Willerton Industries’ long term debt is comprised of 20-year $1,000 face value bonds totaling $65 million issued seven years ago at an 8% coupon rate. The bonds are now selling to yield 6%. Willerton’s preferred is from a single issue of $100 par value totaling $15 million, 9% preferred stock that is now selling to yield 8%. Willerton has four million shares of common stock outstanding at a current market price of $31. Calculate Willerton’s market value based capital structure.

Market value of debt:

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            Market value of preferred stock

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            Total market values

Blue Ocean already spent $85,000 on a feasibility study for a machine that will produce a new product. The machine will cost $2,575,000 and it will require modifications costing an additional amount of $365,000. Blue Ocean will need to invest $75,000 for additional inventory. The project will last for 7 years and the machine will be depreciate using straight line method with no residual value.

This machine is expected to produce an output of 20,000 units annually with the estimated selling price of $100. Operating variable cost will be 25% of revenues, operating fixed cost is estimated to be $400,000. Additional administrative expense is about $200,000. Blue Ocean's tax rate is 30%.

a.     Calculate the project's initial investment

b.     Calculate the project's annual cash flows from year 1 to year 5.

a) Zena produces fresh flowers. She faces a perfectly competitive market. The table below presents her cost schedule. Complete the table by calculating marginal cost (MC).(1 mark)

b) If the market price of a box of fresh flower is $13, how much output will the firm produce to maximize the profit. Calculate her profit at that level of output. Show your work

c) Draw and discuss the major differences between the demand curve faced by a firm in perfectly competitive market and a firm in monopoly market.(2 mark)

Production Possibilities Table for Ireland

Product A B C D

Wine 120 90 60 0

Copper 0 15 30 60

Production Possibilities Table for Peru

Product A B C D

Wine 500 350 150 0

Copper 0 30 70 100

Which country has an absolute advantage in Wine? In Copper?

What is the opportunity cost of producing 1 copper in Ireland?

What is it in Peru?

Which country has a comparative advantage in copper?

Which country has a comparative advantage in wine?

What are the terms of trade?

? < 1 copper < ?

Draw the new Consumption Possibilities Frontier (CPF) for these two countries (on the reverse side), assuming a world price of:

1 copper = 3 wine.

2. Suppose that an individual’s demand for the number of physician visits per year, Q, can be represented by the following equation: Q = 5 – 0.04P, where P, the market price of an office visit, equals the marginal cost of $100. Determine the efficient number of office visits according to conventional theory. Now assume that the person purchases complete health insurance coverage and the demand for (but not quantity demanded of) physician care remains unchanged. How many times would this fully insured person visit the physician? Calculate the welfare loss or moral hazard cost associated with the insurance coverage.

3. Graphically and in words, explain how the analysis in question 2 might change if we adopt the conceptual framework provided by Nyman.

A marketing researcher wants to estimate the mean savings ($) realized by shoppers who showroom. Showrooming is the practice of inspecting products in retail stores and then purchasing the products online at a lower price. A random sample of 100 shoppers who recently purchased a consumer electronics item online after making a visit to a retail store yielded a mean savings of $58 and a standard deviation of $55.
a. Construct a 95% confidence interval estimate for the mean savings for all showroomers who purchased a consumer electronics item.

b. Suppose the owners of a consumer electronics retailer wants to estimate the total value of lost sales attributed to the next 1,000 showroomers that enter their retail store. How are the results in (a) useful in assisting the consumer electronics retailer in their estimation?

Pagemaster Enterprises is considering a change from its current capital structure. The company currently has an all-equity capital structure and is considering a capital structure with 25% debt. There are currently 4,500 shares outstanding at a price per share of $60. EBIT is expected to remain constant at $33,000. The interest rate on the new debt is 7% and there are no taxes.

a) Rebecca owns $18,000 worth of stock in the company. If the firm has a 100% payout, what is her cash flow?

b) What would her cash flow be under the new capital structure assuming that she keeps all of her shares?

c) Suppose the company does convert to the new capital structure. Show how Rebecca can maintain her current cash flow.

Edelman Engines has $14 billion in total assets — of which cash and equivalents total $100 million. Its balance sheet shows $2.1 billion in current liabilities — of which the notes payable balance totals $0.91 billion. The firm also has $7.7 billion in long-term debt and $4.2 billion in common equity. It has 300 million shares of common stock outstanding, and its stock price is $26 per share. The firm's EBITDA totals $1.014 billion. Assume the firm's debt is priced at par, so the market value of its debt equals its book value. What are Edelman's market/book and its EV/EBITDA ratios? Do not round intermediate calculations.

Assume that a radiologist group practice has the following cost structure:

a. What is the group’s breakeven point in volume?

b. Complete the following table. (Hint: total costs= fixed costs + (variable cost per procedure x procedures)

c. Sketch out a breakeven graph depicting the BE point. (Hint: use Excel to produce the graph. When done, copy/paste the graph on the space provided below).

Individual or component costs of capital) Compute the cost of capital for the firm for the following:

• A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 10.8%. Interest payments are $54.00 and are paid semiannually. The bonds have a current market value of $1,130 and will mature in 15 years. The firm's marginal tax rate is 34%.
• A new common stock issue that paid a $1.77 dividend last year. The firm's dividends are expected to continue to grow at 8.4% per year, forever. The price of the firm's common stock is now $27.61.
• A preferred stock that sells for $141, pays a dividend of 8.5%, and has a $100 par value.
• A bond selling to yield 10.4% where the firm's tax rate is 34%