A 5-year Treasury bond has a 4.75% yield. A 10-year Treasury bond yields 6.05%, and a 10-year corporate bond yields 9.45%. 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. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.
Open spreadsheet
What is the yield on this 5-year corporate bond? Round your answer to two decimal places.
_____%
In: Finance
The yield to maturity on one-year zero-coupon bonds is currently 7 percent; the YTM on two-year zeroes is 8 percent. The federal government plans to issue a two-year-maturity coupon bond, paying coupons once per year with a coupon rate of 9 percent. The face value of the bond is $100.
In: Finance
A 5-year Treasury bond has a 4.4% yield. A 10-year Treasury bond yields 6.9%, and a 10-year corporate bond yields 8.5%. The market expects that inflation will average 3% over the next 10 years (IP10 = 3%). 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. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.What is the yield on this 5-year corporate bond? Round your answer to two decimal places
In: Finance
Comparative financial statement data for Carmono Company follow:
| This Year | Last Year | ||||
| Assets | |||||
| Cash and cash equivalents | $ | 18.00 | $ | 35.00 | |
| Accounts receivable | 92.00 | 85.00 | |||
| Inventory | 145.00 | 133.80 | |||
| Total current assets | 255.00 | 253.80 | |||
| Property, plant, and equipment | 294.00 | 236.00 | |||
| Less accumulated depreciation | 62.40 | 46.80 | |||
| Net property, plant, and equipment | 231.60 | 189.20 | |||
| Total assets | $ | 486.60 | $ | 443.00 | |
| Liabilities and Stockholders’ Equity | |||||
| Accounts payable | $ | 87.00 | $ | 67.00 | |
| Common stock | 202.00 | 154.00 | |||
| Retained earnings | 197.60 | 222.00 | |||
| Total liabilities and stockholders’ equity | $ | 486.60 | $ | 443.00 | |
For this year, the company reported net income as follows:
| Sales | $ | 1,900.00 |
| Cost of goods sold | 1,140.00 | |
| Gross margin | 760.00 | |
| Selling and administrative expenses | 740.00 | |
| Net income | $ | 20.00 |
This year Carmono declared and paid a cash dividend. There were no sales of property, plant, and equipment during this year. The company did not repurchase any of its own stock this year.
Required:
1. Using the indirect method, prepare a statement of cash flows for this year.
2. Compute Carmono’s free cash flow for this year.
In: Accounting
Consider a sample of year-end prices for Alphabet, Inc. (Google) over a five year period. Google did not pay a dividend over the sample period.
| YEAR | PRICE |
|---|---|
| 2012 | $576.93 |
| 2011 | $603.31 |
| 2010 | $531.56 |
| 2009 | $343.14 |
| 2008 | $560.72 |
| 2007 | $501.69 |
Calculate the average (arithmetic) return.
Calculate the holding period return.
Calculate the geometric return.
Calculate the standard deviation in the returns.
In: Finance
The annual sales for Salco, Inc. were $ 4.46 million last year. The firm's end-of-year balance sheet was as follows: Salco's income statement for the year was as follows:
a. Calculate Salco's total asset turnover, operating profit margin, and operating return on assets. b. Salco plans to renovate one of its plants and the renovation will require an added investment in plant and equipment of $ 1.09 million. The firm will maintain its present debt ratio of 50 percent when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13.9 percent. What will be the new operating return on assets ratio (i.e., net operating income divided by total assets) for Salco after the plant's renovation?
c. Given that the plant renovation in part (b) occurs and Salco's interest expense rises by $ 53,000 per year, what will be the return earned on the common stockholders' investment? Compare this rate of return with that earned before the renovation. Based on this comparison, did the renovation have a favorable effect on the profitability of the firm?
Balance sheet
| Current assets | $500,000 | Liabilities | $994,000 | |
| Net fixed assets | 1488000 | Owners' equity | 994000 | |
| Total Assets | $1,988,000 | Total | $1,988,000 | |
Income statement
| Sales | $4,460,000 |
| Less: Cost of goods sold | (3,490,000) |
| Gross profit | $970,000 |
| Less: Operating expenses | (505,000) |
| Net operating income | $465,000 |
| Less: Interest expense | (102,000) |
| Earnings before taxes | $363,000 |
| Less: Taxes (35%) | (127,050) |
| Net income | $235,950 |
In: Finance
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 = $
In: Finance
Your first job out of college will pay you $47,000 in year 1 (exactly one year from today), growing at a rate of 3.9% per year thereafter. You will also receive a one time bonus of $22,000 at the same time as your first salary. You plan to retire in 44 years (you'll receive 44 years of salary). If the applicable discount rate is 5%, what is the present value of these future earnings today? Round to the nearest cent.
In: Finance
Find PPE + Installation in Year 0 of CASH FLOWS
Find Opportunity Costs/Benefits in YEAR 0
Find Opportunity Costs/Benefits in YEAR 5
Find Salvage Value in Year 5
Find Tax Impact of Salvage in Year 5
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Tesla is considering expanding their production facilities to meet the growing demand for Tesla cars. You are given the following information:
The expansion would be a 5-year project. The expansion would take place on a plot of land that Elon Musk (the founder of Tesla) already owns. If the expansion doesn’t take place, the land could be sold today for $7,000,000.
Tesla commissioned a study on the feasibility of expansion three months ago, and paid $2,500,000 to consultants for the report.
To build the factory on the land would require a $80,000,000 up front investment in plant and property and an additional $15,000,000 in installation costs for the machinery.
Running the factory and machines will result in $7,000,000 of fixed costs per year.
Net Working Capital would have to increase by $1240000 at the beginning of the project (this money could be released at the end of the 5-year project).
Tesla would depreciate the factory and machinery using a 5-year MACRS schedule.
The factory and machinery can be sold off at the end of the 5-year project for $21,000,000.
-----> Elon Musk’s land can be sold off at the end of the 5-year project for $3500000.
Assume that the corporate tax rate is 21%. The new retail price for Tesla’s cars in yar 1 will equal $35,000, the existing retail price for the cheapest model (google "Tesla retail price") This price will increase by 5% per year during each year of the project.
Due to the expansion, Tesla will sell 12,000 (incremental) cars in Year 1, 15,000 in Year 2, and 18,000 in each of Years 3-5 of the project.
In: Finance
Your first job out of college will pay you $68,000 in year 1 (exactly one year from today), growing at a rate of 2.6% per year thereafter. You will also receive a one time bonus of $48,000 at the same time as your first salary. You plan to retire in 36 years (you'll receive 36 years of salary). If the applicable discount rate is 7%, what is the present value of these future earnings today? Round to the nearest cent.
In: Finance