14-16 5

Required:

1. Present the balance sheet in common-size format.

2. Present the income statement in common-size format down through net income.

Interest rates on 4-year Treasury securities are currently 6.3%, while 6-year Treasury securities yield 7.15%. If the pure expectations theory is correct, what does the market believe that 2-year securities will be yielding 4 years from now? Calculate the yield using a geometric average. Do not round intermediate calculations. Round your answer to two decimal places.,,,

Given the following information:

Year 1 Free cash flow: 40 million

Year 2 Free cash flow 90 m

Year 3 Free cash flow 100 m

After year 3, expected FCF growth is expected to be 4%

The cost of capital is 9%

Short term investments = 50 million

Debt is currently 25 million

Preferred stock = 5 million

There are 20 million outstanding stock shares.

1. Calculate the intrinsic stock price.

2. If the current stock price was $100.00, would you buy the stock? Why/WHY NOT:

BOND YIELDS

Last year Carson Industries issued a 10-year, 13% semiannual coupon bond at its par value of $1,000. Currently, the bond can be called in 6 years at a price of $1,065 and it sells for $1,270.

1. What is the bond's nominal yield to maturity? Do not round intermediate calculations. Round your answer to two decimal places.
   %
   
   What is the bond's nominal yield to call? Do not round intermediate calculations. Round your answer to two decimal places.
   %
   
   Would an investor be more likely to earn the YTM or the YTC?
   -Select-Since the YTC is above the YTM, the bond is not likely to be called.Since the coupon rate on the bond has declined, the bond is not likely to be called.Since the YTM is above the YTC, the bond is likely to be called.Since the YTC is above the YTM, the bond is likely to be called.Since the YTM is above the YTC, the bond is not likely to be called.Item 3
   
2. What is the current yield? (Hint: Refer to Footnote 7 for the definition of the current yield and to Table 7.1.) Round your answer to two decimal places.
   %
   
   Is this yield affected by whether the bond is likely to be called?
   1. If the bond is called, the current yield and the capital gains yield will remain the same.
   2. If the bond is called, the capital gains yield will remain the same but the current yield will be different.
   3. If the bond is called, the current yield and the capital gains yield will both be different.
   4. If the bond is called, the current yield and the capital gains yield will remain the same but the coupon rate will be different.
   5. If the bond is called, the current yield will remain the same but the capital gains yield will be different.
   
   -Select-IIIIIIIVVItem 5
   
3. What is the expected capital gains (or loss) yield for the coming year? Use amounts calculated in above requirements for calcuation, if reqired. Round your answer to two decimal places. Enter a loss percentage, if any, with a minus sign.
   %
   
   Is this yield dependent on whether the bond is expected to be called?
   1. If the bond is not expected to be called, the appropriate expected total return is the YTC.
   2. If the bond is expected to be called, the appropriate expected total return will not change.
   3. The expected capital gains (or loss) yield for the coming year depends on whether or not the bond is expected to be called.
   4. 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.
   5. If the bond is expected to be called, the appropriate expected total return is the YTM.

a. What are the incremental earnings for this project for years 1 and​ 2?​ (Note: Assume any incremental cost of goods sold is included as part of operating​ expenses.)

b. What are the free cash flows for this project for years 1 and​ 2?

Sales 3 million dollars per year Cost of goods 1.7 million dollars per year Cash Expenses 725 thousand dollars per year Depreciation Expense 125 thousand dollars per year Cash on the balance sheet 150 thousand dollars Receivables on the balance sheet 75 thousand dollars Inventory on the balance sheet 300 thousand dollars Fixed asset net of depreciation on the balance sheet 450 thousand dollars Total Current Liabilities on the balance sheet 175 thousand dollars Total Long Term Debt on the balance sheet 600 thousand dollars Your required return if you invest in this business is 20 percent. This is the figure you will use to calculate the present value of EBITDA. You will also buy the receivables and inventory from the current owner. But you will not buy the cash on the balance sheet. You will assume all current liabilities and all total long-term debt of the business. Assignment: 1. Create an income statement (down to EBIT) and a balance sheet using the data provided above. The balance sheet should include total assets and total liabilities and equity. Use the format for these statements that is shown in the example within the week four online lecture A Simple Way to Value a Business. (15 points) 2. Calculate EBITDA for this business. (5 points) 3. Calculate the business value for this business using the formula in the week four online lecture A Simple Way to Value a Business. There is an example in this lecture that should be carefully studied. (10 points) Clearly identify each problem with the number 1, 2, or 3 associated with it. This makes it possible to grade your problems. Please submit your work as an excel file.

Shimmer Inc. is a calendar-year-end, accrual-method corporation. This year, it sells the following long-term assets: Asset Sales Price Cost Accumulated Depreciation Building $703,000 $657,000 $54,000 Sparkle Corporation stock 138,000 246,000 n/a Shimmer does not sell any other assets during the year, and its taxable income before these transactions is $820,000. What are Shimmer's taxable income and tax liability for the year? (New Corporate income tax rate has been mentioned as "21% on all taxable income" as per the recent change.)

a. What are the incremental earnings for this project for years 1 and​ 2?​ (Note: Assume any incremental cost of goods sold is included as part of operating​ expenses.)

b. What are the free cash flows for this project for years 1 and​ 2?

a. What are the incremental earnings for this project for years 1 and​ 2?​ (Note: Assume any incremental cost of goods sold is included as part of operating​ expenses.)

Calculate the incremental earnings of this project​ below:  ​(Round to one decimal​ place.)

1) A ten-year T-bond has an eight percent coupon, and an eight-year T-bond has a ten percent coupon. These bonds are not callable and both have the same risk. If the yield to maturity (required rate of return) of both bonds increases by the same amount, which of the following statements would be CORRECT?

a) The prices of both bonds will decrease by the same amount.

b) The prices of both bonds would increase by the same amount.

c) Both bonds would decline in price, but the 10-year bond would have the greater percentage decline in price.

d) One bond's price would increase, while the other bond’s price would decrease.

2) Which of the following bonds would have the greatest percentage increase in value if all interest rates in the economy fall by one percent? (be able to explain something like this in the exam)

a) 10-year, zero coupon bond.

b) 1-year, 10% coupon bond.

c)  20-year, 5% coupon bond.

d) 20-year, zero coupon bond.

3) An investor is considering buying one of two 10-year, $1,000 face value, non-callable bonds: Bond Alpha has a seven percent annual coupon, while Bond Beta has a nine percent annual coupon. Both bonds have a yield to maturity of eight percent, and the YTM is expected to remain constant for the next ten years. Which of the following statements is CORRECT?

a)  Bond Alpha has a higher price than Bond B today, but one year from now the bonds will have the same price.

b) Bond Beta has a higher price than Bond Alpha today, but one year from now the bonds will have the same price.

c) Bond Alpha’s current yield is greater than 8%.

d)  One year from now, Bond Alpha’s price will be higher than it is today.

4) Bond Apple has a nine percent annual coupon, while Bond Intel has a seven percent annual coupon. Both bonds have the same maturity, a face value of $1,000, an eight percent YTM, and are non-callable. Which of the following statements is CORRECT?

a) Bond Apple’s capital gains yield is greater than Bond Intel’s capital gains yield.

b)  If the yield to maturity for both bonds immediately decreases to 6%, Bond Apple’s bond will have a larger percentage increase in value.

c)  Bond Apple trades at a discount, whereas Bond Intel trades at a premium.

d) Bond Apple’s current yield is greater than that of Bond Intel.