A group of entrepreneurs want to purchase a rural hotel.

The renovation and purchase of the hotel has an estimated cost of €525,000.

This capital investment will be depreciated consistently over the next 5 years.

It is estimated that there will be 4,000 rooms total occupation per year, at a rate of €100 per room/night. Room occupation will rise by 5% year over year.

Running costs are estimated as €290,000 for the first year and will increase by 5% year over year.

The tax rate is 35%.

Step 1: Calculate the initial free cash flows correctly.

Step 2: If the partners require a minimum return of 8% on their investments, would you recommend that these businessmen buy the hotel? (Assume a continuous increase in cash flow of 1% from the 5^th year forwards). Why or why not?

1.What is the price of a 20-year bond paying 7 % annual coupons with a face (par) value of $1,000 if an 20-year bond making semi-annual payments and paying 7 % sells at par? Answer to the nearest cent, xxx.xx and enter without the dollar sign.

2.Suppose the interest rate on a 1-year T-bond is 6.3 % and that on a 3 year T-bond is 7.3 %.

Assuming the pure expectations theory is correct, what is the market's forecast for 2-year rates 1 year from now?

Enter your answer as a percentage and do not use the % symbol.

3.What is the price of a 19-year bond paying 6.1 % annual coupons with a face (par) value of $1,000 if the market rates for these bonds are 8.9 %? Answer to the nearest cent, xxx.xx and enter without the dollar sign.

An Adjustable Rate Mortgage (ARM) is made for $300,000 at an initial interest rate of 2 percent for

30 years. The ARM will be adjusted annually. The borrower believes that the interest rate at the

beginning of the year (BOY) 2 will increase to three percent (3%).

a. Assuming that the ARM is fully amortizing, what will monthly payments be during year 1?

b. Based on (a) what will the loan balance be at the end of year (EOY) 1?

c. Given that the interest rate is expected to be 3 percent at the beginning of year 2, what will

monthly payments be during year 2?

d. What will be the loan balance at the EOY 2?

e. What would be the monthly payments in year 1 if they are to be interest only?

f. Assuming terms in (e), what would monthly interest only payments be in year 2?

Jane is a project manager for Jackson Drinks Inc. She is evaluating the feasibility of project to construct a plant to produce a new health drink. She has the following information.

·         Sales of 500,000 bottles/year with a price of $6/bottle.

·         Variable cost per bottle is $3 per bottle.

·         Fixed costs are $500,000 per year.

·         Project life is 5 years.

·         Initial Investment (cash outlay) is $2,000,000.

·         Depreciation is $400,000/year.

·         Additional net working capital of $1,000,000 required. Same for all periods.

·         The firm’s required return is 16%.

·         The tax rate is 30%.

a.       What is the OCF in year 1 to year 5?

b.      What is the (Free) Cash Flow in year 1 to year 5?

c.       What is the NPV of the project? Should Jackson Drinks Inc. accept or reject the project?

An insurance company accepts an obligation to pay $7,000 at the end year 1, pay $8,000 at the end of year 2, and pay $9,600 at the end of year 3. The insurance company purchases a combination of the following three bonds in order to exactly match its obligation.

• Bond 1: 1-year 6% annual coupon bond with yield rate of 8%.

• Bond 2: 2-year zero coupon bond with yield rate of 7%.

• Bond 3: 3-year 20% annual coupon bond with yield rate of 12%.

(a) What face amount of each bond should the insurance company buy to do this?

(b) What price should the insurance company pay for the 3-year bond?

Please show detailed steps, and please don't use excel. I want to understand this.

TA is considering investing in one of the following two projects, where the chosen project will be replicated repeatedly in the future:

Which project is most beneficial for TA, and what is its EAA?

(A.) Project X; EAA = $12,341

(B.) Project X; EAA = $30,691

(C.) Project Y; EAA = $11,876

(D.) Project Y; EAA = $37,644

(E.) Neither Project X nor Project Y

Ringmeup Inc. had net income of $102,700 for the year ended December 31, 2019. At the beginning of the year, 36,000 shares of common stock were outstanding. On May 1, an additional 12,000 shares were issued. On December 1, the company purchased 4,500 shares of its own common stock and held them as treasury stock until the end of the year. No other changes in common shares outstanding occurred during the year. During the year, Ringmeup paid the annual dividend on the 7,000 shares of 4.30%, $100 par value preferred stock that were outstanding the entire year.

Required: Calculate basic earnings per share of common stock for the year ended December 31, 2019. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations:

Required:

1. Prepare an income statement for each year based on full costing.

2. Prepare an income statement for each year based on variable costing.

3. Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method.

A firm is considering a project with the following information:

• Project will require purchase of a machine for $92,101.00 that is MACRS depreciable over a five-year schedule. (no depreciation until end of year 1).
• Project will require immediate non-depreciable expenses of $25,021.00 TODAY (year 0).
• Project will have the following projected balance sheet values of NWC:

• Sales for the project will be $54,556.00 per year, with all other expenses (excluding depreciation) at 55.00% of sales.
• The tax rate for the firm is 34.00%, while the cost of capital is 10.00%

*assume project goes beyond two years

-What is the project cash flow for year 0?

-What is the project’s cash flow for year 1?

Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations:

Required:

1. Prepare an income statement for each year based on full costing.

2. Prepare an income statement for each year based on variable costing.

3. Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method.