77-78. Rocky bought 7-year class property on January 4, this year, for $120,000. Assume his business income is $6,000 before the deduction for the Section 179 expense.

77.     The amount of the currently deductible 179 expense is:

Banco Industries expect sales to grow at a rapid rate over the next three years, but settle to an industry growth rate in year 4. The spreadsheet above is a template for forecasting Banco Industries' free cash flows (FCFs), with assumptions provided.

a) (8 points) Forecast Banco Industries' FCFs in year 1-4. Banco Industries's FCF is expected to be $Answer million in year 1, $Answer million in year 2, $Answer million in year 3, $Answer million in year 4. State your answers in 2 decimal places.

b) (4 points) Banco Industries expect sales to settle to an industry growth rate of 5% in year 4 and after. If Banco industries has a weighted average cost of capital of 11%, $50 million in cash, $80 million in debt, and 18 million shares outstanding, the best estimate of Banco's stock price is $Answer. (1 decimal place)

One year ago Clark Company issued a 10-year, 14% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,070, and it now sells for $1,350. What is the bond's nominal yield to maturity? Round your answer to two decimal places.

% What is the bond's nominal yield to call? Round your answer to two decimal places.

% Would an investor be more likely to earn the YTM or the YTC? What is the current yield?Round your answer to two decimal places.

% Is this yield affected by whether the bond is likely to be called? If the bond is called, the current yield and the capital gains yield will remain the same. If the bond is called, the capital gains yield will remain the same but the current yield will be different. If the bond is called, the current yield and the capital gains yield will both be different. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different. If the bond is called, the current yield will remain the same but the capital gains yield will be different. What is the expected capital gains (or loss) yield for the coming year? Round your answer to two decimal places.

% Is this yield dependent on whether the bond is expected to be called? If the bond is not expected to be called, the appropriate expected total return is the YTC. If the bond is expected to be called, the appropriate expected total return will not change. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called. The expected capital gains (or loss) yield for the coming year does not depend on whether or not the bond is expected to be called. If the bond is expected to be called, the appropriate expected total return is the YTM.

Using the change in Water & Power’s EVA as the decision criterion, which type of investment recommendation should you make to your clients?

A hold recommendation

A sell recommendation

A buy recommendation

Which of the following statements are correct? Check all that apply.

Water & Power’s net income is growing at a rate greater than its sales. This could imply that either its revenues are growing more quickly than its expenses or that management is being effective in managing its costs while achieving the reported growth in sales. Other things remaining constant, either event should increase the value of the firm.

Water & Power’s NCF is calculated by adding its annual interest expense to the corresponding year’s net income.

An increase in the number of common shares outstanding must increase the market value of the firm’s equity.

For any given year, one way to compute Water & Power’s EVA is as the difference between its NOPAT and the product of its operating capital and its weighted average cost of capital.

Other things remaining constant, Water & Power’s EVA will increase when its ROIC exceeds its WACC.

Suppose 2-year Treasury bonds yield 5.3%, while 1-year bonds yield 3.6%. r* is 1%, and the maturity risk premium is zero. Negative expected inflation rates, if any, should be indicated by a minus sign.

1. Using the expectations theory, what is the yield on a 1-year bond, 1 year from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.

b. What is the expected inflation rate in Year 1? Do not round intermediate calculations. Round your answer to two decimal places

What is the expected inflation rate in Year 2? Do not round intermediate calculations. Round your answer to two decimal places.

1. Compare 30-year bond to a 5-year bond all else equal. Which one is more sensitive to interest rate changes. Why? Please explain.

2. AAA, Inc. currently has an issue of bonds outstanding that will mature in 31 years. The bonds have a face value of $1,000 and a stated annual coupon rate of 20.0% with annual coupon payments. The bond is currently selling for $890. The bonds may be called in 4 years for 120.0% of the par value ($1200). What is your expected quoted annual rate of return if you buy the bonds and hold them until maturity?

3. BBB, Inc. bonds have a par value of $1,000, a 33-year maturity, and an annual coupon rate of 12.0% with annual coupon payments. The bonds are currently selling for $923. The bonds may be called in 4 years for 112.0% of par ($1120). What quoted annual rate of return do you expect to earn if you buy the bonds and company calls them when possible?

Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.

The weighted average cost of capital is 9%, FCFs are expected to continue growing at a 4% rate after Year 5. The firm has $26 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 18 million shares outstanding. What is the value of the stock price today (Year 0)?

Treasury is: Spot 1-year Treasury is 4% Spot 2-year treasury is 4.5%

B Corporate Debt interest annually Spot 1 year 8.5%, Spot 2 years 9.5%

Forward 1 Year maturity

Let’s call the Treasury x

The Corporate debt is called y

1. What is the value of x the forward rate on one-year maturity Treasuries delivered in one year?
2. What is the value of y the forward rate on one-year maturity B corporate debt delivered in one year?
3. Exercising the term structure of default probabilities, the implied default probability for B corporate debt during the current year is?
4. Exercising the term structure of default probabilities, the implied default probability for B corporate debt during the second year is what?

•Burnout Batteries

•Initial Cost = $36 each

•3-year life

•$100 per year to keep charged

•Expected salvage = $5

•Straight-line depreciation

•Long-lasting Batteries

•Initial Cost = $60 each

•5-year life

•$88 per year to keep charged

•Expected salvage = $5

•Straight-line depreciation

The machine chosen will be replaced indefinitely and neither machine will have a differential impact on revenue. No change in NWC is required.

The required return is 15%, and the tax rate is 34%.

Which battery should be chosen?