Boran Stockbrokers, Inc., selects four stocks for the purpose of developing its own index of stock market behavior. Prices per share for a year 1 base period, January year 3, and March year 3 follow. Base-year quantities are set on the basis of historical volumes for the four stocks.

Compute the price relatives for the four stocks making up the Boran index. (Round your answers to one decimal place.)

Use the weighted average of price relatives to compute the January year 3 and March year 3 Boran indexes. (Round your answers to one decimal place.)

I_Jan=

I_Mar=

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.4 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $1,980,000 in annual sales, with costs of $675,000. The project requires an initial investment in net working capital of $200,000, and the fixed asset will have a market value of $310,000 at the end of the project. a. If the tax rate is 25 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.) b. If the required return is 18 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Year 0

Year 1

Year 2

Year 3

NPV

As a portfolio manager for an Barletta Bank, you are about to invest $10 Billion in one of four possible investments:
            ♦          12-year zero-coupon bonds issued by Boudreaux Boats;
            ♦          10-year 12%-coupon bonds issued by Boudreaux Boats;
            ♦          7-year 8%-coupon bonds issued by Boudreaux Boats;
          ♦          1-year commercial paper issued by Boudreaux Boats
                        (commercial paper is 1-year debt, like a bank issuing a 1-year CD.

You plan to maintain your investments for exactly one year. You anticipate that U.S. economic growth will increase substantially over the next year, while most other investors believe that the attached yield curve accurately reflects expectations for economic growth during the next year.        

Assuming your expectations about the economy are correct, how well will each of these 4 fixed-income investments perform over the next 1 year relative to each other? Which investment should you choose and why?

Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.38 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,805,000 in annual sales, with costs of $715,000. The project requires an initial investment in net working capital of $440,000, and the fixed asset will have a market value of $465,000 at the end of the project.

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.64 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,060,000 in annual sales, with costs of $755,000. The project requires an initial investment in net working capital of $280,000, and the fixed asset will have a market value of $270,000 at the end of the project. If the tax rate is 35 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.) Cash Flow Year 0 $ Year 1 $ Year 2 $ Year 3 $ If the required return is 13 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV $

Comparing three depreciation methods

Dexter Industries purchased packaging equipment on January 8 for $72,000. The equipment was expected to have a useful life of three years, or 18,000 operating hours, and a residual value of $4,500. The equipment was used for 7,600 hours during Year 1, 6,000 hours in Year 2, and 4,400 hours in Year 3.

Required:

1. Determine the amount of depreciation expense for the three years ending December 31, by (a) the straight-line method, (b) the units-of-activity method, and (c) the double-declining-balance method. Also determine the total depreciation expense for the three years by each method. Round the final answers for each year to the nearest whole dollar.

2. What method yields the highest depreciation expense for Year 1?

3. What method yields the most depreciation over the three-year life of the equipment?

Down Under Boomerang, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.31 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life. The project is estimated to generate $1,785,000 in annual sales, with costs of $695,000. The project requires an initial investment in net working capital of $400,000, and the fixed asset will have a market value of $405,000 at the end of the project

. a. If the tax rate is 25 percent, what is the project’s Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567. A negative answer should be indicated by a minus sign.)

b. If the required return is 11 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

2. he Beijing Hat Company (BHC) has a project to produce white summer hats with an English rose motif. The initial investment is £37 million and the project will last 10 years. The revenue in each year from year 1 to year 10 will be £26 million but the costs, which will be £10 million in year 1, will then grow by 17% each year over the life of the project. (This means that the costs in year 2, for example, will be 17% higher than the costs in year 1, the costs in year 3 will be 17% higher than the costs in year 2, etc.). BHC does not pay tax and the cost of capital for the project is 5% per year.

   1. Compute the free cash flows (FCFs) on the project.

   2. (5marks)BHC usually employs the internal rate of return(IRR)to assess projects. Under what circumstances is IRR a reliable rule for judging whether a project should be accepted?

   3. What are the problems in using IRR to decide whether BHC’s summer hat project should go ahead?

   4. Should BHC go ahead with the project?