3. A firm has the following three projections of revenue estimates:

Current Year1 Year 2 Year 3

Revenue $1,500 $1,650 $1,815 $2,000

EAT $95 $106 $117 $130

The company also receives a royalty net after taxes of $10 million per year. It is expected that the cash flows equal to depreciation will have to be reinvested to keep the firm operating. Further, capital expenditures equal to 60 percent of the net cash flow will need to be invested to keep the firm growing. Other items on the balance sheet remain unchanged. The CFO believes that it will just forecast for the first three years and then simply assume a 6 percent annual growth rate after the third year.

T-bills yield 8 percent and the market return is 13 percent. The company’s beta using Hamada equation is 1.2. What is the value of the company or what would you pay for the firm if you were interested in it.

A poll taken last year found alcohol consumption at a 30-year low. Sales figures from the industry confirm the findings of the poll. Seagram’s is the largest firm in the industry. Based upon what you have learned about strategic management, what should Seagram’s be doing in response to this information?

A stock has had the following year-end prices and dividends:

What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

A 5-year Treasury bond has a 4.7% yield. A 10-year Treasury bond yields 6.15%, and a 10-year corporate bond yields 8.05%. The market expects that inflation will average 2.25% over the next 10 years (IP₁₀ = 2.25%). Assume that there is no maturity risk premium (MRP = 0) and that the annual real risk-free rate, r*, will remain constant over the next 10 years. (Hint: Remember that the default risk premium and the liquidity premium are zero for Treasury securities: DRP = LP = 0.) A 5-year corporate bond has the same default risk premium and liquidity premium as the 10-year corporate bond described.

What is the yield on this 5-year corporate bond? Round your answer to two decimal places.

%

A 60-year old person buys a 25-year term annuity in arrears contract for a single upfront premium of $1,000,000. Interest earnt by the insurance company is assumed to be 5% over the first 10 years of the contract and then 4% for the remaining term. The amount paid in the first 10 years is two-thirds of the amount paid in the remaining 15 years. Find out the amount paid in year 1 of the contract.

Assume that select mortality applies and there is an annual fee of $20 which is paid at the time of the annuity payment

Hampton Industries had $35,000 in cash at year-end 2018 and $10,000 in cash at year-end 2019. The firm invested in property, plant, and equipment totaling $140,000 — the majority having a useful life greater than 20 years and falling under the alternative depreciation system. Cash flow from financing activities totaled +$110,000. Round your answers to the nearest dollar, if necessary.

1. What was the cash flow from operating activities? Cash outflow, if any, should be indicated by a minus sign.

   $   

2. If accruals increased by $10,000, receivables and inventories increased by $140,000, and depreciation and amortization totaled $33,000, what was the firm's net income?

Requirements: Develop a ten-year sales projection assuming the growth as below:

1. 1% for 2^nd year
2. 3% for 3^rd to 5^th year
3. 8% for 6^th to 10^th year

During Year 1 and Year 2, Agatha Corp. completed the following transactions relating to its bond issue. The corporation’s fiscal year is the calendar year. Year 1 Jan. 1 Issued $330,000 of 8-year, 8 percent bonds for $324,000. The annual cash payment for interest is due on December 31. Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest. Dec. 31 Closed the interest expense account. Year 2 Dec. 31 Recognized interest expense, including the straight-line amortization of the discount, and made the cash payment for interest. Dec. 31 Closed the interest expense account. Required a-1. When the bonds were issued, was the market rate of interest more or less than the stated rate of interest? a-2. If Agatha had sold the bonds at their face amount, what amount of cash would Agatha have received? b. Prepare the liabilities section of the balance sheet at December 31, Year 1 and Year 2. c. Determine the amount of interest expense that will be reported on the income statements for Year 1 and Year 2. d. Determine the amount of interest that will be paid in cash to the bondholders in Year 1 and Year 2.

PROJECT CASH FLOW

Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The financial staff has collected the following information on the project:

The company has a 40% tax rate, and its WACC is 12%.

Write out your answers completely. For example, 13 million should be entered as 13,000,000.

1. What is the project's cash flow for the first year (t = 1)? Round your answer to the nearest dollar.
   $_____?
2. 
   
3. If this project would cannibalize other projects by $1.5 million of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest dollar.
   The firm's project's cash flow would now be $______? .
4. 
   
5. Ignore part b. If the tax rate dropped to 30%, how would that change your answer to part a? Round your answer to the nearest dollar.
   The firm's project's cash flow would -INCREASE OR DECREASE??  by $______? .

Investors expect the following series of dividends from a particular common stock: Year 1 $0.95 Year 2 $1.03 Year 3 $1.18 Year 4 $1.24 Year 5 $1.32 After the 5th year, dividends will grow at a constant rate. If the required rate of return on the stock is 8% and the current market price is $47.86, what is the long-term rate of dividend growth expected by the market?