What is the YTM of a bond with the the following characteristics: Face value - $1,000; Current Price - $902; Coupon rate - 10%; Maturity - 7 yrs; Pays semi-annually
In: Finance
Your firm is has equity of $2,270,000.00 and debt of $4,060,000.00. The firm has been estimate to have a beta of 1.50 and the expected market risk premium (MRP) is 4.72% with the risk-free rate at 3.58%. The firm just recently issued bonds which traded at $905.58 on it's issue date and they have a 10-year maturity (assume standard corporate bonds). The stated rate on the bonds was 3.60%. What is your firm's weighted average cost of capital (WACC) if the tax rate is 30.00%? (enter your value as a percent (i.e. 20.5 for 20.5%) tolerance is 0.1)
In: Finance
Evaluate the project below using all 6 methods, a 3-year cut off period and an 11% required return.
| Year | 0 | 1 | 2 | 3 | 4 |
| Cash Flow | -9000 | 3,000 | 2,000 | 3,000 | 3,000 |
A.) Payback Period:
B.) Discounted Payback Period
C.) Internal Rate of Return
D.) Net present Value
E.) MIRR
F.) Profitability index
Please show formulas used and work, not excel sheet
In: Finance
In: Finance
In: Finance
Pearl Corp. is expected to have an EBIT of $3,100,000 next year. Depreciation, the increase in net working capital, and capital spending are expected to be $160,000, $140,000, and $180,000, respectively. All are expected to grow at 15 percent per year for four years. The company currently has $16,000,000 in debt and 1,050,000 shares outstanding. At Year 5, you believe that the company's sales will be $22,230,000 and the appropriate price-sales ratio is 2.3. The company's WACC is 8.7 percent and the tax rate is 23 percent.
What is the price per share of the company's stock? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
In: Finance
In: Finance
How do options apply to capital budgeting? Explain and give an example.
In: Finance
In: Finance
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Financing Deficit Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December 31, 2016
Income Statement for December 31, 2016
Suppose that in 2017 sales increase by 5% over 2016 sales and that 2017 dividends will increase to $136,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 8%, 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.
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In: Finance
In: Finance
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Simmons, Inc., is considering a new 4-year project that requires an initial fixed asset investment of $2.95 million. The fixed asset is eligible for 100 percent bonus depreciation in the first year. At the end of the project, the asset can be sold for $410,000. The project is expected to generate $2.75 million in annual sales, with annual expenses of $925,000. The project will require an initial investment of $460,000 in NWC that will be returned at the end of the project. The corporate tax rate is 21 and the project has a required return of 13 percent. |
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What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| NPV | $ |
In: Finance
Brenda Borrow is considering a loan so that she can finance
the
purchase of Real Estate. Brenda has researched the fact that a
Fully
Amortized Mortgage real estate loan for a period of 30 years
will
obligate her to pay $1400 per month over the life of the
loan.
Brenda cannot afford the $1400 per month payment - not yet
anyway. Perhaps later - when her job begins paying her more
salary - she could afford the $1400 per month payment. Now
Brenda can only afford to pay $1100 per month. Brenda has
been
told of an arrangement called a "Graduated Payment
Mortgage."
Discuss the concept of a "Graduated Payment Mortgage."
Discuss
the mechanics of the loan and discuss the pitfalls of the
loan.
Compare the "Graduated Payment Mortgage" with the "Fully
Amortized Mortgage." Advise Brenda regarding the selection of
the
mortgage type.
In: Finance
Analysis of an expansion project
Companies invest in expansion projects with the expectation of increasing the earnings of its business.
Consider the case of Garida Co.:
Garida Co. is considering an investment that will have the following sales, variable costs, and fixed operating costs:
|
Year 1 |
Year 2 |
Year 3 |
Year 4 |
|
|---|---|---|---|---|
| Unit sales | 3,500 | 4,000 | 4,200 | 4,250 |
| Sales price | $38.50 | $39.88 | $40.15 | $41.55 |
| Variable cost per unit | $22.34 | $22.85 | $23.67 | $23.87 |
| Fixed operating costs except depreciation | $37,000 | $37,500 | $38,120 | $39,560 |
| Accelerated depreciation rate | 33% | 45% | 15% | 7% |
This project will require an investment of $15,000 in new equipment. The equipment will have no salvage value at the end of the project’s four-year life. Garida pays a constant tax rate of 40%, and it has a weighted average cost of capital (WACC) of 11%. Determine what the project’s net present value (NPV) would be when using accelerated depreciation. (Note: Round your answer to the nearest whole dollar.)
$49,564
$43,099
$51,719
$34,479
Now determine what the project’s NPV would be when using straight-line depreciation. (Note: Round your answer to the nearest whole dollar.)
The depreciation method will result in the highest NPV for the project.
No other firm would take on this project if Garida turns it down. How much should Garida reduce the NPV of this project if it discovered that this project would reduce one of its division’s net after-tax cash flows by $600 for each year of the four-year project? (Note: Round your answer to the nearest whole dollar.)
$1,861
$2,047
$1,582
$1,117
Garida spent $2,750 on a marketing study to estimate the number of units that it can sell each year. What should Garida do to take this information into account?
Increase the amount of the initial investment by $2,750.
The company does not need to do anything with the cost of the marketing study because the marketing study is a sunk cost.
Increase the NPV of the project $2,750.
In: Finance
The current spot rate between the euro and dollar is €1.1017/$. The annual inflation rate in the U.S is expected to be 1.99 percent and the annual inflation rate in euroland is expected to be 2.83 percent. Assuming relative purchasing power parity holds, what will the exchange rate be in two years?
In: Finance