Collins Manufacturing Company has determined its optimal capital structure, which is composed of the following sources and target market value proportions:

Target Market - Source of Capital Proportions

Long-term debt                     30%

Preferred stock                     10%

Common stock equity         60%

Debt: The firm can sell a 20-year, $1,000 par value, 9 percent bond for $980. A flotation cost of 2 percent of the face value would be required in addition to the discount of $20.

Preferred Stock: The firm has determined it can issue preferred stock at $65 per share par value. The stock will pay an $8.00 annual dividend. The cost of issuing and selling the stock is $3 per share.

Common Stock: The firm’s common stock is currently selling for $40 per share. The dividend expected to be paid at the end of the coming year is $5.07. Its dividend payments have been growing at a constant rate for the last five years at a rate of 8%.

In order to assure that the new stock issuance will sell, it must be underpriced at $1 per share.  In addition, the firm must pay $1 per share in flotation costs.

The firm’s tax rate is 40 percent.

Required:

Calculate the firm’ weighted average cost of capital for the Collins Company assuming the firm has exhausted all retained earnings.  (That is, you must consider flotation costs for the common stock issuance.)

The Bruin's Den Outdoor Gear is considering a new 7-year project to produce a new tent line. The equipment necessary would cost $1.67 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 27,000 tents per year at a price of $71 and variable costs of $31 per tent. The fixed costs will be $465,000 per year. The project will require an initial investment in net working capital of $221,000 that will be recovered at the end of the project. The required rate of return is 11.4 percent and the tax rate is 40 percent. What is the NPV? show work on excel sheet .

You are considering the purchase of a small office building. The NOI is expected to be the following:

Year 1 = $200,000

Year 2 = $210,000

Year 3 = $220,000

Year 4 = $230,000

Year 5 = $240,000

-The property will be sold at the end of year 5.

-You believe that the property will have a terminal cap rate of 7%.

-You plan to pay all cash for the property.

-You want to earn a 10% return on investment (IRR) compounded annually.

Question #1: What property value are you projecting at the end of year 5?

Question #2: What should you pay to earn your desired IRR?

(If you can please show how to set-up & solve in excel, that would be extremely helpful. Thank you.)

Sarah secured a bank loan of $185,000 for the purchase of a house. The mortgage is to be amortized through monthly payments for a term of 15 years, with an interest rate of 3%/year compounded monthly on the unpaid balance. She plans to sell her house in 10 years. How much will Sarah still owe on her house at that time?

The Turners have purchased a house for $160,000. They made an initial down payment of $40,000 and secured a mortgage with interest charged at the rate of 7%/year compounded monthly on the unpaid balance. The loan is to be amortized over 30 yr.

(a) What monthly payment will the Turners be required to make?
(b) How much total interest will they pay on the loan?
(c) What will be their equity after 10 years?
(d) What will be their equity after 22 years?

A new Stout engineer who just was hired by Machine Excellence is pushing for a brand new laser machining center. He insists that it is a money maker from the first day. He did not figure the deprecation and the after taxes cash flow (CFAT). Give this rookie engineer a little intelligent guidance here on the CFAT for a ROR analysis of the new laser equipment. Here are the figures for the production machining equipment for making detailed laser signs and complex shapes. Calculate the CFAT and ROR for the end of 6 years. Answer the question: "Is the investment economically viable"? Depr method: MACRS GDS Class life: 5 Years Depr recapture: Taxed as TI First cost: $550,000 Gross Income:$250,000 Expenses: $80,000 Salvage: 0 in year 6 Effective Tax Rate: 45% After-tax MARR: 10% per year compounded semiannually

Use the following data to compute the option price for 3M: Stock price =100; Exercise price=90; Interest rate=5%; Time to expiration= 3 months; Standard deviation = 20% per year; assume zero dividends. A) According to the Black-Scholes model, what price should we expect for the call option? What price should we expect for the put option? B) If the call option above is selling for $14.00 is its implied volatility more than or less than 20%?

34) Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $18.70 per share for 500,000 shares. The company will receive $17.00 per share and will incur $170,000 in registration, accounting, and printing fees.

a-1. What is the spread on this issue in percentage terms? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

SPREAD_________%

a-2. What are the total expenses of the issue as a percentage of total value (at retail)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

EXPENDITURE PERCENTAGE _________%

b. If the firm wanted to net $16.83 million from this issue, how many shares must be sold? (Do not round intermediate calculations. Enter your answer rounded to the nearest whole number.)

SHARES _____________-

A stock price follows geometric Brownian motion with an expected return of 16% and a volatility of 35%. The current price is $38. (a) What is the probability that a European call option on the stock with an exercise price of $40 and a maturity date in 6 months will be exercised? (b) What is the probability that a European put option on the stock with the same exercise price and maturity will be exercised?

A mortgage lender and a borrower agree on a $3,000,000 partially amortizing commercial mortgage loan for 10 years requiring equal annual repayments and a balloon payment of $1,500,000 at loan maturity.

1. If the interest rate on the loan is 8% annually, what will be the periodic amount of debt service due?

2. If the borrower chooses to prepay the loan after 5 years, what will be the total payment due at the end of year 5?