The Picture-Perfect Company is considering whether it should introduce a new product, a camera lens. However, they are unsure of the demand for the product and have hired a consultant to do some market research for them before moving forward. The consultant fee is $10,000. If the company produces the lens, it will have to invest $400,000 in new equipment, and $25,000 in working capital. The equipment will last for the duration of the project, which is 3 years, and will be depreciated to zero using straight-line depreciation. In 3 years, the equipment is expected to have a scrap value of 5,000. The lens is expected to produce $300,000 per year in revenues and create operating costs of $100,000 per year. If the lens is produced, Picture-Perfect expects to lose $25,000 per year from the decline in demand for a lens the company is currently selling. If the company has a tax rate of .21 and the project has a required return of .08, should Picture-Perfect move ahead with the new product?
In: Finance
A rapidly growing company just paid a dividend of $1.50 a share. For the next three years, the earnings growth rate is projected to be 15% each year, and then 4% each year thereafter. If the required rate of return is 9%, what is the value of the stock?
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A)$35.15 B)$38.63 C)$43.88 D)$41.65 |
In: Finance
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After completing its capital spending for the year, Carlson Manufacturing has $1,700 extra cash. Carlson’s managers must choose between investing the cash in Treasury bonds that yield 3 percent or paying the cash out to investors who would invest in the bonds themselves. |
| a. |
If the corporate tax rate is 22 percent, what personal tax rate would make the investors equally willing to receive the dividend or to let Carlson invest the money? (Do not round intermediate calculations and enter your answer as a percent rounded to the nearest whole number, e.g., 32.) |
| b. | Is the answer to (a) reasonable? |
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| c. |
Suppose the only investment choice is a preferred stock that yields 6 percent. The corporate dividend exclusion of 50 percent applies. What personal tax rate will make the stockholders indifferent to the outcome of Carlson’s dividend decision? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| d. | Is this a compelling argument for a low dividend-payout ratio? |
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In: Finance
The Sweet Dreams Candy Company has hired you to estimate its Weighted Average Cost of Capital.
Management has provided you with the following information:
Current Debt: The company has 180,000 bonds, par value $1000, selling at 95% of par. The bonds have a coupon rate of 3% and 15 years to maturity.
Common Stock: The company has 3,750,000 shares of common selling for $62 per share. The book value per share is $23. The stock has a beta of 1.2
Additional information: The company has a tax rate of .35, the market risk premium is 7.5%, and the risk-free interest rate is 2%.
In: Finance
Describe the range of options that would be available to a small beef producer needing to raise export working capital to
market to overseas distributors ?
In: Finance
Please show all work and formulas
Please use the following information to answer this question.
State Probability A B C
Boom .3 -10% 5% 0%
Normal .4 5 3 2
Bust .3 10 -5 2
Find the expected return and variance of the portfolio if an investor spent $5000 on A, $8000 on B and $7000 on C.
In: Finance
A Pharma company has recently recruited 4 scientists at an average age of 27 and is looking to develop quite a few pharmacological formulations. With a view to retain them the company proposes to offer a housing scheme to them on the following terms and conditions:
You are called upon to do the following:
In: Finance
In: Finance
34)
The Oklahoma Pipeline Company projects the following pattern of
inflows from an investment. The inflows are spread over time to
reflect delayed benefits. Each year is independent of the
others.
| Year 1 | Year 5 | Year 10 | |||||||||||||||||
| Cash Inflow | Probability | Cash Inflow | Probability | Cash Inflow | Probability | ||||||||||||||
| $ | 65 | 0.40 | $ | 50 | 0.35 | $ | 40 | 0.30 | |||||||||||
| 80 | 0.20 | 80 | 0.30 | 80 | 0.40 | ||||||||||||||
| 95 | 0.40 | 110 | 0.35 | 120 | 0.30 | ||||||||||||||
The expected value for all three years is $80.
Compute the standard deviation for each of the three years.
(Do not round intermediate calculations. Round your answer
to 2 decimal places.)
In: Finance
Calculate The Following Elements Used to Derive a Cap Rate - Sinking Fund Factor
In: Finance
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Dickson, Inc., has a debt-equity ratio of 2.55. The firm’s weighted average cost of capital is 12 percent and its pretax cost of debt is 10 percent. The tax rate is 23 percent. |
| a. | What is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | What is the company’s unlevered cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| c. | What would the company’s weighted average cost of capital be if the company's debt-equity ratio were .55 and 1.55? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) |
In: Finance
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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 $220 million and a YTM of 9 percent. The company’s market capitalization is $300 million and the required return on equity is 14 percent. Joe’s currently has debt outstanding with a market value of $27.5 million. The EBIT for Joe’s next year is projected to be $16 million. EBIT is expected to grow at 10 percent per year for the next five years before slowing to 3 percent in perpetuity. Net working capital, capital spending, and depreciation as a percentage of EBIT are expected to be 9 percent, 15 percent, and 8 percent, respectively. Joe’s has 2 million shares outstanding and the tax rate for both companies is 38 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.) |
| b. | 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 8. 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.) |
In: Finance
On September 1, Vibrant Salon Company issued a 60-day note with a face amount of $51,600 to Delilah Hair Products Company for merchandise inventory. Assume a 360-day year.
a. Determine the proceeds of the note, assuming
the note carries an interest rate of 10%.
$
b. Determine the proceeds of the note, assuming
the note is discounted at 10%.
$
In: Finance
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 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,195. What is the bond's nominal yield to call?
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In: Finance
Discuss how factor investing may, or may not, be an improvement on the single factor (beta/CAPM) approach. Which of the factors seem most applicable, also, are there some factors that may not be appropriate in today’s market for some reason?
In: Finance