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 $500 million and net income for the year was $15 million, so the firm's profit margin was 3.0%. Upton paid dividends of $6 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.

1. If sales are projected to increase by $80 million, or 16%, during 2017, use the AFN equation to determine Upton's projected external capital requirements. Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.

b. Using the AFN equation, determine Upton's self-supporting growth rate. That is, what is the maximum growth rate the firm can achieve without having to employ nonspontaneous external funds? Round your answer to two decimal places.

c. Use the forecasted financial statement method to forecast Upton's balance sheet for December 31, 2017. Assume that all additional external capital is raised as a line of credit at the end of the year and is reflected (because the debt is added at the end of the year, there will be no additional interest expense due to the new debt).
Assume Upton's profit margin and dividend payout ratio will be the same in 2017 as they were in 2016. What is the amount of the line of credit reported on the 2017 forecasted balance sheets? (Hint: You don't need to forecast the income statements because the line of credit is taken out on last day of the year and you are given the projected sales, profit margin, and dividend payout ratio; these figures allow you to calculate the 2017 addition to retained earnings for the balance sheet without actually constructing a full income statement.) Round your answers to the nearest cent.

Henry and Bob are both 35 years old but have been investing different amounts of money for different lengths of time.

• Henry saved $15 each month for 12 years at an average interest rate of 3.6% compounded monthly until he was 25. Then he reinvested the entire amount at 3.8% compounded monthly for 10 years.
• Bob has been depositing $18 each month for the past 10 years into a savings account that earns an average annual interest rate of 3.8% compounded monthly.

a) Determine the total value of each of the above investments. Complete the tables or show your formula calculations as part of your solution.

Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Chastain's 2016 sales (all on credit) were $248000; its cost of goods sold is 80% of sales; and it earned a net profit of 3%, or $7440. It turned over its inventory 7 times during the year, and its DSO was 34 days. The firm had fixed assets totaling $25000. Chastain's payables deferral period is 45 days.

Assume 365 days in year for your calculations. Calculate Chastain's cash conversion cycle. Round your answer to two decimal places. Do not round intermediate calculations.

Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Round your answers to two decimal places. Do not round intermediate calculations.

Suppose Chastain's managers believe that the inventory turnover can be raised to 8.4 times. What would Chastain's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 8.4 for 2016? Round your answers to two decimal places. Do not round intermediate calculations.

An office building is purchased with the following projected cash flows: NOI is expected to be $180,000 in year 1 with 2 percent annual increa The purchase price of the property is $910,000. 100% equity financing is used to purchase the property The property is sold at the end of year 4 for $970,000 with selling cost 8 %

Calculate the unlevered internal rate of return (IRR).

A. 19.9%

B. 20.7%

C. 21.5%

D. 22.3%

E. 23.1%

Evaluating Walter's Health Care Coverage

Walter Burton was a self-employed window washer earning approximately $700 per week. One day, while cleaning windows on the eighth floor of the Commercial Bank Building, he tripped and fell from the scaffolding to the pavement below. He sustained severe multiple injuries but miraculously survived the accident. He was immediately rushed to the local hospital for surgery. He remained there for 58 days of treatment, after which he was allowed to go home for further recuperation. During his hospital stay, he incurred the following expenses: surgeon, $2,300; physician, $900; hospital bill for room and board, $250 per day; nursing services, $1,200; anesthetics, $600; wheelchair rental, $100; ambulance, $150; and drugs, $350. Walter has a major medical policy that has a $3,500 deductible clause, an 80 percent co-insurance clause, internal limits of $170 per day on hospital room and board, and $1,600 as a maximum surgical fee. The policy provides no disability income benefits.

1. Explain the policy provisions as they relate to deductibles, co-insurance, and internal limits.
2. How much should Walter recover from the insurance company?
   $  
   How much must he pay out of his own pocket?
   $  
3. Would any other policies have offered Walter additional protection? What about his inability to work while recovering from his injury?
4. Based on the information presented, how would you assess Walter's health care insurance coverage?
   
   
   Explain.

An office building is purchased with the following projected cash flows: NOI is expected to be $180,000 in year 1 with 2 percent annual increa The purchase price of the property is $910,000. 100% equity financing is used to purchase the property The property is sold at the end of year 4 for $970,000 with selling cost 8 %

Calculate the unlevered internal rate of return (IRR).

A. 19.9%

B. 20.7%

C. 21.5%

D. 22.3%

E. 23.1%

Given that company X has a policy of risk adjusting their WACC of 12% by plus or minus 3% for above and below average risk projects respectively, which of the following independent projects are accepted using NPV?

Project: A B C

Risk: Average Below Above

CF0 -10 -20 -25

CF1 5 10 5

CF2 5 10 5

CF3 4 7 10

CF4 4 3 20

Go / No Go Go / No Go Go / No Go

NPV ________ ________ ________

Please give thorough explanation and step by step instruction. Very important to learn this one!

1. Debt versus Equity Offering Size. In the aggregate, debt offerings are much more common than equity offerings and typically much larger as well. Why?

2. Debt versus Equity Flotation Costs. Why are the costs of selling equity so much larger than the costs of selling debt?

3. Bond Ratings and Flotations Costs. Why do noninvestment-grade bonds have much higher direct costs than investment-grade issues?

Negus Enterprises has an inventory conversion period of 55 days, an average collection period of 47 days, and a payables deferral period of 29 days. Assume that cost of goods sold is 80% of sales. Assume a 365-day year. Do not round intermediate calculations.

1. What is the length of the firm's cash conversion cycle? Round your answer to the nearest whole number.

     days

2. If annual sales are $4,854,500 and all sales are on credit, what is the firm's investment in accounts receivable? Round your answer to the nearest dollar.

   $  

3. How many times per year does Negus Enterprises turn over its inventory? Round your answer to two decimal places.

1. What are some of the reasons firms use WACC when evaluating potential projects?
2. Why not simply use cost of debt or just cost of equity?

A project has annual cash flows of $8,000 for the next 10 years and then $9,500 each year for the following 10 years. The IRR of this 20-year project is 13.16%. If the firm's WACC is 9%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Masterson, Inc., has 6 million shares of common stock outstanding. The current share price is $84, and the book value per share is $5. The company also has two bond issues outstanding. The first bond issue has a face value of $145 million, has a coupon rate of 5 percent, and sells for 95 percent of par. The second issue has a face value of $130 million, has a coupon rate of 4 percent, and sells for 107 percent of par. The first issue matures in 24 years, the second in 9 years. Suppose the most recent dividend was $5.00 and the dividend growth rate is 4.9 percent. Assume that the overall cost of debt is the weighted average of that implied by the two outstanding debt issues. Both bonds make semiannual payments. The tax rate is 25 percent. What is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Use the following information about a hypothetical government security dealer named J.P. Groman. (Market yields are in parentheses; amounts are in millions.)

a. What is the repricing or funding gap if the planning period is 30 days? 91 days? 2 years? (Recall that cash is a non-interest-earning asset.)
b. What is the impact over the next 30 days on net interest income if all interest rates rise by 50 basis points?
c. The following one-year runoffs are expected: $11 million for two-year T-notes, $21 million for the eight-year T-notes. What is the one-year repricing gap?
d. If runoffs are considered, what is the effect on net interest income at year-end if interest rates rise by 50 basis points?

Problem 10-20
Present Value of Costs

The Aubey Coffee Company is evaluating the within-plant distribution system for its new roasting, grinding, and packing plant. The two alternatives are (1) a conveyor system with a high initial cost, but low annual operating costs, and (2) several forklift trucks, which cost less but have considerably higher operating costs. The decision to construct the plant has already been made, and the choice here will have no effect on the overall revenues of the project. The cost of capital for the plant is 11%, and the projects' expected net costs are listed in the table:

1. What is the IRR of each alternative?
   Method 1 -Select-undefined11913Item 1
   
   Method 2 -Select-undefined11913Item 2
2. 
   
3. 
   
4. 
   
5. What is the present value of costs of each alternative? Round your answers to the nearest dollar, if necessary. Enter your answers as a whole numbers. For example, do not enter 1,000,000 as 1 million.
   
   Method 1 $  
   
   Method 2 $  
   
   Which method should be chosen?
   -Select-Method 1Method 2BothItem 5