Upper Division of Lower Company acquired an asset with a cost of $560,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows.

The cost of the asset is expected to increase at a rate of 10 percent per year, compounded each year. Performance measures are based on beginning-of-year gross book values for the investment base. Ignore taxes.

Required:

a. What is the ROI for each year of the asset's life, using a historical cost approach?

b. What is the ROI for each year of the asset's life if both the investment base and depreciation are determined by the current cost of the asset at the start of each year?

1. HF Corporation just paid a dividend of $4.00. The dividend is expected to grow by 8% this year, 6% in year two and 5% in year three. Beginning in year four, the dividend is expected to grow at a constant rate of 4%. With a required return of 10%, what is a share of this company’s stock worth today?
2. TP Company report FCF of $800,000 in the most recently completed year. FCF is expected to grow by 10% this year and 7% in year two. Beginning in year three, FCF is expected to grow at a constant and sustainable rate of 5%. The required rate of return on this stock is 12%. The company has debt of $3,500,000, preferred stock of $1,200,000 and 500,000 common shares outstanding. What is a share of this company’s common stock worth today ?

1.  You expect to have $20,000 in one year. A bank is offering loans at 4% interest per year. How much can you borrow?

2. Your friend’s mom is thinking of retiring. Her retirement plan will pay her either $225,000 immediately or $325,000 five years after the date of her retirement. Which alternative should she choose if the interest rate is a. 0% per year? b. 8% per year? c. 20% per year?

a. 0% per year? b. 8% per year? c. 20% per year?

3. You are considering a savings bond that will pay $200 in 10 years. If the interest rate is 2%, what should you pay today for the bond?

Walther Corporation is deciding between purchasing needed equipment or leasing it. If purchased, it has calculated its total expected after-tax cash outflows each year as follows: Year 1 $250,000; Year 2 $225,000; Year 3 $200,000; Year 4 $150,000; and Year 5 $100,000 with annual cash flows assumed to be generated evenly throughout the year (use the mid-year adjustment). If leased, the annual after-tax lease payment of $187,500 would be due at the beginning of each of the next five years. The company’s cost of debt is 5%. What is the net advantage to leasing (NAL)? If leasing is more expensive, be certain to place a negative sign before your answer. show work in excel!

Speedy Delivery Company purchases a delivery van for $41,600. Speedy estimates that at the end of its four-year service life, the van will be worth $6,000. During the four-year period, the company expects to drive the van 222,500 miles.

Actual miles driven each year were 58,000 miles in year 1 and 64,000 miles in year 2.

Required:

Calculate annual depreciation for the first two years of the van using each of the following methods. (Do not round your intermediate calculations.)

  
1. Straight-line.

Year Annual Depreciation

1

2

2. Double-declining-balance.

Year Annual Depreciation

1

2

   
3. Activity-based.

Year Annual Depreciation

1

2

Five years ago, a company made a $5 million investment in a new high-temperature material. The product was not well accepted after the first year on the market. However, when it was reintroduced 4 years later, it did sell well during the year. Major research funding to broaden the applications has cost $15 million in year 5. Determine the rate of return for these cash flows (shown below in $1000s). Year Net Cash Flow, $ 0 –5,000 1 4,000 2 0 3 0 4 20,000 5 –15,000 Question 4 options: i* = 48.4% per year i* = 34.6% per year i* = 38.5% per year i* = 44.1% per year

Examine yield curve shapes using daily yield curve rates provided by U.S. department of treasury .

a) Report treasure yield rates (1 month, 3 month, 6 month, 1 year, 2 year, 3 year, 5 year, 7 year, 10 year, 20 year, 30 year) on Jan. 02, 2014, Jan. 02, 2015, Jan. 04, 2016, Jan. 03, 2017, Jan. 02, 2018, Jan. 02, 2019, and Sep. 02, 2019.

b) Compute each term spreads for seven term structures.

c) Plot seven yield curves that show the relation between yields and maturities.

d) Provide your findings thoroughly from b) and c).

Exercise 8-14 Sales and Production Budgets [LO8-2, LO8-3]

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

The selling price of the company’s product is $18.00 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $70,200.

The company expects to start the first quarter with 1,650 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,850 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

ONLY NEED PART E

PLEASE SHOW ALL WORK

Company X projects numbers of unit sales for a new project as follows:

81,000 (year 1), 89,000 (year 2), 97,000 (year 3), 92,000 (year 4), and 77,000 (year 5).

The project will require $1,500,000 in net working capital to start (year 0) and require net working capital investments each year equal to 15% of the projected sales for subsequent years (year 1 - 5). NWC is recovered at the end of the fifth year.

Fixed costs (operating expenses) are $1,850,000 per year.

Variable costs are $190/unit, and the units are priced at $345 each.

The equipment needed to begin production has a cost of $19,500,000.

The equipment is qualified for accounting as MACRS depreciation:

Year 1: 14.29%, Year 2: 24.49%, Year 3: 17.49%, Year 4: 12.49%, Year 5: 8.93%

In 5 years, this equipment can be sold for 35% of its acquisition cost (original cost)

The company is in the 35% marginal tax bracket and has a required rate of return of 18%.

(a) Estimate FCF for each year

(b) Calculate NPV, IRR based on the estimated FCF from part a

(c) Create a NPV profile corresponding to discount rates between (6%, 8%, ... 40%)

(d) Do a sensitivity analysis using 2-input data table analyzing NPV given Selling price ($300, $320,...$400) , and VC ($160, $170, ...$210)

(e) Do a scenario analysis (optimistic and pessimistic) and report the summary results for NPV and IRR:

Optimistic case: Variable cost= $160/unit, Fixed cost= $1,600,000, selling price= $400/unit

Pessimistic case: Variable cost= $210/unit, Fixed cost= $2,050,000, selling price= $300/unit

O’Brien Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations:

During its first year of operations, O’Brien produced 94,000 units and sold 76,000 units. During its second year of operations, it produced 80,000 units and sold 93,000 units. In its third year, O’Brien produced 82,000 units and sold 77,000 units. The selling price of the company’s product is $73 per unit.

3. Assume the company uses absorption costing and a FIFO inventory flow assumption (FIFO means first-in first-out. In other words, it assumes that the oldest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3. (Round your intermediate calculations and final answers to 2 decimal places.)

b. Prepare an income statement for Year 1, Year 2, and Year 3. (Round your intermediate calculations to 2 decimal places.)

4. Assume the company uses absorption costing and a LIFO inventory flow assumption (LIFO means last-in first-out. In other words, it assumes that the newest units in inventory are sold first):

a. Compute the unit product cost for Year 1, Year 2, and Year 3. (Round your intermediate calculations and final answers to 2 decimal places.)

b. Prepare an income statement for Year 1, Year 2, and Year 3. (Round your intermediate calculations to 2 decimal places.)