NPV

Your division is considering two projects with the following cash flows (in millions):

1. What are the projects' NPVs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A ___ $   million
   Project B____ $   million

   What are the projects' NPVs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A ___ $   million
   Project B  ___ $ million

   What are the projects' NPVs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Negative value should be indicated by a minus sign.
   Project A  ___$  million
   Project B ___$   million

2. What are the projects' IRRs assuming the WACC is 5%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A __%
   Project B___%

   What are the projects' IRRs assuming the WACC is 10%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A___%
   Project B___%

   What are the projects' IRRs assuming the WACC is 15%? Round your answer to two decimal places. Do not round your intermediate calculations.
   Project A___%
   Project B___%

3. If the WACC was 5% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 90.37%.)
   -Select-Project AProject BNeither A, nor B

   If the WACC was 10% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 90.37%.)
   -Select-Project AProject BNeither A, nor B

   If the WACC was 15% and A and B were mutually exclusive, which project would you choose? (Hint: The crossover rate is 90.37%.) -Select-Project AProject BNeither A, nor B

1) A sinking fund is established to discharge a debt of $20,000 in 10 years. If deposits are made at the end of each 6-month period and interest is paid at the rate of 4%, compounded semiannually, what is the amount of each deposit? (Round your answer to the nearest cent.)

2) If $1500 is deposited at the end of each quarter in an account that earns 4% compounded quarterly, after how many quarters will the account contain $70,000? (Round your answer UP to the nearest quarter.)

Discuss the Argentinian Peso crisis and the Asian currency crisis. What did they have in common, and how did they differ? Why did they collapse? What two unique elements of the peso crisis are not normal to most currency crisis? Discuss the common components of most crisis, and what would be expected to occur under floating exchange rates given similar circumstances

What are the advantage of being in the EU and adopting the euro? What are the chief drawbacks ? Why didn’t some countries like England, Switzerland adopted euro?

Loan Amortization

Your company is planning to borrow $1.5 million on a 7-year, 8%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal? Round your answer to two decimal places.

Pension funds pay lifetime annuities to recipients. If a firm will remain in business indefinitely, the pension obligation will resemble a perpetuity. Suppose, therefore, that you are managing a pension fund with obligations to make perpetual payments of $3.4 million per year to beneficiaries. The yield to maturity on all bonds is 18.5%.

a. If the duration of 5-year maturity bonds with coupon rates of 14.6% (paid annually) is four years and the duration of 20-year maturity bonds with coupon rates of 8% (paid annually) is 11 years, how much of each of these coupon bonds (in market value) will you want to hold to both fully fund and immunize your obligation?

b. What will be the par value of your holdings in the 20-year coupon bond?

An insurance company must make payments to a customer of $8 million in one year and $4 million in four years. The yield curve is flat at 9%.

a. If it wants to fully fund and immunize its obligation to this customer with a single issue of a zero-coupon bond, what maturity bond must it purchase?

b. What must be the face value and market value of that zero-coupon bond?

Glazer Drug Co. is the fourth largest generic drug company in the world, with annual sales of over $3 billion. It trails only Norvatis AG, Teva Pharmaceutical, and Mylan Labs in sales and profits. Its home office is in St. Louis, with its laboratories and sales outlets in the U.S. and 30 foreign countries, with the largest foreign operations in Great Britain and Australia. Its generic brand labels cover medication for heart disease, diabetes, acute infections, and many other ailments.

In the fall of 2012, the company decided to go public. Its investment banker was Aaron, Barkley, and Company.

Glazer Drug Co.’s most recent 12 month earnings were $150 million with one hundred million shares, providing an EPS figure of $1.50. After conducting a careful analysis of the generic drug industry, the investment banker decided a P/E of 25 would be appropriate, giving the stock a value of

$37.50. Allowing for the underwriting speed, the net to the corporation and selling stockholders was $36.68. The out-of-pocket underwriting expense was
$2 million on the 20 million chares that were to be sold to the public. Ten million of the 20 million shares in the IPO were new corporate shares and the remaining
10 million were shares currently owned by Larry Glazer, one of the founders of the company. The 10 million shares sold by Glazer represented 85 percent of his holdings.

On the day of the offering, the stock price shot up from $37.50 to $51.10 a share, and by January 1, 2013, the stock had reached a price of $61.75. Since no specific events involving the company had taken place, it appeared that the stock market had a favorable impression of the firm.

1. What was the percent underwriting speed?

2. Subsequent to the issue, by what amount would earnings per share be diluted?

3. What are the net proceeds to the corporation from the issue?

4. What rate of return would the corporation need to earn on the net proceeds to avoid dilution? Note: because of the relatively high P/E of 25, the answer is less than 5 percent. However, the P/E does not figure directly into the calculation.

5. Using the original earnings per share of $1.50, what would the P/E ratio be based on the stock price of $61.75 on January 1, 2013?

6. Should Mr. Glazer be happy about the pricing of the stock by the investment banker and the movement of the stock price after going public?

Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $27.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.21 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.69 million per year and cost $1.84 million per year over the 10-year life of the project. Marketing estimates 19.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 29.00%. The WACC is 13.00%. Find the NPV (net present value).

a. Find the duration of a 7% coupon bond making annual coupon payments if it has three years until maturity and has a yield to maturity of 7%. Note: The face value of the bond is $1,000.

b. What is the duration if the yield to maturity is 8.4%? Note: The face value of the bond is $1,000.

Part 8 New Primary Care Practices in Jasper

Determine the costs to MCH of establishing two new primary care practices in Jasper. The analysis should include estimates of all costs (recruitment, compensation arrangements, facility, staffing, information technology, etc.) and assess the advantages and disadvantages of leasing or purchasing building space.

Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,000 and a cash inflow the following year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 8%. Currently, 1 U.S. dollar will buy 0.85 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 2.6%, while similar securities in Switzerland are yielding 1.3%.

1. If this project was instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project? Round the net present value to the nearest cent and rate of return to two decimal places.

   NPV = ----------$  

   Rate of return = ------------ %

2. What is the expected forward exchange rate 1 year from now? Do not round intermediate calculations. Round your answer to two decimal places.

   ---------- Swiss franc (SF_r) per U.S. $

3. If Sandrine undertakes the project, what is the net present value and rate of return of the project for Sandrine? Do not round intermediate calculations. Round the net present value to the nearest cent and rate of return to two decimal places.

   NPV = ------------Swiss francs

   Rate of return = ------------ %