Dipper has a 10 year increasing annuity immediate that pays $100 at the end of the first year, $200 at the end of the second year, ... , and $1000 at the end of the 10th year. He exchanges the annuity for a perpetuity of equal value that pays X at the end of each year. If the effective annual interest rate is 3%, find the value of X
In: Statistics and Probability
Lifecycle Motorcycle Company is expected to pay a dividend in year 1 of $2, a dividend in year 2 of $3, and a dividend in year 3 of $4. After year 3, dividends are expected to grow at the rate of 7% per year. An appropriate required return for the stock is 12%. Using the multistage DDM, the stock should be worth __________ today.
In: Finance
Find the net present value (NPV) for the following series of future cash flows, assuming the company’s cost of capital is 6.64 percent. The initial outlay is $339,858. Year 1: 163,676 Year 2: 147,656 Year 3: 123,800 Year 4: 178,407 Year 5: 149,077 Round the answer to two decimal places.
In: Finance
An analyst evaluating securities has obtained the following
information. The real rate of interest is 2.9% and is expected to
remain constant for the next 5 years. Inflation is expected to be
2.1% next year, 3.1% the following year, 4.1% the third year, and
5.1% every year thereafter. The maturity risk premium is estimated
to be 0.1 × (t – 1)%, where t = number of years to maturity. The
liquidity premium on relevant 5-year securities is 0.5% and the
default risk premium on relevant 5-year securities is 1%.
a. What is the yield on a 1-year
T-bill? Round your answer to one decimal place.
_____ %
b. What is the yield on a 5-year T-bond? Round your answer to one decimal place.
_____%
c. What is the yield on a 5-year corporate bond? Round your answer to one decimal place.
_____%
In: Finance
The managers of Classic Autos Incorporated plan to manufacture classic Thunderbirds (1957 replicas). The necessary foundry equipment will cost a total of $4,200,000 and will be depreciated using a five-year MACRS life, LOADING... . The sales manager has an estimate for the sale of the classic Thunderbirds.
The annual sales volume will be as follows:
Year one: 240
Year two: 270
Year three: 340
Year four: 360
Year five: 320
If the sales price is $28,000 per car, variable costs are $18,000 per car, and fixed costs are $1,200,000 annually, what is the annual operating cash flow if the tax rate is 30%? The equipment is sold for salvage for $500,000 at the end of year five. Net working capital increases by $600,000 at the beginning of the project (year 0) and is reduced back to its original level in the final year. Find the internal rate of return for the project using the incremental cash flows.
In: Finance
Oak Mart, a producer of solid oak tables, reports the following
data from its second year of business.
| Sales price per unit | $ | 310 | per unit |
| Units produced this year | 100,000 | units | |
| Units sold this year | 103,250 | units | |
| Units in beginning-year inventory | 3,250 | units | |
| Beginning inventory costs | |||
| Variable (3,250 units × $135) | $ | 438,750 | |
| Fixed (3,250 units × $75) | 243,750 | ||
| Total | $ | 682,500 | |
| Manufacturing costs this year | |||
| Direct materials | $ | 46 | per unit |
| Direct labor | $ | 62 | per unit |
| Overhead costs this year | |||
| Variable overhead | $ | 3,000,000 | |
| Fixed overhead | $ | 7,000,000 | |
| Selling and administrative costs this year | |||
| Variable | $ | 1,350,000 | |
| Fixed | 4,400,000 | ||
1. Prepare the current-year income statement for the company using variable costing.
2. Prepare the current-year income statement for the company using absorption costing.
In: Accounting
You need a particular piece of equipment for your production process. An equipment-leasing company has offered to lease the equipment to you for $ 10 comma 500 per year if you sign a guaranteed 5-year lease (the lease is paid at the end of each year). The company would also maintain the equipment for you as part of the lease. Alternatively, you could buy and maintain the equipment yourself. The cash flows from doing so are listed below (the equipment has an economic life of 5 years). If your discount rate is 6.7 %, what should you do?
Year 0 = -$40,800
Year 1: -$2100
Year 2: -$2100
Year 3: -$2100
Year 4: -$2100
Year 5: -$2100
a.) The net present value of the leasing alternative is:
b.) The net present value of the buying alternative is:
In: Finance
Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.27 million. The fixed asset falls into the three-year MACRS class
| year-3 | year-5 | year-7 | |
| 1 | 33.33% | 20.00% | 14.29% |
| 2 | 44.45 | 32 | 24.49 |
| 3 | 14.81 | 19.2 | 17.49 |
| 4 | 7.41 | 11.52 | 8.93 |
| 5 | 11.52 | 8.93 | |
| 6 | 5.76 | 8.92 | |
| 7 | 8.93 | ||
| 8 | 4.46 |
. The project is estimated to generate 1.8 million in annual sales, with costs of $692k. The project requires an initial investment in net working capital of 430,000, and the fixed asset will have a market value of 450,000 at the end of the project.
a. If the tax rate is 23%, what is the project's Year 0 net cash flow? Year 1? Year 2? Year 3?
b. If the required return is 10%, What is the project's NPV?
In: Finance
(Future value ) Sales of a new finance book were 12,000 copies this year and were expected to increase by 21 percent per year. What are expected sales during each of the next 3 years?
a. If the 12,000 copies of book sales this year were expected to increase by 21 percent per year, what are the expected sales of the new finance book next year?
Answer: ______copies. (Round to the nearest unit.)
b. If the 12,000 copies of book sales this year were expected to increase by 21 percent per year, what are the expected sales of the new finance book in two years?
Answer: ____copies. (Round to the nearest unit.)
c. If the 12,000 copies of book sales this year were expected to increase by 21 percent per year, what are the expected sales of the new finance book in three years?
Answer: _____copies. (Round to the nearest unit.)
In: Finance
Waylander Coatings Company purchased waterproofing equipment on January 6 for $489,200. The equipment was expected to have a useful life of four years, or 6,800 operating hours, and a residual value of $40,400. 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.
In: Accounting