Roger has a levered cost of equity of 0.12. He is thinking of investing in a project with upfront costs of $8 million, which pays $2 million per year for the next 8 years. He is going to borrow $4 million to offset the startup costs at a rate of 0.05. His tax rate is 0.3. He will repay this loan at the end of the project. What is the NPV of this project, using the FTE method?

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643,693 margin of error +/- 10,000

The firm's weighted average cost of capital is 13% and it has $2550000 of debt at market value and $510000 of preferred stock in terms of market value. The estimated free cash flow over next 5 years are in the table. Beyond 2024 to infinity, the firm expects its free cash flow to grow by 6% annually.

2020 - $250000, 2021 - $310000, 2022 - $380000, 2023 - $430000, 2024 - $470000

a. Estimate the value of the entire company by using free cash flow valuation model.

b. Use your finding in part a, along with the data provided above, to find common stock value.

c. If the firm plans to issue 200000 shares of common stock, what is its estimated value per share.

Derozan Corp. manufactured equipment at a cost of $167,770 and leased it to B Corp. on January 1, 2019 for an eight-year period expiring December 31, 2026. The asset’s economic life is 10 years. Equal payments under the lease are $46,930 and are due on January 1 of each year. The first payment was made on January 1, 2019. The implicit rate used by Derozan is 8%.

Additional information:                                           

Present value of an annuity due of $1 for 8 periods at 8%          6.21                                      

Present value of an annuity due of $1 for 16 periods at 4%       12.12                                       

What is the amortization expense B will take for the year ended December 31, 2019?

1. What is not a cost of keeping money in a checking account?

A) Transaction fee for ATM transaction

B) Fees for various services like stop payments

C) Minimum balance requirement for free checking

D) FDIC insurance

2. You have estimated that you need $6,500 in liquid assets for an emergency fund. You currently have only $1,000, which is invested in a savings account earning 3percent nominal interest, compounded monthly. Your current budget leaves $290per month to apply to this goal. If you plan to add this money to your savings at the end of every month, how much will you have after one year?

3. a) Suppose that a firm has a capital cost (r) of $8 and a labor cost (w) of $4. Graph an isocost line associated with spending $1,000. On the same graph, draw another isocost line associated with spending $2,000. What are the slopes of these lines?

b) Using our cost-minimizing (economic efficiency) condition, what is the optimal ratio of the marginal product of labor to the marginal product of capital for this firm? Why? Use a production isoquant on your graph to demonstrate your answer.

c) Suppose the cost of labor is actually $8, rather than $4. How do your isocost lines change? How does your answer to b) change? How would you expect the firm’s behavior to change?

The table below shows Cash flows to the Equity. WACC = 10%, and the cost of equity = 12%.

What is the NPV and IRR of this project?

The cost of 5 gallons of ice cream has a variance of 49 with a mean of 37 dollars during the summer. What is the probability that the sample mean would be greater than 35.2 dollars if a sample of 77 5-gallon pails is randomly selected? Round your answer to four decimal places.

A firm has estimated its cost of capital as 5% and is considering a project with an initial investment of -$265,000. The subsequent cash flows are $65,000; $77,000; $83,000; $91,000; and $96,000. In the final year (year #6), the firm must pay $50,000 to clean up the site. Calculate the project’s MIRR using the three methods discussed in class. Please provide timelines, a description of all of your math, and calculator inputs.

a. A new operating system for an existing machine is expected to cost $580,000 and have a useful life of six years. The system yields an incremental after-tax income of $175,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $19,600. (Round your answers to the nearest whole dollar.)

b. A machine costs $430,000, has a $27,800 salvage value, is expected to last eight years, and will generate an after-tax income of $78,000 per year after straight-line depreciation. (Round your answers to the nearest whole dollar.)

Inventories

Inventories on the Consolidated Balance Sheets are valued at the lower of cost and net realizable value on a weighted-average cost basis. The Company reduces the carrying value of inventory through a lower of cost and net realizable value adjustment, the impact of which is reflected in cost of sales, exclusive of depreciation and amortization, on the Consolidated Statements of Operations and Comprehensive Income (Loss). The lower of cost and net realizable value adjustment is based on the Company’s consideration of multiple factors and assumptions including demand forecasts, current sales volumes, expected sell-off activity, composition and aging of inventory, historical recoverability experience and risk of obsolescence from changes in economic conditions or customer preferences.

Additionally, as part of inventory valuation, inventory shrinkage estimates based on historical trends from actual physical inventories are made each quarter that reduce the inventory value for lost or stolen items. The Company performs physical inventories on a periodic basis and adjusts the shrink estimate accordingly.

Using the Above information about Inventory,

What Inventory Costing method does A&F use to value it's inventory ?