Balon Enterprises is looking to invest in a new product to extend their operations. The new project is expected to require an initial cash investment of $350,000 plus additional working capital of $50,000 will be required and this will be recovered at the end of year 6. At the end of the project the initial investment will have an expected salvage value of $0.
Cash inflows of $100,000 are expected at the end of each year for 5 years and then in year 6 the inflows are expected to drop off to $30,000. The company’s required rate of return of any project is 12%.

Assume cash returns occur at the end of each year apart from the initial investment.

Use the required rate of return as the discount rate and use the tables at the back of this booklet to find the discount rates.
Ignore tax.

(a) Conduct a net present value analysis for the new project. Show your workings.

(b) Based on the NPV analysis, state whether Balon Enterprises should invest in this new project and explain why.

(c) The Chief Financial Officer is concerned that the effects of COVID19 will mean that the forecasted cash inflows will only be $80,000 each year for years 1 to 5 and all other cash flows remain the same. Describe the effect of this change in estimate on the NPV. No calculation is required.

considering a new project will require $800,000 for new fixed assets. There is a total of $6,000 combined increase in inventories and account receivables and $2,000 increase in account payables. The project has a 6-year life. The fixed assets will be depreciated using 5-year MACRS to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 4 percent of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of 9,500 units and the selling price per unit is $250 while the variable cost per unit is expected to be $160. Annual fixed costs are expected to be $30,000. The tax rate is 35 percent and the required rate of return (cost of capital) is 13 percent. Calculate the project’s initial investment costs, annual operating cash flows and terminal cash flows. What are project’s NPV and IRR?

FYI: THIS IS A NEW PROBLEM WITH NEW A SET OF DATA.. PLEASE DO NOT PROVIDE OLD ANSWERS.

Tom Scott is the owner, president, and primary salesperson for Scott Manufacturing. Because of this, the company's profits are driven by the amount of work Tom does. If he works 40 hours each week, the company's EBIT will be $595,000 per year; if he works a 50-hour week, the company's EBIT will be $715,000 per year. The company is currently worth $3.65 million. The company needs a cash infusion of $1.75 million, and it can issue equity or issue debt with an interest rate of 7 percent. Assume there are no corporate taxes.

a. What are the cash flows to Tom under each scenario? (Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Do not round intermediate calculations.)

Scenario-1
Debt issue:

Scenario-2
Equity issue:

b. Under which form of financing is Tom likely to work harder?

__________Debt issue

or

__________Equity issue

Gladstone Corporation is about to launch a new product. Depending on the success of the new​ product, Gladstone may have one of four values next​ year: $ 152 ​million, $ 140 ​million, $ 95 ​million, and $ 84 million. These outcomes are all equally​ likely, and this risk is diversifiable. Suppose the​ risk-free interest rate is 5 % and​ that, in the event of​ default, 27 % of the value of​ Gladstone's assets will be lost to bankruptcy costs.​ (Ignore all other market​ imperfections, such as​ taxes.) a. What is the initial value of​ Gladstone's equity without​ leverage? Now suppose Gladstone has​ zero-coupon debt with a $ 100 million face value due next year. b. What is the initial value of​ Gladstone's debt? c. What is the​ yield-to-maturity of the​ debt? What is its expected​ return? d. What is the initial value of​ Gladstone's equity? What is​ Gladstone's total value with​ leverage? Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year. e. If Gladstone does not issue​ debt, what is its share​ price?

f. If Gladstone issues debt of $ 100 million due next year and uses the proceeds to repurchase​ shares, what will its share price​ be? Why does your answer differ from that in part

​(e​)?

Gladstone Corporation is about to launch a new product. Depending on the success of the new? product, Gladstone may have one of four values next? year: $ 153 ?million, $ 139 ?million, $ 95 ?million, and $ 79 million. These outcomes are all equally? likely, and this risk is diversifiable. Suppose the? risk-free interest rate is 5 % and? that, in the event of? default, 30 % of the value of? Gladstone's assets will be lost to bankruptcy costs.? (Ignore all other market? imperfections, such as? taxes.)

a. What is the initial value of? Gladstone's equity without? leverage? Now suppose Gladstone has? zero-coupon debt with a $ 100 million face value due next year. round to two decimal place

b. What is the initial value of? Gladstone's debt? round to two decimal place

c. What is the? yield-to-maturity of the? debt %? round to two decimal place .

What is its expected? return % ?   round to the nearest integer

d. What is the initial value of? Gladstone's equity? round to two decimal place

What is? Gladstone's total value with? leverage? round to two decimal place

Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.

e. If Gladstone does not issue? debt, what is its share? price? round to the nearest cent

f. If Gladstone issues debt of $ 100 million due next year and uses the proceeds to repurchase? shares, what will its share price? be? round to nearest cent

Why does your answer differ from that in part ?(e?)?

FYI: THIS IS A NEW SET OF PROBLEM WITH A NEW SET OF DATA..... PLEASE DO NOT PROVIDE OLD ANSWERS

Fly-By-Night Couriers is analyzing the possible acquisition of Flash-in-the-Pan Restaurants. Neither firm has debt. The forecasts of Fly-By-Night show that the purchase would increase its annual aftertax cash flow by $310,000 indefinitely. The current market value of Flash-in-the-Pan is $7 million. The current market value of Fly-By-Night is $16 million. The appropriate discount rate for the incremental cash flows is 10 percent. Fly-By-Night is trying to decide whether it should offer 35 percent of its stock or $10 million in cash to Flash-in-the-Pan.

a. What is the synergy from the merger? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Synergy value           $

b. What is the value of Flash-in-the-Pan to Fly-By-Night? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Value           $

c. What is the cost to Fly-By-Night of each alternative? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

d. What is the NPV to Fly-By-Night of each alternative? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g., 1,234,567.)

Gladstone Corporation is about to launch a new product. Depending on the success of the new​ product, Gladstone may have one of four values next​ year:

$ 155

​million,

$ 137

​million,

$ 96

​million, and

$ 83

million. These outcomes are all equally​ likely, and this risk is diversifiable. Suppose the​ risk-free interest rate is

5 %

and​ that, in the event of​ default,

23 %

of the value of​ Gladstone's assets will be lost to bankruptcy costs.​ (Ignore all other market​ imperfections, such as​ taxes.)

a. What is the initial value of​ Gladstone's equity without​ leverage?

Now suppose Gladstone has​ zero-coupon debt with a

$ 100

million face value due next year.

b. What is the initial value of​ Gladstone's debt?

c. What is the​ yield-to-maturity of the​ debt? What is its expected​ return?

d. What is the initial value of​ Gladstone's equity? What is​ Gladstone's total value with​ leverage?

Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.

e. If Gladstone does not issue​ debt, what is its share​ price?

f. If Gladstone issues debt of

$ 100

million due next year and uses the proceeds to repurchase​ shares, what will its share price​ be? Why does your answer differ from that in part

​(e​)

An employer is hiring a new employee and wants to ensure that the new hire does not have embarrassing, illegal, or inappropriate postings on Facebook. To qualify for the position, applicants are required to share their Facebook login and password with employer. Is this legal in Oklahoma? Elaborate in your response - please do not give me a yes or not answer. Do all states prohibit this conduct? What is your opinion on Oklahoma law?

Gladstone Corporation is about to launch a new product. Depending on the success of the new product, Gladstone may have one of four values next year: $150 million, $135 million, $90 million, or $80 million. These outcomes are all equally likely, and this risk is diversifiable. Suppose the risk-free interest rate is 5% and that, in the event of default, 25% of the value of Gladstone’s assets will be lost to bankruptcy costs. (Ignore all other market imperfections, such as taxes.).

(a) What is the initial value of Gladstone’s equity without leverage? Now suppose Gladstone has zero-coupon debt with a $100 million face value due next year.

(b) What is the initial value of Gladstone’s debt?

(c) What is the yield-to-maturity of the debt? What is its expected return?

(d) What is Gladstone’s total value with leverage? What is the value of Gladstone’s levered equity? Suppose Gladstone has 10 million shares outstanding and no debt at the start of the year.

(e) If Gladstone does not issue debt, what is its share price?

(f) If Gladstone issues debt with face value $100 million due next year and uses the proceeds to repurchase shares, what will its share price be? Why does your answer differ from that in part (e)?

ABC Ltd is considering the establishment of a new branch in a new shopping centre. The company has been offered a five-year lease by the shopping centre. You have been provided with the following information:

(i) The new branch would require an initial investment of $70,000 for machinery, depreciated at 20% per annum on a straight-line basis. After 5 years the machinery would have a salvage value of $6,000.

(ii) A computer would be required to connect to the company’s central system. This would cost $3,000 and be depreciated over 3 years on a straight-line basis. The computer would have no value at the end of 5 years.

(iii) Sales are projected to be $250,000 per annum.

(iv) Recurring costs of the new branch would be:

Staffing $90,000 per annum.

Rent (payable in advance) $48,000 per annum.

Light and power $18,000 per annum.

Inventories (fabric, thread, small tools etc.) $12,000 per annum.

A proportion of head office costs amounting to $10,000 per annum.

(v) Last year the company had carried out a market research which suggested that the new branch would be viable and this research cost was $20,000.

(vi) The company pays tax at 30% and its after-tax cost of capital is 15% per annum.

(vii) The company’s bank has advised that it would charge 10% per annum for a five-year loan to fund the set-up of the new branch. Available earnings are not enough to fund the project. The company would borrow the balance amounting to $50,000 from the bank.

Prepare the cash flow table (which incorporates taxes and includes initial investment, operating and terminal cash flows) for the project using the information given above. Calculate the net present value (NPV) payback period for the project. Should ABC Ltd go ahead with the new branch?