Brenton Point Health Plan currently zero-debt financing. Its operating profit is $1.5 million, and it pays taxes at a 25% rate. It has $6 million in assets and, because it is all-equity financed, $6 million in equity. Suppose the firm is considering replacing 40% of its equity financing with debt financing that carries a 5% interest rate. What impact would the new capital structure have on Brenton Point Health Plan’s a.Profit? b. Total dollar return to investors? c.Return on Equity?

1. You graduated from college and decided to attend law school. If you go to law school, you will be forced to incur $180,000 in student loans. The re-payment of the student loans will take place over the next ten years after you graduate. The current rate on student loans is 6% ARP (with monthly compounding).
   1. How much in interest will you pay over the lifetime of the loan?
   2. How much interest will save if you add an additional $150 to your monthly payment?

After discovering a new gold vein in the Colorado Mountains, CTC Mining Corp must decide whether to go ahead and develop the deposit. The most cost-effective method of mining gold is sulfuric acid extraction, a process that could result in environmental damage. Before proceeding with the extraction, CTC must spend $900,500 for new mining equipment and pay $175,000 for its installation. The gold mined will net the firm an estimated $345,000 each year for the 5-year life of the vein. CTC’s cost of capital is 14%. For the purposes of this problem, assume that the cash inflows occur at the end of the year.

1. What are the project’s NPV and IRR?
2. Should this project be undertaken if environmental impacts were not a consideration?
3. How should environmental effects be considered, or any other, project?

The top three contributors to non-interest income is “Other Non-Interest Income”, which includes fees from safe deposit boxes and ATM fees, "Fiduciary Activities", and "Service Charges on Deposit Accounts".

True

False

Which financial statement manipulation technique is described in the following sentence:

A bank pays off Federal Reserve borrowings just prior to the reporting date since the perception of that such borrowing indicates weakness.

A-Off-Balance Sheet Activities

B-Window Dressing

C-Preferred Stock

D-Nonrecurring Sale of Assets

3. Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate, it will cost $22,000, whereas the gas-powered truck will cost $12,500. The cost of capital that applies to both investments is 11%. The life cycle for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,200 per year and those for the gas-powered truck will be $3,500 per year. Annual net cash flows include depreciation expenses. Calculate the NPV and IRR for each type of truck and decide which to recommend.

you wish to retire in 12 years and currently have $50,000 in a savings account yielding 5% annually and $100,000 in quality blue Chip stocks yielding 10% if you expect to add $30,000 at the end of each year to your stock before lose how much will you have in your retirement fund when you retire use appendix a and appendix eat answer the question round your answer to the nearest dollar

what rate of return must you earn on your retirement funds if you want to withdraw $102,000 per year for the next 15 years after retiring. use appendix d to answer the question. round your answer to the nearest whole number.

not stock before lose. it's should have said stock portfolio**
not appendix eat. should have said appendix b**

Problem 7-24 Expansion Decisions

Problem 16-14

Cash Budgeting

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl's Doll Shop. Business has been good, but Koehl frequently run out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high. Sales are made on a cash basis only. Koehl's purchases must be paid for during the following month. Koehl pays herself a salary of $4,600 per month, and the rent is $2,400 per month. In addition, she must make a tax payment of $14,000 in December. The current cash on hand (on December 1) is $650, but Koehl has agreed to maintain an average bank balance of $4,000 - this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are shown below. Purchases during November amounted to $100,000.

a. Prepare a cash budget for December, January, and February.

I. Collection and Purchases

b. Suppose Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. What would the company's loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)

Please, show the calculation if you can (have time). Thank you.

1. It’s Taylor’s Birthday Corp. needed to borrow $200,000. The company issued a 20-year, 11% coupon annual payment bonds when market rates were 10.5% on January 1, 2015. One year later interest rates had increased to 8%. What is the issue price of the bonds? How much is it worth in 1 year?

Donaldsen International is an all-equity firm with a current share price of $12.50 and 10,000 shares outstanding. Management is considering issuing $50,000 of debt at an interest rate of 6.5 percent and using the proceeds to repurchase shares. It is felt that the company will have earnings before interest and taxes (EBIT) of $30,000. The company tax rate is 30%. What will the earnings per share (EPS) be if the debt is issued?

You are comparing two financial policies. The first is all equity. The second involves the use of $2 million of debt. The break-even point between these two policies occurs when the earnings before interest and taxes (EBIT) is $450,000. Given this, it is accurate to say that leverage _____ beneficial to the firm when EBIT is $325,000 and _____ beneficial when EBIT is $625,000.

A company has 400,000 shares outstanding at a market price of $6 each. The company also has 20,000 bonds outstanding each with a face value of $100, and a market price of $113.

What is the firm's equity ratio?

Case 4 – Budgeting and Variance

Mike has been selling lemonade at his lemonade stand under the name ‘Mike’s Lemonade’ for the past few summers and has had tremendous success. As a matter of fact, kids are so “hooked” on his lemonade that he is now offering credit to those customers who have spent their allowance but need more of his product. His weekly budget is:

BUDGET NOTES:

• ‘Salaries & wages’ are comprised of Mike’s salary
• Cash customers pay $0.50/cup and credit customers pay a 10% surcharge
• Lemons, sugar, and cups expenses are for 100 cups of lemonade
• Equipment (pitcher, spoons, measuring cups) are rented from Mike’s mother

1. Mike’s Lemonade – Monthly Budget

Mike plans to keep his lemonade stand open for the 3 summer months (total of 12 weeks) each year. For better planning, expand his weekly budget into a monthly (4 weeks) budget.

2. Mike’s Lemonade – Budget Variance

Things go well for the first two months of operations. However, after the third month Mike finds that he is losing money badly, having to offset his losses from his personal savings account (previous months’ profits). He speaks with his father, a CPA at an accounting firm, who recommends that Mike run a budget variance report. Mike asks you to complete the following table (note – the budget numbers should come from your monthly budget in #1):

Clearly there is a problem, so Mike begins to investigate. He talks to his customers and finds that many were away on vacation some or part of his third month of operations. He also talks to his distributors (the grocery store manager) and finds that the price of lemons and sugar are likely to increase this year due to drought and freezing. Mike estimates that the cost of his supplies will increase by 3% next year.

Mike talks to his father again, who recommends that Mike project monthly budgets for next year including predictions for drops in volume and increases in costs. He also suggests that Mike may want to consider raising the price of his lemonade, but must take into account that price affects volume.

3. Mike’s Lemonade – Projected Monthly Budget

Develop a monthly budget for each of the 3 summer months (June, July, and August) for next year. Make and note any assumptions under ‘Budget Notes’, including from the information that Mike learned from his investigation.

4. What could Mike do to improve his net profit?

Hamstring Inc. is considering a project with the following cash flows:

C₀ C₁ C₂      C₃ C₄

_{$(25,000) $10,000 $12,000 $5,000 $8,000}

_{The company is reluctant to consider projects with paybacks of more than three years. If projects pass the payback screen, they are considered further by means of the NPV and IRR methods. The firm's cost of capital is 9%.}

_{a. What is the project 's payback period? Should the project be considered further?}

_{b. What is the project's NPV ? Does NPV indicate acceptance on a stand-alone basis?}

_{c. Calculate the project's IRR by using an iterative approach. Start with the cost of capital and the NPV calculation from part (b). Does IRR indicate acceptance on a stand-alone basis?}

_{d. What is the project's PI? Does PI indicate acceptance on a stand-alone basis?}

You will put $1200 down on a car and want a 4 year loan. You could buy a new car for $15,000 (interest rate 6%) or the same model car that is 2 years old for $11,500 (interest rate 6.5%). The new car has a monthly payment of $305.31 and the used car has a monthly payment of $244.26. Explain what you would pick and why.

Ch. 2 p. 64-65

EYK2-3) Ethics Case Great Cake is a large bakery known for its quality “boxed cake” products. Its motto is “We Use Only the Best Ingredients.” Ralph Sands, the purchasing supervisor, is responsible for ordering the ingredients for all the bakery products. He is being considered for a promotion based on his proven ability to purchase ingredients at the best price available.

The cost of all the ingredients has risen substantially over the past few months. Sands decides to purchase 2.5% of the ingredients at a lower quality than Great Cakes normally uses because the cost is significantly less. Without relying on the company’s test kitchens, he believes this substitution will not be noticed by the customers and the lower cost will counterbalance the increased costs of the other ingredients.

Sands explains this decision to his friend, Lynn Pall, the company’s accountant, one day at lunch. He also tells her that he does not intend to inform management of the inclusion of the lower-quality ingredients in the bakery’s products.

Required

What ethical considerations arise from Ralph Sands’ decisions? What problems face Lynn Pall because of his actions?