How did the corporate credit unions perform during the financial crisis? Write 200 words.

Please write in your own words. Thank You!

Question 3 (25 marks/Equity Valuation) Mr. Fox Mulder plans to invest in the shares of a high-tech company, Satellite Building Inc (SBI). SBI has just paid a dividend of $30 per share and the management has indicated that it will increase the dividend payments by 20% per year for the next three years, and 10% per year thereafter. SBI has a beta of 1.5. The long-term risk-free interest rate is 4% and the expected market return is 9%. (a)​Based on Capital asset Pricing Model (CAPM), compute the required rate of return on SBI ​shares. [Hint: Refer to the notes for the topic Risk, Return and CAPM.]​​ (b)​Using the answer in (a), calculate the market value per share of SBI. How much should Mr. Mulder pay for 100 shares?​​​ ​ ​​​​ (c)​If Mr. Mulder decides to sell all of SBI shares after 4 years, ​(i)​how much will he expect to get by selling the shares?​​​​ ​(ii)​how much will he have in total? Assume that the dividends are reinvested at the required rate of return calculated in (a).​​​ ​​​​

Eastern Markets has no debt outstanding and a total market value of $154,000. Earnings before interest and

taxes, EBIT, are projected to be $12,000 if economic conditions are normal. If there is strong expansion in the

economy, then EBIT will be 27 percent higher. If there is a recession, then EBIT will be 55 percent lower. The

firm is considering a $20,000 debt issue with an interest rate of 6.5 percent. The proceeds will be used to

repurchase shares of stock. There are currently 2,000 shares outstanding. Ignore taxes. What will be the

percentage change in EPS if the economy enters a recessionary period?

A) -62 percent

B) -55 percent

C)-58 percent

D) -71 percent

E) -46 percent

Liquidation

Southwestern Wear Inc. has the following balance sheet:

The trustee's costs total $234,750, and the firm has no accrued taxes or wages. Southwestern has no unfunded pension liabilities. The debentures are subordinated only to the notes payable. If the firm goes bankrupt and liquidates, how much will each class of investors receive if a total of $2.5 million is received from sale of the assets? Round your answers for monetary values to the nearest dollar and for percentage values to the nearest whole number. If your answer is zero, enter “0”. Enter your answers as positive values.

Distribution of proceeds on liquidation:

Distribution to general creditors:

Round your answer for monetary value to the nearest dollar and for percentage value to two decimal places.

The remaining $   will go to the common stockholders. They will receive only   % of the amount of equity on the balance sheet.

What is the primary duty of a business? When examining the rights and needs of current holders, should a business focus on the short-term or long-term?

1. How has the rapid pace of technological and financial innovation affected the financial aspects of running a global business enterprise?

GTB, Inc. has a 21 percent tax rate and has $85,416,000 in assets, currently financed entirely with equity. Equity is worth $6 per share, and book value of equity is equal to market value of equity. Also, let’s assume that the firm’s expected values for EBIT depend upon which state of the economy occurs this year, with the possible values of EBIT and their associated probabilities as shown below:

The firm is considering switching to a 25-percent-debt capital structure, and has determined that it would have to pay a 12 percent yield on perpetual debt in either event.

What will be the break-even level of EBIT? (Enter your answer in dollars, not in millions. Do not round intermediate calculations and round your final answer to the nearest whole dollar amount.)

It is well-documented that the United States consistently runs sizable current account deficits. What are the long-term risks associated with running current account deficits? If you were able to influence policy decisions in the United States, what policies would you implement to minimize these long-term risks?

A $1,000 par value 10-year bond maturing at par with 8% semiannual coupons is selling for $900 Find the nominal yield rate convertible semiannually, using the "Premium/Discount formula".

(NOTE: The premium/discount formula is: P = C + (Fr - Ci)a_n]i   where P = price, C = redemption value, F = par value, i = yield rate (yield to maturity)

Pam Alvarez and Shawna Jones are senior vice-presidents of Mutual of Whitewater. They are co-directors of the company’s pension fund management division, with Alvarez having responsibility for fixed income securities (primarily bonds) and Jones being responsible for equity investments. A major new client, the Southwestern Municipal Alliance, has request that Mutual of Whitewater present an investment seminar to the mayors of the represented cities, and Alvarez and Jones, who will make the actual presentation, have asked you to help them.

          To illustrate the common stock valuation process, Alvarez and Jones have asked you to analyze the Temp Que Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporarily heavy workloads. Stocks of companies with similar risk as Temp Que are currently yielding 13%. You are to answer the following questions (Show calculations clearly).

1) Suppose Temp Que is expected to experience zero growth during the first 3 years and then to resume its steady-state growth of 6 percent in the fourth year. What is the stock’s value now?

2) Why do stock prices change? Answer the question by using the following example: Suppose the expected D₁ is $2, the growth rate is 5 percent, and R is 10 percent. Using the constant growth model, what is the price? What is the impact on stock price if g is 4 percent or 6 percent? If R is 9 percent or 11 percent?

Parker Prints is in negotiation with two of its largest customers to increase the​ firm's sales dramatically. The increase will require that Parker expand its production facilities at a cost of $30 million. Parker expects to pay out $8 million in dividends to its shareholders next year. Parker maintains a 20 percent debt ratio in its capital structure.

a. If Parker earns $12 million next​ year, how much common stock will the firm need to sell in order to maintain its target capital​ structure?

b. If Parker wants to avoid selling any new​ stock, how much can the firm spend on new capital​ expenditures?

You work for a nuclear research laboratory that is contemplating leasing a diagnostic scanner (leasing is a very common practice with expensive, high-tech equipment). The scanner costs $5,200,000, and it would be depreciated straight-line to zero over five years. Because of radiation contamination, it actually will be completely valueless in five years. The tax rate is 22 percent and you can borrow at 6 percent before taxes. What would the lease payment have to be for both lessor and lessee to be indifferent about the lease? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Financing Deficit Garlington Technologies Inc.'s 2016 financial statements are shown below: Balance Sheet as of December 31, 2016 Cash $ 180,000 Accounts payable $ 360,000 Receivables 360,000 Notes payable 156,000 Inventories 720,000 Line of credit 0 Total current assets $1,260,000 Accruals 180,000 Fixed assets 1,440,000 Total current liabilities $ 696,000 Common stock 1,800,000 Retained earnings 204,000 Total assets $2,700,000 Total liabilities and equity $2,700,000 Income Statement for December 31, 2016 Sales $3,600,000 Operating costs 3,279,720 EBIT $ 320,280 Interest 18,280 Pre-tax earnings $ 302,000 Taxes (40%) 120,800 Net income 181,200 Dividends $ 108,000 Suppose that in 2017 sales increase by 10% over 2016 sales and that 2017 dividends will increase to $170,000. Forecast the financial statements using the forecasted financial statement method. Assume the firm operated at full capacity in 2016. Use an interest rate of 10%, 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. Garlington Technologies Inc. Pro Forma Income Statement December 31, 2017 Sales $ Operating costs $ EBIT $ Interest $ Pre-tax earnings $ Taxes (40%) $ Net income $ Dividends: $ Addition to RE: $ Garlington Technologies Inc. Pro Forma Balance Statement December 31, 2017 Cash $ Receivables $ Inventories $ Total current assets $ Fixed assets $ Total assets $ Accounts payable $ Notes payable $ Accruals $ Total current liabilities $ Common stock $ Retained earnings $ Total liabilities and equity $

An electric utility company is considering a new power plant in northern New Mexico. Electricity generated at the plant would be sold in the Albuquerque market where it is badly needed. The firm has the possibility of building a plant that will meet their production needs for the next several years that will cost $300 M. They also have the option of building a larger facility that will have a higher production capacity and will allow them to sell some excess power to another utility company under a long-term contract. The larger facility will cost $600M. The anticipated cash flows for each plant are as follows:

At the end of ten years, both facilities will need significant upgrades and the company plans to conduct further analysis at that time. The risk adjusted cost of capital for this project is 12 percent.

1. Choose a course of action for the company and justify your decision for the managers of the company.

Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,660,000; the new one will cost, $2,001,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $435,000 after five years.

The old computer is being depreciated at a rate of $352,000 per year. It will be completely written off in three years. If we don’t replace it now, we will have to replace it in two years. We can sell it now for $549,000; in two years, it will probably be worth $159,000. The new machine will save us $373,000 per year in operating costs. The tax rate is 25 percent, and the discount rate is 12 percent.

a-1.  
Calculate the EAC for the the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

a-2.   What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)