You are a consultant who was hired to evaluate a new product line for Gupta Enterprises. The upfront investment required to launch the product is

$ 12$12

million. The product will generate free cash flow of

$ 0.71$0.71

million the first​ year, and this free cash flow is expected to grow at a rate of

4 %4%

per year. Gupta has an equity cost of capital of

10.6 %10.6%​,

a debt cost of capital of

6.73 %6.73%​,

and a tax rate of

38 %38%.

Gupta maintains a​ debt-equity ratio of

0.900.90.

a. What is the NPV of the new product line​ (including any tax shields from​ leverage)?

b. How much debt will Gupta initially take on as a result of launching this product​ line?

c. How much of the product​ line's value is attributable to the present value of interest tax​ shields?

a. What is the NPV of the new product line​ (including any tax shields from​ leverage)?

The NPV of the new product line is

​$nothing

million.  ​(Round to two decimal​ places.)

b. How much debt will Gupta initially take on as a result of launching this product​ line?

Debt will be

​$nothing

million.  ​(Round to two decimal​ places.)

c. How much of the product​ line's value is attributable to the present value of interest tax​ shields?

The amount of the product​ line's value that is attributable to the present value of interest tax shields is

​$nothing

million.  ​(Round to two decimal​ places.)

In​ mid-2009, Ralston Purina had​ AA-rated, six-year bonds outstanding with a yield to maturity of

3.68 %3.68%.

At the​ time, similar maturity Treasuries had a yield of

2.68 %2.68%.

a. If Ralston​ Purina’s bonds were​ risk-free, what is your estimate of the expected return for

these​ bonds?

b. If you believe Ralston​ Purina's bonds have

0.9 %0.9%

chance of default per year and that expected loss rate in the event of default is

39 %39%​,

what is your estimate of the expected return for these​ bonds?

a. If Ralston​ Purina’s bonds were​ risk-free, what is your estimate of the expected return for

these​ bonds?

The estimate of the expected return for these bonds is

nothing​%.

​(Round to two decimal​ places.)c. If you believe Ralston​ Purina's bonds have

0.9 %0.9%

chance of default per​ year, and that expected loss rate in the event of default is

39 %39%​,

what is your estimate of the expected return for these​ bonds?The estimated expected return for these bonds will be

nothing​%.

​(Round to two decimal​ places.)

Kurz Manufacturing is currently an​ all-equity firm with

1717

million shares outstanding and a stock price of

$ 5.00$5.00

per share. Although investors currently expect Kurz to remain an​ all-equity firm, Kurz plans to announce that it will borrow

$ 50$50

million and use the funds to repurchase shares. Kurz will pay interest only on this​ debt, and it has no further plans to increase or decrease the amount of debt. Kurz is subject to a

30 %30%

corporate tax rate.  

a. What is the market value of​ Kurz's existing assets before the​ announcement?

b. What is the market value of​ Kurz's assets​ (including any tax​ shields) just after the debt is​ issued, but before the shares are​ repurchased?

c. What is​ Kurz's share price just before the share​ repurchase? How many shares will Kurz​ repurchase?

d. What are​ Kurz's market value balance​ sheet, and share price after the share​ repurchase?

a. What is the market value of​ Kurz's existing assets before the​ announcement?

The market value of​ Kurz's existing assets before the announcement is

​$nothing

million. ​ (Round to one decimal​ place.)

b. What is the market value of​ Kurz's assets​ (including any tax​ shields) just after the debt is​ issued, but before the shares are​ repurchased?

The market value of​ Kurz's assets​ (including any tax​ shields) just after the debt is​ issued, but before the shares are repurchased is

​$nothing

million.  ​(Round to one decimal​ place.)

c. What is​ Kurz's share price just before the share​ repurchase? How many shares will Kurz​ repurchase?

​Kurz's share price just before the share repurchase is

​$nothing.

​ (Round to the nearest​ cent.)                 The number of shares that Kurz will repurchase is

nothing

million. ​ (Round to two decimal​ places.)

d. What are​ Kurz's market value balance​ sheet, and share price after the share​ repurchase?

The market value of assets is

​$nothing

million.  ​(Round to one decimal​ place.)The debt is

​$nothing

million. ​ (Round to the nearest​ integer.)The market value of equity is

​$nothing

million.  ​(Round to one decimal​ place.)Share price after repurchase is

​$nothing.

​(Round to two decimal

places​.)

Enter your answer in each of the answer boxes.

You are a consultant who was hired to evaluate a new product line for Gupta Enterprises. The upfront investment required to launch the product is

$ 8

million. The product will generate free cash flow of

$ 0.77

million the first​ year, and this free cash flow is expected to grow at a rate of

4 %

per year. Gupta has an equity cost of capital of

10.6 %

​,

a debt cost of capital of

7.14 %

​,

and a tax rate of

32 %

.

Gupta maintains a​ debt-equity ratio of

0.40

.

a. What is the NPV of the new product line​ (including any tax shields from​ leverage)?

b. How much debt will Gupta initially take on as a result of launching this product​ line?

c. How much of the product​ line's value is attributable to the present value of interest tax​ shields?

Assume that the % expected return for security A and the market M for a good, normal and bad economy (probabilities .3,.4,.3) are 20, 16, and 10 for A and 8, 4, and 12 for M. Also assume that you invest 40% in A and 60% in M. Compute the correlation between A and M.

-7.44

-.57

-.67

.45

Balloons By Sunset (BBS) is considering the purchase of two new hot air balloons so that it can expand its desert sunset tours. Various information about the proposed investment follows:  

Assume straight line depreciation method is used.
  

Required:
Help BBS evaluate this project by calculating each of the following:  

1. Accounting rate of return. (Round your answer to 1 decimal place.)

        

2. Payback period. (Round your answer to 2 decimal places.)

         

3. Net present value (NPV). (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.)

         

4. Recalculate the NPV assuming BBS's cost of capital is 15 percent. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.)

    

You are a consultant who was hired to evaluate a new product line for Gupta Enterprises. The upfront investment required to launch the product is $15 million. The product will generate free cash flow of $0.70 million the first​ year, and this free cash flow is expected to grow at a rate of 4% per year. Gupta has an equity cost of capital of 11.6 % a debt cost of capital of 4.74 % and a tax rate of 42%. Gupta maintains a​ debt-equity ratio of 0.50.

a. What is the NPV of the new product line​ (including any tax shields from​ leverage)?

b. How much debt will Gupta initially take on as a result of launching this product​ line?

c. How much of the product​ line's value is attributable to the present value of interest tax​ shields?

a. What is the NPV of the new product line​ (including any tax shields from​ leverage)?

The NPV of the new product line is

​$_________ million.  ​(Round to two decimal​ places.)

b. How much debt will Gupta initially take on as a result of launching this product​ line?

Debt will be

​$_______ million.  ​(Round to two decimal​ places.)

c. How much of the product​ line's value is attributable to the present value of interest tax​ shields?

The amount of the product​ line's value that is attributable to the present value of interest tax shields is

​$_______ million.  ​(Round to two decimal​ places.)

1. Calculate the future value of a single amount. You were left $3500 from your grandmother's will and have decided to invest it. You have a couple of investment options in mind and are curious how much $3500 will be worth at the end of years 1 to 5, assuming a constant interest rate of 8%.
2. Calculate the doubling period. You're also curious when your money will double, assuming the same 8% interest rate and want to use the "Rule of 69" for the most accurate prediction.
3. Calculate the present value of a single future amount. Your grandmother was a finance professor at Champlain College and, for some reason, always challenged you to "think critically" and "figure out the math" for just about every financial decision you made in your life...and certainly when it came to asking her for money. In her will she left you one last tricky set of options - two additional options for the cash, one of which was to receive the $3500 three years from now. She asked you to calculate the present value of the future $3500 using an ROI of 8% and make a decision on whether you want the cash three years from now, or not.
4. Calculate the future value of an annuity. The final option your grandmother presented to you was to receive a regular annuity payment $700 over 5 years and she wanted you to calculate the annuity's future value with an ROI of 8%. Do you chose this option? Why or why not?

A fully amortizing CPM loan is made for $150,000 at 5% interest rate for 20 years with monthly repayments.

1. Calculate the monthly debt service.

2. What will be the outstanding loan balance at the end of year 10 and how much total interest will have been paid on the loan by then?

3. If the borrower chooses to reduce the loan balance by $20,000 at the end of year 10, when will the loan be fully repaid if the borrower keeps paying the same amount every month as previously agreed?

Compare and contrast the 3 methods of calculating Value at Risk (VaR)

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? explain on excel sheet .

Forecasted Statements and Ratios 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): Cash $ 3.5 Accounts payable $ 9.0 Receivables 26.0 Notes payable 18.0 Inventories 58.0 Line of credit 0 Total current assets $ 87.5 Accruals 8.5 Net fixed assets 35.0 Total current liabilities $ 35.5 Mortgage loan 6.0 Common stock 15.0 Retained earnings 66.0 Total assets $122.5 Total liabilities and equity $122.5 Sales for 2016 were $475 million and net income for the year was $14.25 million, so the firm's profit margin was 3.0%. Upton paid dividends of $5.7 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. If sales are projected to increase by $60 million, or 12.63%, 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. $ million 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. % 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.