4. You are the CEO of Valu-Added Industries, Inc. (VAI). Your firm has 10,000 shares of common stock outstanding, and the current price of the stock is $100 per share. There is no debt; thus, the “market value” balance sheet of VAI looks like:

VAI Market Value Balance Sheet
Assets $1,000,000 Equity $1,000,000

You then discover an opportunity to invest in a new project that produces positive cash flows with a present value of $210,000. Your total initial costs for investing and developing this project are only $110,000. You will raise the necessary capital for this investment by issuing new equity. All potential purchasers of your common stock will be fully aware of the project’s value and cost, and are willing to pay “fair value” for the new shares of VAI common.

What is the Net Present Value of this project?

How many shares of common stock must be issued (at what price) to raise the required

capital?

What is the effect of this new project on the value of the stock of the existing shareholders, if any?

4. You are the CEO of Valu-Added Industries, Inc. (VAI). Your firm has 10,000 shares of common stock outstanding, and the current price of the stock is $100 per share. There is no debt; thus, the “market value” balance sheet of VAI looks like:

VAI Market Value Balance Sheet
Assets $1,000,000 Equity $1,000,000

You then discover an opportunity to invest in a new project that produces positive cash flows with a present value of $210,000. Your total initial costs for investing and developing this project are only $110,000. You will raise the necessary capital for this investment by issuing new equity. All potential purchasers of your common stock will be fully aware of the project’s value and cost, and are willing to pay “fair value” for the new shares of VAI common.

What is the Net Present Value of this project?

How many shares of common stock must be issued (at what price) to raise the required

capital?

What is the effect of this new project on the value of the stock of the existing shareholders, if any?

How much does a sleeping bag cost? Let's say you want a sleeping bag that should keep you warm in temperatures from 20°F to 45°F. A random sample of prices ($) for sleeping bags in this temperature range is given below. Assume that the population of x values has an approximately normal distribution.

(a) Use a calculator with mean and sample standard deviation keys to find the sample mean price x and sample standard deviation s. (Round your answers to two decimal places.)

(b) Using the given data as representative of the population of prices of all summer sleeping bags, find a 90% confidence interval for the mean price μ of all summer sleeping bags. (Round your answers to two decimal places.)

4. You are the CEO of Valu-Added Industries, Inc. (VAI). Your firm has 10,000 shares of common stock outstanding, and the current price of the stock is $100 per share. There is no debt; thus, the “market value” balance sheet of VAI looks like:

VAI Market Value Balance Sheet
Assets $1,000,000 Equity $1,000,000

You then discover an opportunity to invest in a new project that produces positive cash flows with a present value of $210,000. Your total initial costs for investing and developing this project are only $110,000. You will raise the necessary capital for this investment by issuing new equity. All potential purchasers of your common stock will be fully aware of the project’s value and cost, and are willing to pay “fair value” for the new shares of VAI common.

What is the Net Present Value of this project?

How many shares of common stock must be issued (at what price) to raise the required

capital?

What is the effect of this new project on the value of the stock of the existing shareholders, if any?

4. You are the CEO of Valu-Added Industries, Inc. (VAI). Your firm has 10,000 shares of common stock outstanding, and the current price of the stock is $100 per share. There is no debt; thus, the “market value” balance sheet of VAI looks like:

VAI Market Value Balance Sheet
Assets $1,000,000 Equity $1,000,000

You then discover an opportunity to invest in a new project that produces positive cash flows with a present value of $210,000. Your total initial costs for investing and developing this project are only $110,000. You will raise the necessary capital for this investment by issuing new equity. All potential purchasers of your common stock will be fully aware of the project’s value and cost, and are willing to pay “fair value” for the new shares of VAI common.

What is the Net Present Value of this project?

How many shares of common stock must be issued (at what price) to raise the required

capital?

What is the effect of this new project on the value of the stock of the existing shareholders, if any?

4. You are the CEO of Valu-Added Industries, Inc. (VAI). Your firm has 10,000 shares of common stock outstanding, and the current price of the stock is $100 per share. There is no debt; thus, the “market value” balance sheet of VAI looks like:

VAI Market Value Balance Sheet
Assets $1,000,000 Equity $1,000,000

You then discover an opportunity to invest in a new project that produces positive cash flows with a present value of $210,000. Your total initial costs for investing and developing this project are only $110,000. You will raise the necessary capital for this investment by issuing new equity. All potential purchasers of your common stock will be fully aware of the project’s value and cost, and are willing to pay “fair value” for the new shares of VAI common.

What is the Net Present Value of this project?

How many shares of common stock must be issued (at what price) to raise the required

capital?

What is the effect of this new project on the value of the stock of the existing shareholders, if any?

Make or Buy

A restaurant bakes its own bread for a cost of $168 per unit (100 loaves), including fixed costs of $37 per unit. A proposal is offered to purchase bread from an outside source for $98 per unit, plus $7 per unit for delivery.

Prepare a differential analysis dated August 16, to determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread, assuming fixed costs are unaffected by the decision. If an amount is zero, enter zero "0".

Determine whether the company should make (Alternative 1) or buy (Alternative 2) the bread.

ABC Ltd. issued $3,000,000 bond that has 15% coupon rate paid semi-annually. The bond has a face value of $1000 and will mature 12 years from now. The company has just paid a divided of $6.50 per share on its 50,000 ordinary shares. The company forecasted to maintain a growth rate of 5% in dividends in future. The company has 20,000 preference shares with $100 face value which has a market price of $120 per share. Requirements: 1. What is the value of the bond if required rate of return is 12%? 2. What is the price of the company's ordinary shares if required rate of return is 18%? 3. What is the dividend rate of the company's preference share if rate of return is 14%? 4. What is the market value of the firm? 5. Calculate the capital structure of the company by identifying weight of the financing and equity? 6. Compute the weighted average cost of capital (WACC) under the traditional tax system. Tax rate is 30% and use Dividend Growth model (DGM)

1. Suppose a stock had an initial price of $69 per share, paid a dividend of $1.95 per share during the year, and had an ending share price of $53. Compute the percentage total return, the dividend yield, and the capital gains.

2. Suppose you bought a stock one year ago for $965.00. The stock sells for $935.00 today. The dividend is $100.

   1. a) What was your total dollar return on this investment over the past year?

   2. b) What was your total nominal rate of return on this investment over the past year?

   3. c) Fisher Effect: If the inflation rate last year was 5 percent, what was your total real rate of return on this investment?

3. 1. You've observed the following returns on Jason Corporation's stock over the past five years: 12 percent, -14 percent, 4 percent, 27 percent, and 7 percent.

      1. a) What was the average return on Jason's stock over this five-year period?

      2. b) What was the variance of Jason's returns over this period? The standard deviation?

1. An eyeglass retailer buys lenses from a supplier at $100 each. The retailer orders 250 lens pairs every year and the ordering cost is $36 for each pair. Carrying costs per year (based on average inventory) are estimated to be 20 percent for each pair. The supplier offers a 10 percent on order quantities of 50 or more lens pairs. Determine the best order quantity and total cost.
2. An electronic store sells 3,000 HD TV sets every quarter of the year. Each TV set costs the store $ 270.00. The carrying cost is set at 2% of the purchase price per unit per year. Each time an order is placed it costs the store $ 120.00 The supplier charges $10 for delivery of each order. Calculate:

a. Optimal order quantity

                                b. Number of orders per year

c. The supplier is willing to give a discount of 3% on the price of each set if the manager of the store orders 3,000 sets at a time. Should the manager accept the offer?