a. The nominal interest rate on a one-year bond originating date 1 and maturing date 2. (The one-year rate next year.)
b. The real interest rate on a one-year bond originating date 1 and maturing date 2. (The one-year real rate next year.)
c. The real interest rate on a one-year bond originating date 2 and maturing date 3. (The one-year real rate two years from now.)
3. Suppose the situation is as described in question 2. However, you are firmly convinced that next year’s one-year nominal interest rate will be 12% rather than the answer you found to 2.a. a. Describe the steps you would take today to put yourself in a position to profit if your belief is correct.
b. If next year it turns out you are right and the one-year interest rate is indeed 12%, describe the steps you would take at that time and demonstrate that a profit results.
In: Finance
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The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. |
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | ||||||
| Investment | $ | 28,000 | ||||||||
| Sales revenue | $ | 14,500 | $ | 15,000 | $ | 15,500 | $ | 12,500 | ||
| Operating costs | 3,100 | 3,200 | 3,300 | 2,500 | ||||||
| Depreciation | 7,000 | 7,000 | 7,000 | 7,000 | ||||||
| Net working capital spending | 340 | 390 | 440 | 340 | ? | |||||
| a. |
Compute the incremental net income of the investment for each year. (Do not round intermediate calculations.) |
| Year 1 | Year 2 | Year 3 | Year 4 | ||
| Net income | $ | $ | $ | $ | |
| b. |
Compute the incremental cash flows of the investment for each year. (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) |
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | |
| Cash flow | $ | $ | $ | $ | $ |
| c. |
Suppose the appropriate discount rate is 12 percent. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| NPV | $ |
In: Finance
Comparing Three Depreciation Methods
Waylander Coatings Company purchased waterproofing equipment on January 6 for $637,400. The equipment was expected to have a useful life of four years, or 6,800 operating hours, and a residual value of $52,600. The equipment was used for 2,600 hours during Year 1, 2,100 hours in Year 2, 1,200 hours in Year 3, and 900 hours in Year 4.
Required:
1. Determine the amount of depreciation expense
for the years ended December 31, Year 1, Year 2, Year 3, and Year
4, by (a) the straight-line method, (b) the units-of-output method,
and (c) the double-declining-balance method. Also determine the
total depreciation expense for the four years by each method.
Note: FOR DECLINING BALANCE ONLY, round the multiplier to four
decimal places. Then round the answer for each year to the nearest
whole dollar.
| Depreciation Expense | ||||||
| Year | Straight-Line Method | Units-of-Output Method | Double-Declining-Balance Method | |||
| Year 1 | $ | $ | $ | |||
| Year 2 | $ | $ | $ | |||
| Year 3 | $ | $ | $ | |||
| Year 4 | $ | $ | $ | |||
| Total | $ | $ | $ | |||
In: Accounting
Comparing Three Depreciation Methods
Waylander Coatings Company purchased waterproofing equipment on January 6 for $359,800. The equipment was expected to have a useful life of four years, or 10,000 operating hours, and a residual value of $29,800. The equipment was used for 3,800 hours during Year 1, 3,100 hours in Year 2, 1,800 hours in Year 3, and 1,300 hours in Year 4.
Required:
1. Determine the amount of depreciation expense
for the years ended December 31, Year 1, Year 2, Year 3, and Year
4, by (a) the straight-line method, (b) the units-of-output method,
and (c) the double-declining-balance method. Also determine the
total depreciation expense for the four years by each method.
Note: FOR DECLINING BALANCE ONLY, round the multiplier to four
decimal places. Then round the answer for each year to the nearest
whole dollar.
| Depreciation Expense | ||||||
| Year | Straight-Line Method | Units-of-Output Method | Double-Declining-Balance Method | |||
| Year 1 | $ | $ | $ | |||
| Year 2 | $ | $ | $ | |||
| Year 3 | $ | $ | $ | |||
| Year 4 | $ | $ | $ | |||
| Total | $ | $ | $ |
|||
In: Accounting
| you have the following assumptions and spot rates - solve for the implied forward rates | ||||
| t0 | t1 | t2 | t3 | |
| One-year rate | 1.330% | ??? | ??? | ??? |
| Two-year rate | 1.590% | ??? | ??? | |
| Three-year rate | 1.810% | |||
| Four-year rate | 2.030% | |||
| Implied forward 1 year ratet+1f1 X | at time t+1 (in one year) | |||
| Implied forward 1 year ratet+2f1 x | at time t+2 (in two years) | |||
| Implied forward 2 year ratet+1f2 x | at time t+1 (in one year) | |||
| Implied forward 1 year ratet+3f1 x | at time t+3 (in three years) | |||
| Implied forward 2 year ratet+2f2 x | at time t+2 (in two years) | |||
In: Finance
Computing Straight-Line and Double-Declining-Balance Depreciation
On January 2, Haskins Company purchases a laser cutting machine for use in fabrication of a part for one of its key products. The machine cost $120,000, and its estimated useful life is five years, after which the expected salvage value is $7,500. Compute depreciation expense for each year of the machine's useful life under each of the following depreciation methods: Round answers to the nearest whole number, when applicable.
a. Straight-line
Year 1 $Answer
Year 2 $Answer
Year 3 $Answer
Year 4 $Answer
Year 5 $Answer
b. Double-declining-balance
Year 1 $Answer
Year 2 $Answer
Year 3 $Answer
Year 4 $Answer
Year 5 $Answer
In: Accounting
A firm with a 14% WACC is evaluating two projects for this year’s capital budget. After-tax cash flows, including depreciation, are as follows:
PROJECT A: year 0 = -$6000 | year 1 = $2000 | year 3 = $2000 | year 4 = $2000 | year 5 = $2000
PROJECT B: Year 0 = -$18,000 | Year 1 = $5600 | Year 2 = $5600 | year 3 = $5600 | year 4 = $5600 | year 5 = $5600
a.Calculate NPV, IRR, MIRR, payback, and discounted payback for each project.
b.Assuming the projects are independent, which one(s) would you recommend?
c.If the projects are mutually exclusive, which would you recommend?
d.Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?
In: Finance
Below are the expected cash flows and interest rates for the next nine years. Cash flows will occur at the end of the nominated years.
|
Cash Flows |
Interest Rates |
|||||
|
Year 0 |
Years 1 - 2 |
8% |
||||
|
Year 1 |
||||||
|
Year 2 |
+$ 6,500 |
|||||
|
Year 3 |
+$ 1,500 |
Years 3 – 8 |
6% |
|||
|
Year 4 |
||||||
|
Year 5 |
||||||
|
Year 6 |
-$ 2,500 |
|||||
|
Year 7 |
||||||
|
Year 8 |
||||||
|
Year 9 |
+$ 10,000 |
Years 9 - 10 |
7% |
|||
|
Year 10 |
||||||
|
i. |
Using the Table function within MS Word, draw a time line showing the above cash flows and interest rates . |
|||||
|
ii. |
What will be the value of all these cash flows at each of the following times: Time 1 Time 5 Time 10 |
|||||
In: Finance
What is the net present value (NPV) of your proposed expansion into the Canada? Assume that the cash flows after year 0 occur at the end of each year. The required rate of return is 15.4%. (Round to nearest penny) Year 0 cash flow = -860,000 Year 1 cash flow = -110,000 Year 2 cash flow = 420,000 Year 3 cash flow = 470,000 Year 4 cash flow = 430,000 Year 5 cash flow = 460,000
In: Finance
Based on the following data for the current year, what is the number of days' sales in receivables? Assume 365-Day year.
| Sales on account during year | $570,068 |
| Cost of goods sold during year | 219,238 |
| Accounts receivable, beginning of year | 46,044 |
| Accounts receivable, end of year | 51,623 |
| Inventory, beginning of year | 91,672 |
| Inventory, end of year | 116,124 |
Round your answer up to the nearest whole day.
a.31
b.74
c.67
d.140
In: Accounting