Assume that the net cash flow of a potential $7.25 million investment is $1.1 million in year 1, then $1.25 million in year 2, $1.4 million in year 3, $2.2 million in year 4 and year 5, and then sold at the end of year 5 for $850,000. Further assume that in each year cash flows (excluding initial investment) could be as much as $400,000 less than forecast, or $400,000 more than forecast. Suppose you assess the “low net cash flow” probability at 25 percent likely, the base (original) scenario at 50 percent likely, and the “high net cash flow” probability at 25 percent. The corporate cost of capital is 9 percent.

1. What is the worst case MIRR? ____%

- What is the best case MIRR? ____%

30-year maturity bond has a 5.3% coupon rate, paid annually. It sells today for $884.92. A 20-year maturity bond has a 4.8% coupon rate, also paid annually. It sells today for $890.5. A bond market analyst forecasts that in five years, 25-year maturity bonds will sell at yields to maturity of 6.3% and 15-year maturity bonds will sell at yields of 5.8%. Because the yield curve is upward sloping, the analyst believes that coupons will be invested in short-term securities at a rate of 4.3%.

a. Calculate the (annualized) expected rate of return of the 30-year bond over the 5-year period. (Round your answer to 2 decimal places.)

b. What is the (annualized) expected return of the 20-year bond? (Round your answer to 2 decimal places.)

A self-employed worker operates a firewood-splitting service. He purchased a commercial-grade wood splitter for $5800. He used $400 of business capital and financed the balance at 5% per year for 3 years. The estimated values of the splitter for the next 6 years are $2200 after the first year of ownership, decreasing by $400 per year to year 5, after which the resale value remains at $600. Annual operating costs are expected to be $1000 the first year, increasing by 10% each year thereafter. He considers keeping the splitter at least 6 years. If money is worth 7% per year, for how many years should the splitter be retained? (Perform the Economic Minimum Life analysis for at least 12 years.) Spreadsheet solution required with a summary of what is being analyzed.

Tao Wang is considering leasing space for five years for his Chinese Buffet food establishment. He has three lease options as follows: 1. Fixed lease options: Pay $5,000 per month for sixty months beginning on the first day of the five-year lease. Pay $55,000 per year on the first day of each year for five years. 2. Mixed lease option: Pay $25,000 on the first day of each year and 3 percent of annual sales on the last day of each year for five years. The forecasted annual sales are $1,400,000 for the first year, and sales are expected to increase by 5 percent each year. Assume Tao’s cost of capital is 10 percent. Determine the annual cash rents under each option.

Assume that the net cash flow of a potential $7.25 million investment is $1.1 million in year 1, then $1.25 million in year 2, $1.4 million in year 3, $2.2 million in year 4 and year 5, and then sold at the end of year 5 for $850,000. Further assume that in each year cash flows (excluding initial investment) could be as much as $400,000 less than forecast, or $400,000 more than forecast. Suppose you assess the “low net cash flow” probability at 25 percent likely, the base (original) scenario at 50 percent likely, and the “high net cash flow” probability at 25 percent. The corporate cost of capital is 9 percent.

1. What is the worst case NPV? $ _____

- What is the best case NPV? $_____

-What is the expected NPV on the basis of the scenario analysis? $_______

The following data were taken from the financial statements of Hunter Inc. for December 31 of two recent years:

The income before income tax was $447,700 and $391,700 for the current and previous years, respectively.

a. Determine the ratio of liabilities to stockholders' equity at the end of each year. Round to one decimal place.

b. Determine the times interest earned ratio for both years. Round to one decimal place.

"A company is considering entering into a new marketing campaign. If it engages in this marketing campaign, it must pay $10,000 immediately and $8,000 each at the end of year 1 and year 2. The company believes its annual revenues due to the marketing campaign will be $12,000 at the end of year 1, $10,000 at the end of year 2, and $7,000 at the end of year 3. What is the annual equivalent worth of this marketing campaign over the next three years? The interest rate is 5.5% compounded annually."

Finally, assume you currently have $200,000 that you are ready to invest for retirement. In addition, you plan to save

• $6,000 per year at the end of each year for years 1-9
• $25,000 at the end of year 10
• $9,000 per year at the end of each year for years 11-22
• Assuming you earn 8% as an annual rate of return, how much will you have 22 years from today when you retire?

Classic Manufacturers invests $200,000 in a piece of equipment. The company’s management has estimated that the equipment will generate revenue of $50,000 in Year 1, $60,000 in Year 2, and $80,000 in Year 3 to Year 5. At the end of Year 5 the equipment will have zero salvage value. Given that the company depreciates the equipment on a straight-line basis and that there are no other revenues and expenses, the average accounting rate of return is closest to:

At the beginning of the current year, Trenton Company's total assets were 258,000 and its total liabilities were 180,000 during the year the company reported total revenues of 103,000, total expenses of 81,000 and dividends of 10,000. There were no other changes in equity during the year and total assets at the end of the year were 270,000. Trenton Company's debt ratio at the end of the current year is. A 50.0%. B 1.50%. C 66.7% D 33.3% E 69.8%