1. Company Amliba.Inc is considering building a second headquarter in a new city. The new office will create 5000 new jobs for the city. So the government is incentivized to support the project.

The company plans to issue $100 million bond with coupon rate of 8%. Coupon will be paid annually and the bond matures in 5 year.

As a form of support, local government guarantee the bond, so the YTM of the bond at issuance is 5%.

Another bond with exactly the same features but without government guarantee is currently trading at a price that generate a YTM of 10%.

Calculate the value of the government guarantee to the firm. (Ignore taxes.)

A successful computer business company is considering a new product line that require a new machine. It will cost $36,000,000. It will be fully depreciated to a zero book value on a straight line basis over 4 years. The project will generate $100,000,000 in sales each year for 4 years. Variable costs are 75% of sales and fixed costs are $8,500,000 per year for 4 years. To get the project started and for each year, net operating working capital (NOWC) is 1% of the next year's sales. The company will have $5,000,000 annually in interest expense as part of the financing. Tax rate is 25%. The company's financial advisor estimates the cost of capital (required return) as 14%. Note: Variable and fixed costs do not include depreciation or interest expense. a) Calculate the net present value (NPV) and internal rate of return (IRR). b) Should they consider the new line? Why? c) The financial manager is concerned about their estimates and conducts a scenario analysis. Variable costs could be 70%, 75% (expected) or 80% of sales and the cost capital could be 10%, 14%(expected) or 16%. Use a data table to analyze the NPV. What can you conclude and why is this important for evaluating the project?                                                                     

Panera has recently acquired a new branch and thus has customers in this new territory. They are interested in the default rate in their new territory. They wish to test the hypothesis that the default rate is different from their current customer base. They sample 93 files in area A, their current customers, and find that 42 have defaulted. In area B, the new customers, another sample of 90 files shows 79 have defaulted on their loans. What is the Test Statistics to test the Null Hypothesis H₀ : p_A = p_B against the alternative H_a : p_A ≠ p_B?

New Product Development

Think of a new product you recently purchased or used, or an ad for a new product. Share with the class this new product idea; in addition to describing this new item indicate whether this new product is either additions to existing product lines or improvements or revisions of existing products. Do you believe your new product will be among the few new product ideas that are truly successful? Why or why not?

5. Option to Wait.  Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $435,000 per year.  You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10-years from today.  The machine is currently priced at $2,300,000.  the cost of the machine will decline by $170,000 per year until it reaches $1,620,000 where it will remain.  If your required return is 12 percent, should you purchase the machine? If so, when should you purchase it?

Is the crime rate in New York different from the crime rate in New Jersey? Independent random samples from region A (cities in New York) and region B (cities in New Jersey) gave the following information about violent crime rate (number of violent crimes per 100,000 population). (Reference: U.S. Department of Justice, Federal Bureau of Investigation.)

Use a 10% level of significance to test the claim that there is no difference in the crime rate distributions of the two states.

Find the P-value of the sample test statistic. (Use 4 decimal places.)

The following data represent annual percentage returns on Vanguard Total Bond Index for a sequence of recent years. This fund represents nearly all publicly traded U.S. bonds. (Reference: Morningstar Mutual Fund Analysis.)

Test the sequence for randomness about the median. Use α = 0.05.

Find the sample test statistic R, the number of runs.

A new fuel injection system has been engineered for pickup trucks. The new system and the old system both produce about the same average miles per gallon. However, engineers question which system (old or new) will give better consistency in fuel consumption (miles per gallon) under a variety of driving conditions. A random sample of 41 trucks were fitted with the new fuel injection system and driven under different conditions. For these trucks, the sample variance of gasoline consumption was 53.6. Another random sample of 24trucks were fitted with the old fuel injection system and driven under a variety of different conditions. For these trucks, the sample variance of gasoline consumption was 39.7. Test the claim that there is a difference in population variance of gasoline consumption for the two injection systems. Use a 5% level of significance. How could your test conclusion relate to the question regarding the consistency of fuel consumption for the two fuel injection systems?

(a) What is the level of significance?
  

State the null and alternate hypotheses.

H_o: σ₁² = σ₂²; H₁: σ₁² > σ₂²H_o: σ₁² > σ₂²; H₁: σ₁² = σ₂²    H_o: σ₂² = σ₁²; H₁: σ₂² > σ₁²H_o: σ₁² = σ₂²; H₁: σ₁² ≠ σ₂²

(b) Find the value of the sample F statistic. (Round your answer to two decimal places.)
  

What are the degrees of freedom?

What assumptions are you making about the original distribution?

The populations follow independent normal distributions.The populations follow independent normal distributions. We have random samples from each population.    The populations follow dependent normal distributions. We have random samples from each population.The populations follow independent chi-square distributions. We have random samples from each population.

(c) Find or estimate the P-value of the sample test statistic.

P-value > 0.2000.100 < P-value < 0.200    0.050 < P-value < 0.1000.020 < P-value < 0.0500.002 < P-value < 0.020P-value < 0.002

(d) Based on your answers in parts (a) to (c), will you reject or fail to reject the null hypothesis?

At the α = 0.05 level, we reject the null hypothesis and conclude the data are not statistically significant.At the α = 0.05 level, we reject the null hypothesis and conclude the data are statistically significant.    At the α = 0.05 level, we fail to reject the null hypothesis and conclude the data are not statistically significant.At the α = 0.05 level, we fail to reject the null hypothesis and conclude the data are statistically significant.\

(e) Interpret your conclusion in the context of the application.

Fail to reject the null hypothesis, there is sufficient evidence that the variance in consumption of gasoline is greater in the new fuel injection systems.

Reject the null hypothesis, there is insufficient evidence that the variance in consumption of gasoline is greater in the new fuel injection systems.   

Reject the null hypothesis, there is sufficient evidence that the variance in consumption of gasoline is different in both fuel injection systems.

Fail to reject the null hypothesis, there is insufficient evidence that the variance in consumption of gasoline is different in both fuel injection systems.

Question 2:

A. Fairfax Pizza is considering buying a new oven. The new oven would be purchased today for 21,000 dollars. It would be depreciated straight-line to 1,400 dollars over 2 years. In 2 years, the oven would be sold for an after-tax cash flow of 2,500 dollars. Without the new oven, costs are expected to be 14,700 dollars in 1 year and 17,400 in 2 years. With the new oven, costs are expected to be 1,800 dollars in 1 year and 12,000 in 2 years. If the tax rate is 50 percent and the cost of capital is 5.05 percent, what is the net present value of the new oven project?

B. Oxygen Optimization is considering buying a new purification system. The new system would be purchased today for 20,400 dollars. It would be depreciated straight-line to 1,200 dollars over 2 years. In 2 years, the system would be sold and the after-tax cash flow from capital spending in year 2 would be 1,800 dollars. The system is expected to reduce costs by 7,400 dollars in year 1 and by 15,200 dollars in year 2. If the tax rate is 50 percent and the cost of capital is 10.55 percent, what is the net present value of the new purification system project?

C. What is the NPV of project A? The project would require an initial investment in equipment of 36,000 dollars and would last for either 3 years or 4 years (the date when the project ends will not be known until it happens and that will be when the equipment stops working in either 3 years from today or 4 years from today). Annual operating cash flows of 12,960 dollars per year are expected each year until the project ends in either 3 years or 4 years. In 1 year, the project is expected to have an after-tax terminal value of 27,269 dollars. The cost of capital for this project is 7.42 percent.

D.

Litchfield Design is evaluating a 3-year project that would involve buying a new piece of equipment for 410,000 dollars today. The equipment would be depreciated straight-line to 40,000 dollars over 2 years. In 3 years, the equipment would be sold for an after-tax cash flow of 50,000 dollars. In each of the 3 years of the project, relevant revenues are expected to be 296,000 dollars and relevant costs are expected to be 127,000 dollars. The tax rate is 50 percent and the cost of capital for the project is 5.76 percent. What is the NPV of the project?

​(New project analysis​) Garcia's Truckin' Inc. is considering the purchase of a new production machine for ​$200,000.The purchase of this machine will result in an increase in earnings before interest and taxes of ​$50,000 per year. To operate the machine​ properly, workers would have to go through a brief training session that would cost ​$7,000 after taxes. It would cost ​$4,000 to install the machine properly.​ Also, because this machine is extremely​efficient, its purchase would necessitate an increase in inventory of ​$20,000.This machine has an expected life of 10 ​years, after which it will have no salvage value.​ Finally, to purchase the new​ machine, it appears that the firm would have to borrow​ $100,000 at 12 percent interest from its local​ bank, resulting in additional interest payments of ​$12,000 per year. Assume simplified​ straight-line depreciation and that the machine is being depreciated down to​ zero, a 31 percent marginal tax​ rate, and a required rate of return of 14 percent.

a. What is the initial outlay associated with this​ project?

b. What are the annual​ after-tax cash flows associated with this project for years 1 through​ 9?

c. What is the terminal cash flow in year 10​(what is the annual​ after-tax cash flow in year 10 plus any additional cash flows associated with the termination of the​project)?

d. Should the machine be​ purchased?

Answer and show work in excel if possible