the lease and interest payment for Winn.
10.Record the amortization of right-to-use asset for Winn.
11.Record the depreciation expense for Winn.
In: Finance
USP Company is considering an investment project that will produce an operating cash flow of $94,000 a year for three years. The initial cash outlay for equipment will be $201,000. The net aftertax salvage value of $17,000 will be received at the end of the project. The project requires $32,500 of net working capital up front that will be fully recovered when the project ends. What is the net present value of the project if the required rate of return is 14 percent?
$24,957.20
$21,413.60
$18,144.50
$15,334.27
$12,658.73
In: Finance
Assume an equipment costs $325,000 and lasts five years before it is replaced. The operating cost is $37,800 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 14 percent? (Hint: Find the NPV of the equipment cost and annual operating cost, then solve for the EAC)
In: Finance