Which of the following would likely encourage a firm to increase the debt in its capital structure? Provide rationale for your position on each option.

a. Corporate tax rate increases

b. personal tax rate increases

c. Due to market changes, the firm's assets become less liquid

d. changes in the bankruptcy code make bankruptcy less costly to the firm

e. the firm's sales and earnings become more volatile

A manager buys three shares of stock today, and then sells one of those shares each year for the next 3 years. His actions and the price history of the stock are summarized below. The stock pays no dividends.

a. Calculate the time-weighted geometric average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Calculate the time-weighted arithmetic average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. Calculate the dollar-weighted average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Current and Quick Ratios The Nelson Company has $1,150,000 in current assets and $575,000 in current liabilities. Its initial inventory level is $345,000, and it will raise funds as additional notes payable and use them to increase inventory.

1. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.6? Round your answer to the nearest cent.

2.What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $755 per set and have a variable cost of $439 per set. The company has spent $114,913 for a marketing study that determined the company will sell 5,552 sets per year for seven years. The marketing study also determined that the company will lose sales of 928 sets of its high-priced clubs. The high-priced clubs sell at $1,035 and have variable costs of $726. The company will also increase sales of its cheap clubs by 1,175 sets. The cheap clubs sell for $477 and have variable costs of $227 per set. The fixed costs each year will be $900,599. The company has also spent $110,934 on research and development for the new clubs. The plant and equipment required will cost $2,859,691 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $130,808 that will be returned at the end of the project. The tax rate is 32 percent, and the cost of capital is 8 percent. What is the sensitivity of the NPV to changes in the quantity of the new clubs sold?

Let’s Discuss: Finding Financial Information

You should be able to explain and support your reactions to the following questions:

• What kinds of financial information exist in various places?
• What is the difference between information found on the internet and other sources of information?
• What source of information that you found in your research do you find most helpful?
• How does a website like Yahoo finance help you perform ratio analysis?

A project requires an initial investment of $320,000 depreciated straight-line to $0 in 16 years. The investment is expected to generate annual sales of $90,000 with annual costs of $45,000 for 20 years. Assume tax rate of 30% and a discounted rate of 20%. What is the NPV?

-143,415.09

-268,732.79

144,612.34

214272.28

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $766 per set and have a variable cost of $438 per set. The company has spent $133,831 for a marketing study that determined the company will sell 5,433 sets per year for seven years. The marketing study also determined that the company will lose sales of 924 sets of its high-priced clubs. The high-priced clubs sell at $1,153 and have variable costs of $679. The company will also increase sales of its cheap clubs by 1,074 sets. The cheap clubs sell for $421 and have variable costs of $238 per set. The fixed costs each year will be $902,168. The company has also spent $117,671 on research and development for the new clubs. The plant and equipment required will cost $2,897,679 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $133,007 that will be returned at the end of the project. The tax rate is 33 percent, and the cost of capital is 10 percent. What is the sensitivity of the NPV to changes in the price of the new clubs?

What is the current price of a stock that will pay a dividend of $4 at the end of Year #1, a dividend of $4.50 at the end of year #2 after which dividends will grow at a constant rate of 3% if you want 12% return?

The common stock of the Orange Incorporated has been trading in a narrow price range for the past month, and you are convinced it is going to break far out of that range in the next three months. You do not know whether it will go up or down, however. The current price of the stock is $100 per share, and the price of a three-month at-the-money put option on Orange Incorporated is $5.

a. If the risk-free interest rate is 2% per year, what must be the price of a 3-month at-the-money call option on the Orange Incorporated stock? (Note: ATM options are the options for which the strike price is equal to the current stock price.) The stock pays no dividends.

b. What would be a simple options strategy to exploit your conviction about the stock price’s future movements? To receive a full credit, you should i. Identify which options are involved in your strategy ii. Construct a payoff table and show it in this exam iii. Show payoff of your strategy on a graph

c. How far would the price of the Orange Incorporated have to move in either direction for you to make a profit on your initial investment?

The risk-free rate is 1.40% and the market risk premium is 7.00%. A stock with a β of 1.33 just paid a dividend of $1.71. The dividend is expected to grow at 24.16% for three years and then grow at 4.66% forever. What is the value of the stock?

Answer format: Currency: Round to: 2 decimal places.

The risk-free rate is 2.84% and the market risk premium is 5.79%. A stock with a β of 1.17 just paid a dividend of $1.22. The dividend is expected to grow at 21.98% for five years and then grow at 3.28% forever. What is the value of the stock?

Answer format: Currency: Round to: 2 decimal places.

Caspian Sea Drinks needs to raise $70.00 million by issuing additional shares of stock. If the market estimates CSD will pay a dividend of $2.60 next year, which will grow at 3.40% forever and the cost of equity to be 13.37%, then how many shares of stock must CSD sell?

Answer format: Number: Round to: 0 decimal places.

Could really use the help! Thanks!

Caspian Sea Drinks is considering the purchase of a plum juicer – the PJX5. There is no planned increase in production. The PJX5 will reduce costs by squeezing more juice from each plum and doing so in a more efficient manner. Mr. Bensen gave Derek the following information. What is the IRR of the PJX5?

a. The PJX5 will cost $1.87 million fully installed and has a 10 year life. It will be depreciated to a book value of $166,564.00 and sold for that amount in year 10.

b. The Engineering Department spent $46,567.00 researching the various juicers.

c. Portions of the plant floor have been redesigned to accommodate the juicer at a cost of $18,852.00.

d. The PJX5 will reduce operating costs by $467,000.00 per year.

e. CSD’s marginal tax rate is 25.00%.

f. CSD is 63.00% equity-financed.

g. CSD’s 14.00-year, semi-annual pay, 6.87% coupon bond sells for $955.00.

h. CSD’s stock currently has a market value of $24.33 and Mr. Bensen believes the market estimates that dividends will grow at 2.24% forever. Next year’s dividend is projected to be $1.55.

Answer format: Percentage Round to: 2 decimal places (Example: 9.24%, % sign required. Will accept decimal format rounded to 4 decimal places (ex: 0.0924))

I really need help with this one! would greatly appreciate it!

A firm is considering replacing the existing industrial air conditioning unit. They will pick one of two units. The first, the AC360, costs $26,649.00 to install, $5,074.00 to operate per year for 7 years at which time it will be sold for $6,863.00. The second, RayCool 8, costs $41,963.00 to install, $2,147.00 to operate per year for 5 years at which time it will be sold for $8,950.00. The firm’s cost of capital is 6.41%. What is the equivalent annual cost of the AC360? Assume that there are no taxes.

Answer format: Currency: Round to: 2 decimal places.

Question 4 (25 marks/Investment Decision Rules)

Suppose your firm would like to earn 10% yearly return from the following two investment projects of equal risk.

(a)       If only one project can be accepted, based on the NPV method which one should it be? Support your answer with calculations.                                                          

(b)       Suppose there is another four-year project (Project C) and its cash flows are as follows:

C₀ = –$8,000

             C₁ =   $2,000

               C₂ =   $2,500

               C₃ =   $2,000

               C₄ =   $4,000

(i)     Given the above cash flow patterns, at what required rate of return will Project C have the same NPV as Project B? Briefly explain your answer.                          

(ii)    If Project C has the same risk as Project B, without calculations, explain which project will you pick?                                                                                          

(iii)   If cash flow C₄ of Project C is unknown to you (while C₀ – C₃ are known and as above) and the project’s cost of capital is 10%, what amount of C₄ will make Project C worth accepting?                                                                                        

(iv)   If your firm’s investment policy (based on payback method) is such that it only accepts projects whose initial investment can be recouped within three years, will Project B and/or Project C be accepted?

(c)Based on the estimated cash flows of Project A, will you expect its internal rate of return (IRR) to be positive? Briefly explain your answer WITHOUT calculations. (4marks)

(d) What kind of rate of return is the 10% interest stated in the question for Projects A and B? How can it be used in making investment decisions (i.e. its role in investment decision making)?  

Please write a well researched study. 3 paragraphs. Thank you!

What are some of the challenges -especially those relating to global financial markets -facing both the CFO of GE and top management at the Federal Reserve?

A retail shopping center is purchased for $2.1 million. During the next five years, the property appreciates at 2 percent per year. At the time of purchase, the property is financed with a 70 percent loan-to-value ratio for 25 years at 6 percent (annual) with monthly amortization. At the end of year 5, the property is sold with 4 percent selling expenses. What is the before-tax equity reversion?

Question 18 options: