At year-end 2016, total assets for Arrington Inc. were $1.8 million and accounts payable were $305,000. Sales, which in 2016 were $2.6 million, are expected to increase by 20% in 2017. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to $490,000 in 2016, and retained earnings were $290,000. Arrington plans to sell new common stock in the amount of $170,000. The firm's profit margin on sales is 6%; 35% of earnings will be retained. What were Arrington's total liabilities in 2016? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest cent. $ How much new long-term debt financing will be needed in 2017? Write out your answer completely. For example, 25 million should be entered as 25,000,000. Do not round your intermediate calculations. Round your answer to the nearest cent. (Hint: AFN - New stock = New long-term debt.) $

Ruben invested $1700 per year in an IRA each year for 5 years earning 13% compounded annually. At the end of 5 years he ceased the IRA payments, but continued to invest his accumulated amount at 13% compounded annually for the next 4 years. a) What was the value of his IRA at the end of 5 years? b) What was the value of the investment at the end of the next 4 years? Answer = $

Consider the following three stocks:

1. Stock A is expected to provide a dividend of $10.80 a share forever.
2. Stock B is expected to pay a dividend of $5.80 next year. Thereafter, dividend growth is expected to be 3.00% a year forever.
3. Stock C is expected to pay a dividend of $5.80 next year. Thereafter, dividend growth is expected to be 19.00% a year for five years (i.e., years 2 through 6) and zero thereafter.

a-1. If the market capitalization rate for each stock is 9.00%, what is the stock price for each of the stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

a-2. Which stock is the most valuable?

• Stock A

• Stock B

• Stock C

b-1. If the market capitalization rate for each stock is 6.00%, what is the stock price for each of the stocks? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

b-2. Which stock is the most valuable?

• Stock B

• Stock C

• Stock A

On January 1, 20X2, Miller Corp. purchased a milling machine for $450,000. It will be depreciated on a straight-line basis over 20 years. On January 1, 20X3, Miller purchased a heavy-duty lathe for $2,320,000, which will be depreciated on a straight-line basis over 40 years.

a) Compute Miller's depreciation expence for 20X2, 20X3, and 20X4. 20X2 20X3 20X4 $ $ $

b) Prepare the Fixed Asset portion of the balance sheet (for these two fixed assets) as of the end of 20X2, 20X3, and 20X4. (Hint: Subtract accumulated depreciation in each year from total original cost.)

20X2 20X3 20X4 $ $ $

Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $23.00 million. The plant and equipment will be depreciated over 10 years to a book value of $3.00 million, and sold for that amount in year 10. Net working capital will increase by $1.20 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $9.26 million per year and cost $2.08 million per year over the 10-year life of the project. Marketing estimates 17.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 35.00%. The WACC is 10.00%. Find the NPV (net present value).

Submit

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

unanswered

not_submitted

#3

Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $26.00 million. The plant and equipment will be depreciated over 10 years to a book value of $1.00 million, and sold for that amount in year 10. Net working capital will increase by $1.48 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.53 million per year and cost $2.43 million per year over the 10-year life of the project. Marketing estimates 11.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 29.00%. The WACC is 14.00%. Find the IRR (internal rate of return).

M&A EPS Illusion

This question illustrates what is known as the M&A earnings-per-share illusion: an M&A deal has the ability to boost a firm's EPS. This effect was highly exploited over the 2nd-M&A wave to lure those dealmakers who were assessing M&A deals' success based on EPS.

Information

Your company has EPS of 1, 1 million of shares outstanding and a price per share of $25. You are thinking of buying T Corporation (T Co.), which has EPS of 1, 0.1 million of shares outstanding and a price per share of $10. You will pay for T Co. by issuing new shares of your company. Assume that there are no expected synergies from this takeover and you will pay a 40% premium (pi=1.4).

Use this information to complete the following calculations that yield the "new EPS" of your company after the takeover. Express your answers using 3 decimal places.

• To buy T Co.,________ million new shares will have to be issued.
• After the takeover, your firm will have:
  • __________million shares outstanding.
  • $_________million. of total earnings.
  • An EPS ratio equals to_________.

Verify that the post-takeover EPS is larger than the pre-takeover EPS of your company.

Is there an easily identifiably debt-equity ratio that will maximize the value of a firm? Why or why not? Provide some examples in your decision.

Evaluating Prospective Investments If we accept that the goal of the financial manager is to create value for the stockholder, it follows that the financial manager must have a means of evaluating a prospective investment in terms of its likelihood of enhancing shareholder value. Different decision criteria may be used to evaluate proposed investments and we have gone through a pretty thorough review of most of them (NPV, IRR, Payback Period (straight and discounted), AAR, MIRR, PI). Our review included learning how to calculate each one as well as come to an understanding of the advantages and disadvantages of each. “Conventional wisdom” tells us that only the NPV criterion can always tell us if a particular project is a good investment and, if we have more than one project from which to choose, which one we should take. If this is the case, then why do so many financial managers in the “real world” make extensive use of the payback approach and, typically, do not take a discounted approach to payback? If you were to counsel a financial manager who is committed to using a payback criterion to evaluate prospective investments, would you take the opportunity to discuss other decision criteria that might be used? What advice would you provide as to whether he/she should continue using payback or if he/she should consider another approach and why?

Respond to the following in a minimum of 175 words: 
 
Explain the meaning of GAAP and Sarbanes-Oxley

Storico Co. just paid a dividend of $1.85 per share. The company will increase its dividend by 24 percent next year and then reduce its dividend growth rate by 6 percentage points per year until it reaches the industry average of 6 percent dividend growth, after which the company will keep a constant growth rate forever. If the stock price is $58.04, what required return must investors be demanding on the company's stock? (Hint: Set up the valuation formula with all the relevant cash flows, and use trial and error to find the unknown rate of return.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

1-You have $46,605.46 in a brokerage account, and you plan to deposit an additional $3,000 at the end of every future year until your account totals $290,000. You expect to earn 10% annually on the account. How many years will it take to reach your goal? Round your answer to the nearest whole number.

2- You want to buy a car, and a local bank will lend you $25,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 12% with interest paid monthly. What will be the monthly loan payment? What will be the loan's EAR? Do not round intermediate calculations. Round your answer for the monthly loan payment to the nearest cent and for EAR to two decimal places.

Monthly loan payment: $  

EAR:   %

Suppose Goodyear Tire and Rubber Company has an equity cost of capital of 8.2​%, a debt cost of capital of 6.7​%, a marginal corporate tax rate of 40​%,

and a​ debt-equity ratio of 2.8. Assume that Goodyear maintains a constant​ debt-equity ratio.

a. What is​ Goodyear's WACC?

b. What is​ Goodyear's unlevered cost of​ capital?  

c.​ Explain, intuitively, why​ Goodyear's unlevered cost of capital is less than its equity cost of capital and higher than its WACC

1. ) A company wants to purchase a new machine. There two options Machine A and Machine B. The first costs of A and B are $9000 and $11,000 respectively. Machine A has net annual benefits of $1800 for the first year and will increase by $150 every year during its five year useful life, and the salvage value is $600. Machine B has net annual benefits of $3200 but will decrease by $150 every year during during each year of its four year useful life, and the salvage value is $1500. If the MARR is 12%, which machine should be selected?