McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $800 per set and have a variable cost of $400 per set. The company has spent $150,000 for a marketing study that determined the company will sell 54,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,500 sets of its high-priced clubs. The high-priced clubs sell at $1,100 and have variable costs of $700. The company will also increase sales of its cheap clubs by 11,000 sets. The cheap clubs sell for $440 and have variable costs of $230 per set. The fixed costs each year will be $9,100,000. The company has also spent $1,110,000 on research and development for the new clubs. The plant and equipment required will cost $28,700,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,300,000 that will be returned at the end of the project. The tax rate is 32 percent, and the cost of capital is 10 percent. Suppose you feel that the values are accurate to within only ±10 percent. What are the best-case and worst-case NPVs? (Hint: The price and variable costs for the two existing sets of clubs are known with certainty; only the sales gained or lost are uncertain.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

NPV

Best-case $

Worst-case $

This problem is similar in spirit to Example 12 (in the chapter) and Problem 15 (at the end of the chapter). I'd strongly suggest that you master those two problems before attempting this problem. Make sure that you draw a high quality, detailed timeline – similar in quality to those in Example 12 and Problem 15. Assume that you wish to begin saving for your child’s college education via making deposits into an investment account that is expected to earn 8% per year for the first 14 years. After year 14, you will place the money in a less risky investment account that is expected to earn only 5% per year, for as long as you have money in the account. You currently have $5,000 available, and you will deposit that amount into the savings account today. Thereafter you have decided to make savings deposits 3, 4, 5, … , 9 and 10 years from today. Each of these deposits will be larger than the prior deposit by 7%. You’ve estimated that one year of college will cost $52,000 in 18 years, and that the three subsequent years will each cost 5% more than the prior year. Determine the size of the first deposit required at time 3. Hint: The answer is NOT $9475.37. If you got this, you did not deal with the $5000 at t = 0 at all. Hint: The correct answer is between $8600 and $8700.

You borrow $29,000 to buy a car. You plan to payoff the car within 6 years and the APR on the car loan is 2.99%. Using an excel to create an amortization for this car payment for 72 months. Please print out your excel and turn it in for 6 points extra credit on the test. You need to turn in your own work.

Can you post 24-61 please?

(i) Distinguish between spot and forward foreign exchange transactions.

      (ii) Describe how are spot and forward quoted in the foreign exchange market.

      (iii) Andreas Broszio just started as an analyst for Credit Suisse in Zurich, Switzerland. He receives the following quotes for Swiss francs against the dollar for spot, one-month forward, 3-months forward, and 6-months forward. 10+15

1. Calculate outright quotes for bid and ask rates, and the spread between bid and ask rates.
2. Compute premium/discount on the Swiss franc for each maturity using the average spot and the average forward rate.

Management action and stock value   REH​ Corporation's most recent dividend was $1.72 per​ share, its expected annual rate of dividend growth is 5​%, and the required return is now 15​%.

A variety of proposals are being considered by management to redirect the​ firm's activities. Determine the impact on share price for each of the following proposed actions.

a.  Do​ nothing, which will leave the key financial variables unchanged.

b.  Invest in a new machine that will increase the dividend growth rate to 6​% and lower the required return to 14​%.

c.  Eliminate an unprofitable product​ line, which will increase the dividend growth rate to 6​% and raise the required return to 18%.

d.  Merge with another​ firm, which will reduce the growth rate to 3​% and raise the required return to 18​%.

e. Acquire a subsidiary operation from another manufacturer. The acquisition should increase the dividend growth rate to 9% and increase the required return to 18​%.

Integrative -- Risk and Valuation Hamlin Steel Company wishes to determine the value of Craft Foundry, a firm that it is considering acquiring for cash. Hamlin wishes to determine the applicable discount rate to use as an input to the constant-growth valuation model. Craft's stock is not publicly traded. After studying the required returns of firms similar to Craft that are publicly traded, Hamlin believes that an appropriate risk premium on Craft stock is about 8%. The risk-free rate is currently 4%. Craft's dividend per share for each of the past 6 years is shown in the following table:

Year. Dividend Per Share.

2019. $3.52

2018. $3.38

2017. $3.25

2016. $3.13

2015. $3.01

2014. $2.89

a. Given that Craft is expected to pay a dividend of $3.66 next year, determine the maximum cash price that Hamlin should pay for each share of Craft. (Hint: Round the growth rate to the nearest whole percent.)

b. Describe the effect on the resulting value of Craft from:

(1) A decrease in its dividend growth rate of 2% from that exhibited over the 2014-2019 period.

(2) A decrease in its risk premium to 7%.

To illustrate and further support our strategic financial planning systems we need to show the CFO and management team an example of the application of the previously constructed WACC. The CFO thinks that showing management how we can validate and choose projects based on expected returns developed from the WACC will help reduce risk of our investor's capital thus lowering the required rate of return we would have to provide to those investors. If we lower our expected return we can then do more projects and grow at a faster rate.

He has asked your team to evaluate the following project:

Capital investment: Acme is planning construction of a new loading ramp for its single iron mill. The initial cost of the investment is $1 million. Efficiencies from the new ramp are expected to reduce costs by $100,000 for the life of the plant which is currently estimated at another 30 years. The $100,000 cost savings is per year for the 30 year life of the project. When will this project break-even on a simple cash basis and a discounted cash basis. What is the NPV of the project if Acme has an after tax cost of debt of 8% and a cost equity of 12% (they are currently funded equally by debt and equity)?

Concept Check: We need to adjust cash flows to account for things like inflation, our cost of capital and opportunity costs. Simply looking at cash flow not adjusted for some of these costs will lead to taking on projects which are not really adding to the value of the organization.

Helpful Hint: The first step in conducting an NPV analysis is to include all the relevant cash flows. This includes savings from taxes and any expenses directly related to the venture. We reject any project with a negative NPV.

Differentiate between net cash flow and accounting profit.

Please read the following article:

"Is the stock market good stewardship?"

As previously discussed in week 3, a direct relationship exists between higher risk and higher returns. In order for an individual or organization to recognize higher returns on their investments, it usually requires the assumption of a higher level of risk. Please answer the following questions:

Is it appropriate for Christians to assume a high level of risk in their investment portfolios? When might it be appropriate?

Is it appropriate for nonprofit organizations who rely upon donations to invest in risky assets such as the stock market?

Assuming there should be limits, what types of investments would or would not be appropriate?

What implications do your positions have for the potential investment income or operations of the nonprofit organization or the individual’s financial position?

1) No Christians are frbidden from gambling. Speculative investments is non-biblical.

2) It might be approporate if the proceeds are directed towards the church only.

3) No. It is not appropriate to use people's donations for speculative purposes.

4) Investing high rated bonds is appropriate.

Photographic laboratories recover and recycle the silver used in photographic film. Stikine River Photo is considering purchase of improved equipment for their laboratory at Telegraph Creek. Here is the information they have:

The equipment costs $101,000 and will cost $80,800 per year to run.

It has an economic life of 10 years but can be depreciated over five years by the straight-line method.

It will recover an additional 5,000 ounces of silver per year. Silver is selling for $22 per ounce.

Over the past 5 years, the price of silver has appreciated by 4.5% per year in real terms.

Silver is traded in an active, competitive market.

Stikine's marginal tax rate is 34%.

Stikine's company cost of capital is 10% in real terms.

The nominal interest rate is 8%.

What is the NPV of the new equipment? Assume 2017 Tax Cuts and Jobs Act, where 100% write-off of investment expenditures, is not applicable.

A proposed cost-saving device has an installed cost of $565,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $40,000, the tax rate is 23 percent, and the project discount rate is 12 percent. The device has an estimated Year 5 salvage value of $55,000. What level of pretax cost savings do we require for this project to be profitable? MACRS schedule (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Detail an investment strategy that could be used to exploit a passive investing ‘bubble’, making sure to explain why/how your proposed strategy has merit, the type of investor that might consider implementing your strategy, as well as any limitations or risks. Note, you can consider any asset- classes or types of securities in your investment strategy.

Discuss the approaches currently used by retail investors to passively invest in equities markets, and consider how this may have changed over the past twenty years

Describe two advantages and two disadvantages of the sole proprietorship form of business organization as compared to a corporation.