Here is the information that William has accumulated so far:

The Capital Budgeting Projects

He must choose one of the four capital budgeting projects listed below:  

Table 1

Table 1 shows the expected after-tax operating cash flows for each project. All projects are expected to have a 4 year life. The projects differ in size (the cost of the initial investment), and their cash flow patterns are different. They also differ in risk as indicated in the above table.

The capital budget is $22 million and the projects are mutually exclusive.

Capital Structures

Grand Island Hotel has the following capital structure, which is considered to be optimal:

Cost of Capital

William knows that in order to evaluate the projects he will have to determine the cost of capital for each of them. He has been given the following data, which he believes will be relevant to his task.

(1)The firm’s tax rate is 38%.

(2) Grand Island Hotel has issued a 9% semi-annual coupon bond with 15 years term to maturity. The current trading price is $960.

(3) The firm has issued some preferred stock which pays an annual 8.5% dividend of $100 par value, and the current market price is $98.

(4) The firm’s stock is currently selling for $88 per share. Its last dividend (D₀) was $4.5, and dividends are expected to grow at a constant rate of 7.5%. The current risk free return offered by Treasury security is 2.5%, and the market portfolio’s return is 8%. Grand Island Hotel has a beta of 2.1. For the bond-yield-plus-risk-premium approach, the firm uses a risk premium of 3.9%.

(5) The firm adjusts its project WACC for risk by adding 1.8% to the overall WACC for high-risk projects and subtracting 2% for low-risk projects.

William knows that Grand Island Hotel executives have favored IRR in the past for making their capital budgeting decisions. His professor at Seattle U. said NPV was better than IRR. His textbook says that MIRR is also better than IRR. He is the new kid on the block and must be prepared to defend his recommendations.

First, however, William must finish the analysis and write his report. To help begin, he has formulated the following questions:

1. What is the firm’s cost of debt?

2. What is the cost of preferred stock for Grand Island Hotel?

3. Cost of common equity

(1) What is the estimated cost of common equity using the CAPM approach?

(2) What is the estimated cost of common equity using the DCF approach?

(3) What is the estimated cost of common equity using the bond-yield-plus-risk-premium approach?

(4) What is the final estimate for r_s?

4. What is Grand Island Hotel’s overall WACC?

5. Do you think the firm should use the single overall WACC as the hurdle rate for each of its projects? Explain.

6. What is the WACC for each project? Place your numerical solutions in Table 2.

7. Calculate all relevant capital budgeting measures for each project, and place your numerical solutions in Table 2.

Table 2

Overproduction of uric acid in the body can be an indication of cell breakdown. This may be an advance indication of illness such as gout, leukemia, or lymphoma.† Over a period of months, an adult male patient has taken six blood tests for uric acid. The mean concentration was x = 5.35 mg/dl. The distribution of uric acid in healthy adult males can be assumed to be normal, with σ = 1.93 mg/dl.

(a) Find a 95% confidence interval for the population mean concentration of uric acid in this patient's blood. What is the margin of error? (Round your answers to two decimal places.

(d) Find the sample size necessary for a 95% confidence level with maximal margin of error E = 1.02 for the mean concentration of uric acid in this patient's blood. (Round your answer up to the nearest whole number blood tests.

Let x be a random variable that represents the weights in kilograms (kg) of healthy adult female deer (does) in December in a national park. Then x has a distribution that is approximately normal with mean μ = 52.0 kg and standard deviation σ = 8.5 kg. Suppose a doe that weighs less than 43 kg is considered undernourished.

(a) What is the probability that a single doe captured (weighed and released) at random in December is undernourished? (Round your answer to four decimal places.)


(b) If the park has about 2450 does, what number do you expect to be undernourished in December? (Round your answer to the nearest whole number.)
does

(c) To estimate the health of the December doe population, park rangers use the rule that the average weight of n = 45 does should be more than 49 kg. If the average weight is less than 49 kg, it is thought that the entire population of does might be undernourished. What is the probability that the average weight x for a random sample of 45 does is less than 49 kg (assuming a healthy population)? (Round your answer to four decimal places.)


(d) Compute the probability that x< 53.4 kg for 45 does (assume a healthy population). (Round your answer to four decimal places.)

1. Suppose individuals A and B have the same money income and tastes and face the same set of prices of all goods except access to a free National Park. (They will be 2 points on the same demand curve; find the equation to the line and the X and Y intercepts.) Individual A lives farther away than individual B and has higher travel costs. Their annual use is summarized as:

How much consumer surplus does each individual receive per year from the park usage? What are the total social benefits (as measured by the sum of the consumer surplus measures) from the park?

2. A worker, who is typical in all respects, works for a wage of $50,000 per year in a perfectly safe occupation. Another typical worker does a job requiring exactly the same skills as the first worker, but in a risky occupation with a known death probability of 1 in 10,000 per year, and receives a wage of $60,000 per year. What value of a human life for workers with these characteristics should a cost-benefit analyst use?  

3. Manufacturers in an urban environment are currently producing 25,000 widgets per year. Their gross revenue is $300 per widget with variable costs of $125 per widget. Air quality in the city has fallen to a level of 20 points measured on a 0-100 scale. Three proposals could improve the air quality. Option I involves annual direct costs of $100,000 which raises the air quality index to 32; option 2 costs $130,000 per year and raises the index to 42; option 3 costs $150,000 per year and raises the index to 50. Also producers are required to reduce their widget output by: 5% under option 1, 10% under option 2, and 15% under option 3.

a. Which option has the lowest total opportunity cost?

b. Which option has the lowest cost per unit of air quality improvement?

c. Why might neither of these be the most efficient?

Question 2

Mark Limited is an investment company that purchases buildings and holds them for a, number
of purposes, such as resale, leasing and its own use.
On 1 January 2019, Mark Limited purchased an old building, Mark Towers, for N$300 000.
Conveyancer’s fees amounted to N$20 000
• This building is situated in an isolated part of Durban (South Africa) and there is no
development anywhere nearby. At the time of purchase, there had been no property
transactions in this area for many years and the possibility of leasing the building to tenants
was remote.
• During November 2019, development began of a new industrial park in the area. As a
result, the building was able to be leased to tenants involved in the development of the
industrial park. Due to the influx of people of people into the area, the directors decided to
paint one side of the buildings with the corporate logo of Mark Limited.
• This building has never had an air-conditioning system. After numerous complaints from
tenants about not being able to tolerate the Durban heat, Mark Limited decided to upgrade
the building by installing a ducted air-conditioning system on 1 December 2019.
The cost of installation included the following:
- Adjustments to the structure of the building 30 000
- Painting 50 000
- Air-conditioning system 200 000
- Installation costs 50 000
The ducted air-conditioning system has a 10 year life and a nil residual value
• As a result of the new industrial park, there was suddenly a demand for properties in the
area. As a result, the fair value of Mark Towers was able to be determined on 31 December
2019 at N$420 000. Mark Limited would like to measure this investment property at fair
value now that fair values have become available.
• The building has a 10 year useful life and an estimated residual value of N$50 000
Mark Limited also holds other investment property, which is measured under the fair value model.
The fair value of this other investment property is as follows:
• 1 January 2019 N$ 1 000 000
• 31 December 2019 N$ 1 250 000

Please answer the following questions:

Q5 Material purchases on account would most likely be included in which budget?

a. Direct labor budget

b. Selling and administrative budget

c. Cash budget

d. None of the above

Q6 Out of the Park socks produce socks for sports fans. The socks come in two sizes: Medium and Large. Out of the Park anticipates the following sales volumes and prices for the coming period:

What is the budgeted level of revenue for the coming period?

a. $50,000

b. $72,000

c. $82,000

d. $90,000

Q7 Out of the Park is projecting the following sales for January and February. Their policy is to maintain ending inventories at 5% of what is expected for the next month.

What is the budgeted level of production for both styles for January?

a. Medium: 1,040; Large: 1,240

b. Medium: 2,040; Large: 1,310

c. Medium: 2,240; Large: 1,440

d. None of the above

Q8 Olu’s African Sculptures is preparing their budgeted financial statements for the coming year, and has accumulated the following data:

What is the budgeted cash received from customers?

a. $4,100,000

b. $4,120,000

c. $4,220,000

d. $4,320,000

Uber Inc purchased a car for $23,500. The car has a salvage value of $3,900 and is estimated to be in use for 150,000 miles. What is the accumulated depreciation at the end of Year 2 assuming mileage used in year 1 was 16,380, year 2 was 16,930, and year 3 was 22,440? $_______

devise a system for you and three friends, at rest with you, to synchronize your clocks if your clocks are too large to move and are separated by hundreds of miles. 2. Can you think of an experiment to verify length contraction directly? Explain.  has to be approximately 500 words.

How did the colonists exercise "choice" during the Enlightenment and Great Awakening? (This is so very important because since the colonists are 3,000 miles away from their monarchs and parliaments in Europe they are more able to exercise "choice" and they don't like it when that choice is taken away.