This is a free webinar hosted by the Personal Finance concentration area of the Military Families Learning Network on February 21, 2017.
The time value of money (e.g., present and future value of a lump sum or an annuity) is one of the most fundamental building blocks of financial goal-setting and decision-making. This 90-minute webinar will discuss basic time value of money concepts and the application of time value of money concepts to real-life financial planning decisions. The webinar will also model “hands-on” calculations that participants can use with others (e.g., clients and students) and describe online resources (e.g., videos, calculators, and curricula) that teach time value of money concepts. Participants should bring a financial calculator to complete a series of financial decision-making problems that will be presented during the webinar.
Participants will need to do manual calculations during this webinar. Please join the webinar with a calculator or have access to an online calculator. Additional webinar resources available at https://learn.extension.org/events/2878.
This is a free webinar hosted by the Personal Finance concentration area of the Military Families Learning Network on February 21, 2017.
The time value of money (e.g., present and future value of a lump sum or an annuity) is one of the most fundamental building blocks of financial goal-setting and decision-making. This 90-minute webinar will discuss basic time value of money concepts and the application of time value of money concepts to real-life financial planning decisions. The webinar will also model “hands-on” calculations that participants can use with others (e.g., clients and students) and describe online resources (e.g., videos, calculators, and curricula) that teach time value of money concepts. Participants should bring a financial calculator to complete a series of financial decision-making problems that will be presented during the webinar.
Participants will need to do manual calculations during this webinar. Please join the webinar with a calculator or have access to an online calculator. Additional webinar resources available at https://learn.extension.org/events/2878.
Concepts covered:
Concept of Time value of Money
What is Time Line
Concept of Future Value
What is Simple interest and Compound Interest
Using Financial Calculator or Excel functions
What is Present value and Discounting
Finding the discount rate
Finding number of period
Rule of 72
Mathcad seven common financial computationsJulio Banks
The most important factor in a marital relationship is the wise management of the family income. I strongly recommend that dating or married couples consider mastering the simple financial calculations in this document. I have transcribed the reference document verbatim to the level allowed by Mathcad. The numerical results exactly match all of the examples provided in the reference article given included at the end of the Mathcad calculations. This last method is useful when borrowing or lending and need to know the interest
rate of return (ROR) being paid or collected, respectively. Henceforth, let us refer to i simply, as ROR.
time value of money
,
concept of time value of money
,
significance of time value of money
,
present value vs future value
,
solve for the present value
,
simple vs compound interest rate
,
nominal vs effective annual interest rates
,
future value of a lump sum
,
solve for the future value
,
present value of a lump sum
,
types of annuity
,
future value of an annuity
Concepts covered:
Concept of Time value of Money
What is Time Line
Concept of Future Value
What is Simple interest and Compound Interest
Using Financial Calculator or Excel functions
What is Present value and Discounting
Finding the discount rate
Finding number of period
Rule of 72
Mathcad seven common financial computationsJulio Banks
The most important factor in a marital relationship is the wise management of the family income. I strongly recommend that dating or married couples consider mastering the simple financial calculations in this document. I have transcribed the reference document verbatim to the level allowed by Mathcad. The numerical results exactly match all of the examples provided in the reference article given included at the end of the Mathcad calculations. This last method is useful when borrowing or lending and need to know the interest
rate of return (ROR) being paid or collected, respectively. Henceforth, let us refer to i simply, as ROR.
time value of money
,
concept of time value of money
,
significance of time value of money
,
present value vs future value
,
solve for the present value
,
simple vs compound interest rate
,
nominal vs effective annual interest rates
,
future value of a lump sum
,
solve for the future value
,
present value of a lump sum
,
types of annuity
,
future value of an annuity
BUS 401 Entire Course Work Principles of Finance
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could be convertible into 32 shares of stock). Coupon payments will be made annually. The
bonds will be noncallable for 5 years, after which they will be callable at a price of 91,090;
this call price would decline by $6 per year in Year 6 and each year thereafter. For
simplicity, assume that the bonds may be called or converted only at the end of a year,
immediately after the coupon and dividend payments. Management will call the bonds
when their conversion value exceeds 25o/o of thetr par value (not their call price).
a. For each year, caiculate (1) the anticipated stock price, (2) the anticipated conversion
value, (3) the anticipated straight-bond price, and (4) the cash flow to the investor
asstrming conversion occurs. At what year do you expect the bonds will be forced into
conversion with a call? What is the bond's value in conversion when it is converted at
this time? What is the cash flow to the bondholder when it is converted at this time?
(Hint: The cash flow includes the conversion value and the coupon payment, because
the conversion occurs immediately after the coupon is paid.)
b. What is the expected rate of return (i.e., the before-tax component cost) on the
proposed convertible issue?
c. Assume that the convertible bondholders require a 9o/o rale of return. If the coupon
rate remains unchanged, then what conversion ratio will give a bond price of $1,000?
Paul Duncan, financiai manager of EduSoft Inc., is facing a dilemma. The firm was
founded 5 years ago to provide educational software f<lr the rapidly expanding primary
and secondary school rnarkets. Although EduSoft has done well, the firm's founder
believes an industry shakeout is irnminent. To surwive, EduSoft must grab market share
now, and this will require a large infusion of new capital.
Because he expects earnings to continue rising sharply and looks for the stock price to
follow suit, Mr. Duncan does not think it lvouid be wise to issue new common stock at
this time. On the other hand, interest rates are currently high by historical standards, and
the firm's B rating means that interest payments on a nerv debt issue nould be prohibitive.
Thus, he has narrowed his choice offinancing alternatives to (l) preferred stock, (2) bonds
with warrants, or (-l) convertible bonds.
As Duncan's assistant, you have been asked to help in the decision process by
ansu,ering the following questions.
a. How does preferred stock differ from both common equity and debt? Is preferred
stock more risky than common stock? What is floating rate preferred stock?
b. How can knowledge of call options help a financial manager to better understand
warrants and convertibles?
c. Mr. Duncan has decided to eliminate preferred stock as one of the alternatives and
focus on the others. EcluSoll's investment banker estimates that EduSoft could issue a
bond-with-warrants package consisting of a 2O-year bond and 27 warrants. Each
warrant would have a strike p.
1
Assignment 2 Winter 2022
Problem 1
Assume you have the option to buy one of three bonds. All have the same degree of default risk
and mature in 15 years. The first is a zero-coupon bond that pays $1,000 at maturity. The
second has a 7 percent coupon rate and pays the $70 coupon once per year. The third has a 9
percent coupon rate and pays the $90 coupon once per year.
a. If all three bonds are now priced to yield 8 percent to maturity, what are their prices?
b. If you expect their yields to maturity to be 8 percent at the beginning of next year, what will
their prices be then? What is your before-tax holding period return on each bond? If your tax
bracket is 30 percent on ordinary income and 20 percent on capital gains income, what will
your after-tax rate of return be on each? Assume you do not sell the bonds.
c. Recalculate your answer to (b) under the assumption that you expect the yields to maturity on
each bond to be 7 percent at the beginning of next year.
d. Re-do the calculations in parts b and c above, assuming you will sell the bonds at the end of the
year.
Problem 2
A University endowment fund has sought your advice on its fixed-income portfolio strategy.
The characteristics of the portfolios current holdings are listed below:
Market
Credit Maturity Coupon Modified Value of
Bond Rating (yrs.) Rate (%) Duration Convexity Position
A Cnd. Govt. 3 0 2.727 9.9 $30,000
B A1 10 8 6.404 56.1 $30,000
C Aa2 5 12 3.704 18.7 $30,000
D Agency 7 10 4.868 32.1 $30,000
E Aa3 12 0 10.909 128.9 $30,000
$150,000
a) Calculate the modified duration for this portfolio.
b) Suppose you learn that the modified duration of the endowment’s liabilities is 6.5 years.
Identify whether the bond portfolio is: i) immunized against interest rate risk, ii) exposed to net
price risk, or iii) exposed to net re-investment risk. Briefly explain what will happen to the net
position of the endowment fund if in the future there is a significant parallel upward shift in the
yield curve.
c) Your current active view for the fixed income market over the coming months is that Treasury
yields will decline and corporate credit spreads will also decrease. Briefly discuss how you
could restructure the existing portfolio to take advantage of this view.
2
Problem 3
A 20-year maturity bond with a 10% coupon rate (paid annually) currently sells at a yield to
maturity of 9%. A portfolio manager with a 2-year horizon needs to forecast the total return on
the bond over the coming 2 years. In 2 years, the bond will have an 18-year maturity. The analyst
forecasts that 2 years from now, 18-year bonds will sell at yield to maturity of 8%, and that
coupon payments can be reinvested in short-term securities over the coming 2 years at a rate of
7%.
a) What is the 2-year return on the bond
b) What will be the rate of return the manager forecasts that in 2 years the yiel ...
1
Assignment 2 Winter 2022
Problem 1
Assume you have the option to buy one of three bonds. All have the same degree of default risk
and mature in 15 years. The first is a zero-coupon bond that pays $1,000 at maturity. The
second has a 7 percent coupon rate and pays the $70 coupon once per year. The third has a 9
percent coupon rate and pays the $90 coupon once per year.
a. If all three bonds are now priced to yield 8 percent to maturity, what are their prices?
b. If you expect their yields to maturity to be 8 percent at the beginning of next year, what will
their prices be then? What is your before-tax holding period return on each bond? If your tax
bracket is 30 percent on ordinary income and 20 percent on capital gains income, what will
your after-tax rate of return be on each? Assume you do not sell the bonds.
c. Recalculate your answer to (b) under the assumption that you expect the yields to maturity on
each bond to be 7 percent at the beginning of next year.
d. Re-do the calculations in parts b and c above, assuming you will sell the bonds at the end of the
year.
Problem 2
A University endowment fund has sought your advice on its fixed-income portfolio strategy.
The characteristics of the portfolios current holdings are listed below:
Market
Credit Maturity Coupon Modified Value of
Bond Rating (yrs.) Rate (%) Duration Convexity Position
A Cnd. Govt. 3 0 2.727 9.9 $30,000
B A1 10 8 6.404 56.1 $30,000
C Aa2 5 12 3.704 18.7 $30,000
D Agency 7 10 4.868 32.1 $30,000
E Aa3 12 0 10.909 128.9 $30,000
$150,000
a) Calculate the modified duration for this portfolio.
b) Suppose you learn that the modified duration of the endowment’s liabilities is 6.5 years.
Identify whether the bond portfolio is: i) immunized against interest rate risk, ii) exposed to net
price risk, or iii) exposed to net re-investment risk. Briefly explain what will happen to the net
position of the endowment fund if in the future there is a significant parallel upward shift in the
yield curve.
c) Your current active view for the fixed income market over the coming months is that Treasury
yields will decline and corporate credit spreads will also decrease. Briefly discuss how you
could restructure the existing portfolio to take advantage of this view.
2
Problem 3
A 20-year maturity bond with a 10% coupon rate (paid annually) currently sells at a yield to
maturity of 9%. A portfolio manager with a 2-year horizon needs to forecast the total return on
the bond over the coming 2 years. In 2 years, the bond will have an 18-year maturity. The analyst
forecasts that 2 years from now, 18-year bonds will sell at yield to maturity of 8%, and that
coupon payments can be reinvested in short-term securities over the coming 2 years at a rate of
7%.
a) What is the 2-year return on the bond
b) What will be the rate of return the manager forecasts that in 2 years the yiel ...
FIN 340 Final Project Scenarios and Tables You will u.docxcharlottej5
FIN 340 Final Project Scenarios and Tables
You will use these scenarios and tables to complete the final project.
Client 1:
Ezra, age 26, is single. However, he is dating and preparing to get engaged. He will need roughly $5,000 for an engagement ring almost immediately, and expects
he will need $10,000–$15,000 for the wedding in the next 12–24 months. He is currently employed and earns about $70,000 a year in salary. This salary is
enough to cover all his taxes and normal living expenses of approximately $4,800. This leaves him with about $1,000 in savings each month ($350 to 401K, $650
to savings). He has been able to save roughly $15,000 to date in a 401K plan from work and about $20,000 in cash savings. His 401K plan has been invested 100%
in the stock market, including some sector-specific funds. His other savings have been in interest-bearing savings and cash substitutes such as money market
funds. He recently received a windfall of $60,000, and this prompted him to come to you for some advice. The following are few of Ezra’s comments to help
guide your thoughts:
1. “I understand I am young, so I need to take on as much risk as I can.”
2. “I am willing to lose 30–40% on my invested capital if the return is commensurate.”
3. “I do like to have a decent sized cushion in the bank in case something happens at my job.”
4. “I don’t foresee my risk tolerance changing after I get married.”
5. “Do you have any good stock tips?”
Client 2:
Jacob and Rachel, 53 and 52 respectively, are married with four children. Two of the children are currently in college, and two are in high school. They expect the
other two children to attend college. The couple has done relatively well for themselves and earn roughly $275,000 before tax between the two of them, which
equates to $190,000 after taxes. They live well below their means, and this should allow them to cover all of their children’s college expenses out of pocket, but
it will not leave much for them to save over the next six to eight years. Through savings and portfolio growth, they have managed to accumulate $900,000. To
this point, they have been moderately aggressive (70–75% equities) with their portfolio, but they feel that they need to begin preparing the portfolio for partial
retirement in eight years, and full retirement in 13 years.
1. “I know we still need to be somewhat aggressive—we could live until we’re 90—so we need to plan for some growth even in retirement.”
2. “We definitely can’t afford to take a big hit in our portfolio. We don’t have enough time to recover.”
3. “Our jobs allow us to work part-time in retirement, and we will probably do so as long as we are able.”
4. “What do bond yields look like today?”
5. “I think we’ll need to draw on 3–5% of our portfolio in retirement. We’d like to earn enough income from the portfolio to cover that.”
CAPM Inputs:
Market Return 9%
Risk-free Rate 0.75%
Stock Analysis Table:
.
FinanceTest ISummer 20191. Using the following data, prepare a .docxericn8
FinanceTest ISummer 2019
1. Using the following data, prepare a three-stage ROE decomposition (DuPont Analysis) for Home Depot.
Return on equity (ROE)
12%
Sales
$5,000
Current ratio
2.29
Dividend payout ratio
25%
Dividends paid
$100
Total liabilities
$4,000
Accounts payable
$600
My work:
1) ROE = Net Income/Sales x Sales/ Equity (or 12%)
2) ROE = Net Income/ Sales x Sales/Assets x Assets/Equity
or …….(400/5,000) (5,000/ Assets) (Assets/Equity)
3) ROE = (Net Profit Margin) (Asset Turnover) (Equity Multiple)
Side notes:
(Accounts Payable) (Current Ratio) = 1,374/ 600 = 2.29
Current assets = 1,374
Current Liability or Accounts payable = 600
Current ratio = 2.29
2. Your task is to update your firm’s long-term financial model (that was originally prepared last year). In financial modeling, a key assumption involves the firm’s dividend policy, as typically specified by the firm’s payout ratio.
You recognize many differences between today and last year.
Last year, the Treasury Yield Curve was upward sloping. Today, the Treasury Yield Curve is inverted. Last year, the Fed was expected to raise interest rates. Today, the Fed is expected to lower interest rates. We also know the following:
TodayLast year
Forward P/E
16
20
Equity Multiplier
2.50
1.95
Based on the differences described above, would you expect the payout ratio in this year’s financial model to be higher or lower than it was last year? Briefly explain.
Based on the differences above, I expect that the payout ratio in this year’s financial model to be lower along with short term headwinds. The earnings per share is going down and the price is taking a hit. Also, assets are leaning towards the heavier side.
3. Glencore will need to have $3,000 on June 20, 2023 (four years from now) to purchase new equipment. To accumulate this money, it will make four equal investments, with the first of the equal investments beginning one year from now.
a. If Glencore can earn an annual interest rate of 10%, how much must it invest per year?
My work:
P1 = 646.41 x 1.10
P2 = 646.41 x 1.10
P3 = 646.41 x 1.10
P4 = 646.41 x 1.10
Invest per year = $646.41
=PMT (10%,4,0,3000,0)
b. After presenting your findings from the above calculation, Glencore’s CFO asks you to consider an alternative scenario. Both changes are to occur today and will continue throughout the four years. You are to consider both changes simultaneously.
1. The interest rate will increase today and remain at that higher level.
2. There will still be four equal investments, but the first investment will occur immediately.
Without doing any calculations, how would these changes (considered simultaneously) affect your answer in part a? Using no more than 50 words, carefully justify your response. Do not write more 50 words.
My response:
With a higher rate (ex: 12%) Glencore’s money is working harder. If less money is put down, then more money will result in t.
1. Nicks Enchiladas Incorporated has preferred stock outstand.docxjackiewalcutt
1. Nick's Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at
the end of each year. The preferred stock sells for $35 a share. What is the stock's required rate of
return? Round the answer to two decimal places.
%
2. A stock is expected to pay a year-end dividend of $2.00, i.e., D1 = $2.00. The dividend is
expected to decline at a rate of 5% a year forever (g = −5%). If the company is in equilibrium and
its expected and required rate of return is 15%, which of the following statements is CORRECT?
a. The company's dividend yield 5 years from now is expected to be 10%.
b. The company's current stock price is $20.
c. The company's expected capital gains yield is 5%.
d. The constant growth model cannot be used because the growth rate is negative.
e. The company's expected stock price at the beginning of next year is $9.50.
3. The expected return on Natter Corporation's stock is 14%. The stock's dividend is expected to
grow at a constant rate of 8%, and it currently sells for $50 a share. Which of the following
statements is CORRECT?
a. The stock's dividend yield is 7%.
b. The current dividend per share is $4.00.
c. The stock's dividend yield is 8%.
d. The stock price is expected to be $54 a share one year from now.
e. The stock price is expected to be $57 a share one year from now.
4. Investors require a 16% rate of return on Brooks Sisters' stock (rs = 16%).
a. What would the value of Brooks's stock be if the previous dividend was D0 = $2.75 and if
investors expect dividends to grow at a constant compound annual rate of (1) - 4%, (2)
0%, (3) 7%, or (4) 10%? Round your answers to the nearest cent.
1. $
2. $
3. $
4. $
b. Using data from part a, what is the Gordon (constant growth) model's value for Brooks
Sisters's stock if the required rate of return is 16% and the expected growth rate is (1)
16% or (2) 24%? Are these reasonable results? Explain.
1. (Yes or No)
2. (Yes or No)
c. Is it reasonable to expect that a constant growth stock would have g > rs? ( Yes or No)
5. Brushy Mountain Mining Company's ore reserves are being depleted, so its sales are falling.
Also, its pit is getting deeper each year, so its costs are rising. As a result, the company's earnings
and dividends are declining at the constant rate of 6% per year. If D0 = $3 and rs = 13%, what is
the value of Brushy Mountain Mining's stock? Round your answer to the nearest cent.
$
6. Boehm Incorporated is expected to pay a $3.70 per share dividend at the end of this year (i.e.,
D1 = $3.70). The dividend is expected to grow at a constant rate of 10% a year. The required rate
of return on the stock, rs, is 18%. What is the value per share of the company's stock? Round your
answer to the nearest cent.
$
7. A company currently pays a dividend of $1.5 per share, D0 = 1.5. It is estimated that the
comp ...
FORMULAS
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𝑃𝑉 = 𝐶 ,-
.
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7
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8
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𝐸𝐴𝑅 = 61 +
𝐴𝑃𝑅
𝑚
7
=
− 1
𝑃𝑉 = 𝐶 𝑒?.+, 𝑒 = 2.718
1 + 𝑅𝑒𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 =
1 + 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒
1 + 𝐼𝑛𝑓𝑙𝑎𝑡𝑖𝑜𝑛 𝑅𝑎𝑡𝑒
𝑃 = 𝑃𝑉(𝐶𝑜𝑢𝑝𝑜𝑛 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠) + 𝑃𝑉(𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒)
𝑃T = U
𝐷𝑖𝑣+
(1 + 𝑟)+
𝑃T =
𝐷𝑖𝑣-
(𝑟 − 𝑔)
𝑔 = 𝑅𝑂𝐸 × 𝑃𝑙𝑜𝑤𝑏𝑎𝑐𝑘 𝑅𝑎𝑡𝑖𝑜
𝜎^ = _𝑤`
a𝜎`
a + 𝑤b
a𝜎b
a + 2𝑤`𝑤b𝜌`b𝜎`𝜎b
𝛽e =
𝜌e,=𝜎e
𝜎=
=
𝑐𝑜𝑣(𝑟e,𝑟=)
𝜎=a
𝑟 = 𝑟f + 𝛽(𝑟= − 𝑟f)
𝑊𝐴𝐶𝐶 =
𝐷
𝑉
(1 − 𝑇i)𝑟j +
𝑃
𝑉
𝑟 +
𝐸
𝑉
𝑟k
𝐷𝑂𝐿 =
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑜𝑓𝑖𝑡𝑠
% 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠
= 1 + (𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠)/(𝑝𝑟𝑜𝑓𝑖𝑡𝑠)
𝑉q = 𝑉r + 𝑃𝑉 𝑡𝑎𝑥 𝑠ℎ𝑖𝑒𝑙𝑑𝑠 − 𝑃𝑉 𝑐𝑜𝑠𝑡𝑠 𝑜𝑓 𝑓𝑖𝑛𝑎𝑛𝑐𝑖𝑎𝑙 𝑑𝑖𝑠𝑡𝑟𝑒𝑠𝑠
𝑉q = 𝑉s + 𝑇i𝐷
𝑟k = 𝑟t +
j
k
(1 − 𝑇i)(𝑟t − 𝑟j)
University of Guelph
Gordon S. Lang School of Business and Economics
Department of Economics and Finance
ECON*2560DE: Theory of Finance Summer Semester 2019
Key Concepts for Theory of Finance
The following is a list of some of the major concepts that have been covered during the course that you
should make sure you understand in your preparation for the final exam.
Ch. 1 – Goals and Governance of the Firm
The goal of managers is to maximize firm value
Advantages and disadvantages of a corporation
The difference between real and financial assets
Ch. 2 – Financial Markets and Institutions
Functions of financial markets and institutions
Ch. 3 – Accounting and Finance
Balance sheet, Income statement, statement of Cash flows
Market value vs. book value
Ch. 5 - Time Value of money
Single cash flow: future value, present value, how to find discount rate
Annuity: present value, how to find cash flow, annuity due, growing annuity, multiple payments
per year, amortization
Perpetuity: present value, how to find cash flow, how to find discount rate, growing perpetuity
Relationship between discount rate and PV
Inflation – real vs. nominal interest rates
Compounding (EAR)
Ch. 6 – Valuing Bonds
Calculate PV with annual or semi-annual coupons
How bond prices vary with interest rates
Relationships between - coupon rate, YTM, current yield, rates of return, and prices
Relationships between risk and maturity, risk and coupon rate
Yield curve
Bond ratings and default premium
You will not be asked to calculate Yield to Maturity
Ch. 7 – Valuing Stocks
Dividend discount model: no growth, constant growth, non-constant growth, sustainable growth
rate
Relationship between price and growth rate, ROE, plowback ratio, discount rate
Market efficiency
Ch. 11 – Introduction to Risk and Return and the Opportunity Cost of Capital
Relationship between risk and return
Unique vs market risk
Benefits of diversificati
Assignment Capital Budget Decision Making for an Organization—Par.docxrobert345678
Assignment: Capital Budget Decision Making for an Organization—Part 2
Note: In Week 6, you submitted Part 1 of the Module 3 Assignment.
You will complete and submit Part 2 this week. Next week, you will complete and submit Part 3 and the executive summary.
As a reminder, you will continue to play the role of a consultant who has been hired by a mid-sized company that recently went public to provide some recommendations related to their short-term and long-term financial needs. Your first project is to analyze the short- and long-term capital budget needs of the company. You will prepare and submit a 3- to 5-page report, including an executive summary in which you synthesize your recommendations for the following fiscal year, along with the provided Excel spreadsheet with your calculations. Explain your findings and your recommendations.
For each of the items in your report, you will complete the calculations in the Module 3 Assignment Part 1 Template and will then use that financial information to develop your report to the owner using the Module 3 Assignment Part 2 Template. In your report, be sure to include relevant citations from the Learning Resources, the Walden Library, and/or other appropriate academic sources to support your work.
To prepare for this Assignment:
· Return to the Module 3 Assignment Part 1 Template to continue completing the calculations.
· Return to your Module 3 Assignment Part 2 Template to complete Part 2 of your report.
Note: Be sure to keep a copy of your completed Assignment this week, as you will be adding to the same file for your Week 8 Assignment.
By Day 7
Submit your synthesis of financial data related to long-term financing needs for an organization, to include the following:
Part 2: Long-Term Working Capital Considerations: Time Value of Money and Bonds (1–2 pages, plus calculations in Excel)
·
Future Value: If the company deposits $2 million in a bank account that pays 6% interest annually, how much will be in the account after 5 years?
·
Present Value: What is the present value of a security that will pay $29,000 in 20 years if securities of equal risk pay 5% annually?
·
Required Interest Rates: The company owner has said she will retire in 19 years. She currently has $350,000 saved and thinks she will need $800,000 at retirement. What annual interest rate must she earn to reach that goal, assuming she does not save any additional funds?
·
Future Value of an Annuity: Find the future values of these ordinary annuities. Compounding occurs once a year.
· $500 per year for 8 years at 14%
· $250 per year for 4 years at 7%
· $700 per year for 4 years at 0%
·
Present Value of an Annuity: Find the present values of these ordinary annuities. Discounting occurs once a year.
· $600 per year for 12 years at 8%
· $300 per year for 6 years at 4%
· $500 per .
Assignment
Marginal Revenue Product
Marginal revenue product is defined as the change in total revenue that results from the employment of an additional unit of a resource. A producer wishes to determine how the addition of pounds of plastic will affect its MRP and profits. See the table below, and answer each of the questions.
Pounds of plastic (quantity of resource)
Number of assemblies (total product)
Price of assemblies ($)
0
0
-
1
15
13
2
30
11
3
40
9
4
55
7
5
58
5
a. The marginal product of the 3rd pound of plastic is ________.
b. The marginal revenue product of the 3rd pound of plastic is ______.
c. The price of plastic is $135 per pound. To maximize profit, the producer should produce
__________________.
d. The price of plastic is $135 per pound. To maximize profit, the producer should buy and use:
________________.
Grading Criteria Assignments
Maximum Points
Meets or exceeds established assignment criteria
40
Demonstrates an understanding of lesson concepts
20
Clearly presents well-reasoned ideas and concepts
30
Uses proper mechanics, punctuation, sentence structure, and spelling
10
Total
100
Case Study
C&MDS, Inc.
Some time ago, at the beginning of 2010, an entrepreneur named Richard Alestar started a small business as a sole proprietor in Oregon - a business that manufactured sensors for cameras that could be used in motion detection systems. The business was very successful and he decided to incorporate in the latter part of 2011 under the name C&MDS, Incorporated. He wanted to name it Camera and Motion Detection Systems, but his marketing manager convinced him it was too difficult to remember. Alestar’s long-term plan was to obtain public funding to support growth anticipated in about 4-6 years. In the meantime, he hired electrical engineers and a solid management team capable of building an organization that would enable the company to eventually go public. He thought his proprietary sensors and equipment could not be duplicated for a number of years. There was only one competitor in the market niche where he competed that had a significant market share, but they were a follower, not a leader. Besides, he planned to grow the market himself, based on the increased focus and attention in the public arena on crime prevention, detection and surveillance using cameras with his sensors. He also was developing a host of other potential applications.
Alestar had developed a good relationship with his investment banker Sophia Pound, and had just begun discussions with respect to obtaining additional capital required to position the company to go public. These discussions also involved the chief financial officer (CFO), Mitch O. Dinero, who had brought up the issue of the appropriate capital structure (target capital structure) that C&MDS should consider. They both thought the current mix in the capital structure was close to optimal, and that only minor changes would be necessary. However, they would defer to the investment banke ...
1 Economics 211 Due Thursday, March 5, 2020 Spring.docxadkinspaige22
1
Economics 211 Due Thursday, March 5, 2020
Spring Semester Professor John Duca
Homework #2 (NOTE: Assignments to be handwritten except for approved disabilities or
approved circumstances. Assignments are to be turned in by the BEGINNING of class
on the due date or into my mailbox in the Economics Department (223 Rice Hall) by the
beginning of class on the due date. WHERE YOU CAN, SHOW THE FORMULAS
THAT YOU ARE USING AND ANY RELEVANT CALCULATIONS.
1) Using the more complicated 2-axis, supply and demand framework for bonds
presented in class (bond prices on the left y-axis, and INVERTED interest rates on
the right y-axis), illustrate an initial equilibrium and then show which curve will
likely shift (or curves shift) (if any) in response to the following changes in market
conditions. In each case, state what happens to the bond price and what happens to
the interest rate (up, down, or unchanged) (20 points). Use separate diagrams for (a)
and for (b).
a) There is a fall in expected inflation.
b) There is a business cycle expansion in a non-U.S. economy.
2) Using the supply and demand framework for money presented in chapter 5 of the
Mishkin text, illustrate what happens to the equilibrium quantity of money held and
interest rates if the following events occurred. In each case, assume that there are no
income, price level, or expected inflation effects—that is only consider the initial
liquidity effects: (10 points)
a) The risk of currency fraud rises so that currency has become less accepted
as a means of payment by many firms or entail much longer delays to
verify that the currency is not counterfeit. Illustrate what happens to the
demand for money. Illustrate what happens if, in response, the Federal
Reserve alters the supply of money so that bond prices (and thus interest
rates) are unchanged.
b) There is a large change in expectations such that people see stocks as a
much more attractive investment. As a result, people shift toward stocks
and away from money market mutual funds and savings deposits.
Illustrate what happens if, in response, the Federal Reserve alters the
supply of broadly defined money (that is, M2) so that bond prices (and
thus interest rates) are unchanged.
2
3) Suppose a central bank wants to stimulate the economy by lowering interest rates
through expanding the money supply under the following conditions. Illustrate how
interest rates change over time using the appropriate framework from the appropriate
section of Mishkin’s textbook (this was covered in class). Clearly indicate when the
monetary action occurs, and label which type or types of effects on interest rates are
occurring at different times. (15 points)USE SEPARATE DIAGRAMS for 3a & 3b
a) Suppose that you are in a country that has a great reputation for stabilizing long-
run inflation. Suppose that in response to slowing aggregate demand, the central
bank.
For more course tutorials visit
www.tutorialrank.com
B6022 Module 1 Assignment 3 Calculating Financial Ratios
ital to any ratio analysis are the steps of gathering financial data and selecting and calculating relevant ratios. This assignment provides you with an opportunity to do just that.
For more course tutorials visit
www.tutorialrank.com
B6022 Module 1 Assignment 3 Calculating Financial Ratios
ital to any ratio analysis are the steps of gathering financial data and selecting and calculating relevant ratios. This assignment provides you with an opportunity to do just that.
A RECENT STUDY OF INFLATIONARY EXEPECTATION/TUTORIALOUTLET DOT COMfernonders
Description
Follow these instructions for completing and submitting your assignment:
Do all work in Excel. Do not submit Word files or *.pdf files.
Submit a single spreadsheet file for this assignment. Do not submit multiple files.
Place each problem on a separate spreadsheet tab.
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7.12Chapter 7 Problem 12a). Complete the spreadsheet below by esti.docxalinainglis
7.12Chapter 7 Problem 12a). Complete the spreadsheet below by estimating the project's annual after tax cash flow.b). What is the investment's net present value at a discount rate of 10 percent?c). What is the investment's internal rate of return?d). How does the internal rate of return change if the discount rate equals 20 percent?e). How does the internal rate of return change if the growth rate in EBIT is 8 percent instead of 3 percent?Facts and AssumptionsEquipment initial cost $$ 350,000Depreciable life yrs.7Expected life yrs.10Salvage value $$0Straight line depreciationEBIT in year 128,000Tax rate38%Growth rate in EBIT3%Discount rate10%Year012345678910Initial cost350,000Annual depreciation50,00050,00050,00050,00050,00050,00050,000EBIT28,00028,84029,70530,59631,51432,46033,43334,43635,47036,534Net present value @ 10%Internal rate of return
7.13Chapter 7 Problem 13In many financial transactions, interest is computed and charged more than once a year. Interest on corporate bonds, for example, is usually payable every six months. Consider a loan transaction in which interest is charged at the rate of 1 percent per month. Sometimes such a transaction is described as having an interest rate of 12 percent per annum. More precisely, this rate should be described as a nominal 12 percent per annum coumpounded monthly.Clearly, it is desirable to recognize the difference between 1 percent per month compounded monthly and 12 percent per annum compounded annually. If $1,000 is borrowed with interest at 1 percent per month compounded monthly, the amount due in one year is:F = $1,000(1.01)12 = $1,000(1.1268) = $1,126.80 This compares to F = $1,000(1+.12) =$1,120.00 for annual compounding.Hence, the monthly compounding has the same effect on the year-end amount due as the charging of a rate of 12.68 percent compounded annually. 12.68 percent is referred to as the effective interest rate. To generalize, if interest is compounded m times a year at an interest rate of r/m per compounding period. Then,The nominal interest rate per annum, or the APR = m(r/m) = r.The effective interest rate per annum,or the EAR = (1+r/m)m - 1.Consider a $100,000, 30 year, fixed-rate, 9 percent, home mortgage requiring monthly payments.a. The monthly interest rate on the mortgage is 9%/12 months = .75%. What is the APR on the mortgage?b. What is the EAR on the mortgage?c. The borrower's payment book will look something like the following. Complete the entries for the first 6 months.Outstanding Balance Beginning of MonthMonthly paymentInterest duePrincipal paymentOutstanding Balance End of MonthDate01-31$100,00002-2803-3104-3005-3106-30d. After paying on this mortgage for 15 years, what will be the remaining principal outstanding? e. Suppose after 15 years the borrower has the opportunity to refinance the remaining principal on the mortgage with a new 15-year mortgage carrying an interest rate of 7 1/8%. Refinancing will involve $250 in costs and "points.
Similar to Fin 534 financial management – fin534 homework (20)
how to sell pi coins in all Africa Countries.DOT TECH
Yes. You can sell your pi network for other cryptocurrencies like Bitcoin, usdt , Ethereum and other currencies And this is done easily with the help from a pi merchant.
What is a pi merchant ?
Since pi is not launched yet in any exchange. The only way you can sell right now is through merchants.
A verified Pi merchant is someone who buys pi network coins from miners and resell them to investors looking forward to hold massive quantities of pi coins before mainnet launch in 2026.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Introduction to Indian Financial System ()Avanish Goel
The financial system of a country is an important tool for economic development of the country, as it helps in creation of wealth by linking savings with investments.
It facilitates the flow of funds form the households (savers) to business firms (investors) to aid in wealth creation and development of both the parties
Resume
• Real GDP growth slowed down due to problems with access to electricity caused by the destruction of manoeuvrable electricity generation by Russian drones and missiles.
• Exports and imports continued growing due to better logistics through the Ukrainian sea corridor and road. Polish farmers and drivers stopped blocking borders at the end of April.
• In April, both the Tax and Customs Services over-executed the revenue plan. Moreover, the NBU transferred twice the planned profit to the budget.
• The European side approved the Ukraine Plan, which the government adopted to determine indicators for the Ukraine Facility. That approval will allow Ukraine to receive a EUR 1.9 bn loan from the EU in May. At the same time, the EU provided Ukraine with a EUR 1.5 bn loan in April, as the government fulfilled five indicators under the Ukraine Plan.
• The USA has finally approved an aid package for Ukraine, which includes USD 7.8 bn of budget support; however, the conditions and timing of the assistance are still unknown.
• As in March, annual consumer inflation amounted to 3.2% yoy in April.
• At the April monetary policy meeting, the NBU again reduced the key policy rate from 14.5% to 13.5% per annum.
• Over the past four weeks, the hryvnia exchange rate has stabilized in the UAH 39-40 per USD range.
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Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
@Pi_vendor_247
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
how to sell pi coins at high rate quickly.DOT TECH
Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
how can I sell my pi coins for cash in a pi APPDOT TECH
You can't sell your pi coins in the pi network app. because it is not listed yet on any exchange.
The only way you can sell is by trading your pi coins with an investor (a person looking forward to hold massive amounts of pi coins before mainnet launch) .
You don't need to meet the investor directly all the trades are done with a pi vendor/merchant (a person that buys the pi coins from miners and resell it to investors)
I Will leave The telegram contact of my personal pi vendor, if you are finding a legitimate one.
@Pi_vendor_247
#pi network
#pi coins
#money
If you are looking for a pi coin investor. Then look no further because I have the right one he is a pi vendor (he buy and resell to whales in China). I met him on a crypto conference and ever since I and my friends have sold more than 10k pi coins to him And he bought all and still want more. I will drop his telegram handle below just send him a message.
@Pi_vendor_247
how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
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Fin 534 financial management – fin534 homework
1. FIN 534 FinancialManagement – FIN534 Homework
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FIN 534 Week 2 Homework Set1
Directions: Answer the following questions on a separate document. Explain how
you reached the answer or show your work if a mathematical calculation is needed,
or both. Submit your assignment using the assignment link in the courseshell. This
homework assignment is worth 100 points.
Use the following information for Questions 1 through 8: Assume that you recently
graduated and have just reported to work as an investment advisor at the one of the
firms on Wall Street. You have been presented and asked to review the following
Income Statement and Balance Sheets of one of the firm’s clients. Your boss has
developed the following set of questions you must answer.
1. What is the free cash flow for 2013?
2. SupposeCongress changed the tax laws so that Berndt’s depreciation expenses
doubled. No changes in operations occurred. What would happen to reported profit
and to net cash flow?
3. Calculate the 2013 current and quick ratios based on the projected balance sheet
and income statement data. What can you say about the company’s liquidity
position in 2013?
4. Calculate the 2013 inventory turnover, days sales outstanding (DSO), fixed
assets turnover, and total assets turnover.
5. Calculate the 2013 debt ratio, liabilities-to-assets ratio, times-interest-earned,
and EBITDA coverage ratios. What can you conclude from these ratios?
6. Calculate the 2013 profit margin, basic earning power (BEP), return on assets
(ROA), and return on equity (ROE). What can you say about these ratios?
7. Calculate the 2013 price / earnings ratio, price / cashflow ratio, and market /
bookratio.
8. Use the extended DuPont equation to provide a summary and overview of
company’s financial condition as projected for 2013. What are the firm’s major
strengths and weaknesses?
2. FIN 534 Week 4 Homework Set 2
Assume that you are nearing graduation and have applied for a job with a local
bank. The bank’s evaluation process requires you to take an examination that
covers several financial analysis techniques. The first section of the test asks you to
address these discounted cash flow analysis problems:
1. What is the present value of the following uneven cash flow stream −$50, $100,
$75, and $50 at the end of Years 0 through 3? The appropriate interest rate is 10%,
compounded annually.
2. We sometimes need to find out how long it will take a sum of money (or
something else, such as earnings, population, or prices) to grow to some specified
amount. For example, if a company’s sales are growing at a rate of 20% per year,
how long will it take sales to double?
3. Will the future value be larger or smaller if we compound an initial amount
more often than annually—for example, every 6 months, or semiannually—
holding the stated interest rate constant? Why?
4. What is the effective annual rate (EAR or EFF%) for a nominal rate of 12%,
compounded semiannually? Compounded quarterly? Compounded monthly?
Compounded daily?
5. Supposethat on January 1 you deposit $100 in an account that pays a nominal
(or quoted) interest rate of 11.33463%, with interest added (compounded)daily.
How much will you have in your accounton October1, or 9 months later?
Use the following information for Questions 6 and 7:
A firm issues a 10-year, $1,000 par value bond with a 10% annual couponand a
required rate of return is 10%.
6. What would be the value of the bond described above if, just after it had been
issued, the expected inflation rate rose by 3 percentage points, causing investors to
require a 13% return? Would we now have a discount or a premium bond?
7. What would happen to the bond’s value if inflation fell and rd declined to 7%?
Would we now have a premium or a discount bond?
8. What is the yield to maturity on a 10-year, 9% annual coupon, $1,000 par value
bond that sells for $887.00? That sells for $1,134.20? What does a bond selling at a
discount or at a premium tell you about the relationship between rd and the bond’s
couponrate?
9. What are the total return, the current yield, and the capital gains yield for the
discount bond in Question #8 at $887.00? At $1,134.20? (Assume the bond is held
to maturity and the company does not default on the bond.)
FIN 534 Week 6 Homework Set 3
3. Use the following information for questions 1 through 8: The GoodmanIndustries’
and Landry Incorporated’s stockprices and dividends, along with the Market
Index, are shown below. Stockprices are reported for December 31 of each year,
and dividends reflect those paid during the year. The market data are adjusted to
include dividends.
1. Use the data given to calculate annual returns for Goodman, Landry, and the
Market Index, and then calculate average annual returns for the two stocks and the
index. (Hint: Remember, returns are calculated by subtracting the beginning price
from the ending price to get the capital gain or loss, adding the dividend to the
capital gain or loss, and then dividing the result by the beginning price. Assume
that dividends are already included in the index. Also, you cannot calculate the rate
of return for 2008 because you do not have 2007 data.)
2. Calculate the standard deviations of the returns for Goodman, Landry, and the
Market Index. (Hint: Use the sample standard deviation formula given in the
chapter, which correspondsto the STDEV function in Excel.)
3. Estimate Goodman’s and Landry’s betas as the slopes of regression lines with
stockreturn on the vertical axis (y-axis) and market return on the horizontal axis
(x-axis). (Hint: Use Excel’s SLOPE function.) Are these betas consistent with your
graph?
4. The risk-free rate on long-term Treasury bonds is 6.04%. Assume that the
market risk premium is 5%. What is the required return on the market using the
SML equation?
5. If you formed a portfolio that consisted of 50% Goodmanstockand 50% Landry
stock, what would be its beta and its required return?
6. What dividends do you expect for GoodmanIndustries stockover the next 3
years if you expect you expect the dividend to grow at the rate of 5% per year for
the next 3 years? In other words, calculate D1, D2, and D3. Note that D0 = $1.50.
7. Assume that Goodman Industries’ stock, currently trading at $27.05, has a
required return of 13%. You will use this required return rate to discount
dividends. Find the present value of the dividend stream; that is, calculate the PV
of D1, D2, and D3, and then sum these PVs.
8. If you plan to buy the stock, hold it for 3 years, and then sell it for $27.05, what
is the most you should pay for it?
Use the following information for Question 9:
Supposenow that the GoodmanIndustries (1) trades at a current stockprice of $30
with a (2) strike price of $35. Given the following additional information: (3) time
to expiration is 4 months, (4) annualized riskfree rate is 5%, and (5) variance of
stockreturn is 0.25.
9. What is the price for a call option using the Black-Scholes Model?
4. FIN 534 Week 8 Homework Set 4
Use the following information for Questions 1 through 5:
Assume you are presented with the following mutually exclusive investments
whose expected net cash
flows are as follows:
EXPECTED NET CASH FLOWS:
Year Project A Project B
0 −$400 −$650
1 −528 210
2 −219 210
3 −150 210
4 1,100 210
5 820 210
6 990 210
7 −325 210
1. ConstructNPV profiles for Projects A and B.
2. What is each project’s IRR?
3. If each project’s costof capital were 10%, which project, if either, should be
selected? If the cost
of capital were 17%, what would be the proper choice?
4. What is each project’s MIRR at the costof capital of 10%? At 17%? (Hint:
Consider Period 7 as
the end of Project B’s life.)
5. What is the crossoverrate, and what is its significance?
Use the following information for Questions 6 through 8:
The staff of Porter Manufacturing has estimated the following net after-tax cash
flows and probabilities for
a new manufacturing process:
Line 0 gives the costof the process, Lines 1 through 5 give operating cash flows,
and Line 5* contains the
estimated salvage values. Porter’s costof capital for an average-risk project is
10%.
Net After-Tax Cash Flows
Year
0 −$100,000 −$100,000 −$100,000
1 20,000 30,000 40,000
2 20,000 30,000 40,000
3 20,000 30,000 40,000
5. 4 20,000 30,000 40,000
5 20,000 30,000 40,000
5* 0 20,000 30,000
6. Assume that the project has average risk. Find the project’s expected NPV.
(Hint: Use expected
values for the net cash flow in each year.)
7. Find the best-caseand worst-caseNPVs. What is the probability of occurrence
of the worst case
if the cashflows are perfectly dependent (perfectly positively correlated) over time
8. Assume that all the cash flows are perfectly positively correlated. That is,
assume there are only
three possible cash flow streams over time—the worst case, the most likely (or
base) case, and
the best case—with respective probabilities of 0.2, 0.6, and 0.2. These cases are
represented by
each of the columns in the table. Find the expected NPV, its standard deviation,
and its
coefficient of variation for each probability.
Use the following information for Question 9:
At year-end 2013, Wallace Landscaping’s total assets were $2.17 million and its
accounts payable were
$560,000. Sales, which in 2013 were $3.5 million, are expected to increase by 35%
in 2014. Total assets
and accounts payable are proportional to sales, and that relationship will be
maintained. Wallace typically
uses no current liabilities other than accounts payable. Common stockamounted to
$625,000 in 2013,
and retained earnings were $395,000. Wallace has arranged to sell $195,000 of
new common stockin
2014 to meet some of its financing needs. The remainder of its financing needs will
be met by issuing
new long-term debt at the end of 2014. (Because the debt is added at the end of the
year, there will be no
additional interest expense due to the new debt.) Its net profit margin on sales is
5%, and 45% of
earnings will be paid out as dividends.
9. What were Wallace’s total long-term debt and total liabilities in 2013?
FIN 534 Week 10 Homework Set 5
Use the following information for Questions 1 through 3:
6. Boehm Corporation has had stable earnings growth of 8% a year for the past 10
years and in 2013 Boehm paid dividends of $2.6 million on net income of $9.8
million. However, in 2014 earnings are expected to jump to $12.6 million, and
Boehm plans to invest $7.3 million in a plant expansion. This onetime unusual
earnings growth won’t be maintained, though, and after 2014 Boehm will return to
its previous 8% earnings growth rate. Its target debt ratio is 35%.
Calculate Boehm’s total dividends for 2014 under each of the following policies:
1. Its 2014 dividend payment is set to force dividends to grow at the long-run
growth rate in earnings
2. It continues the 2013 dividend payout ratio
3. It uses a pure residual policy with all distributions in the form of dividends (35%
of the $7.3 million investment is financed with debt).
4. It employs a regular-dividend-plus-extras policy, with the regular dividend being
based on the long-run growth rate and the extra dividend being set according to the
residual policy.
Use the following information for Questions 5 and 6:
Schweser Satellites Inc. produces satellite earth stations that sell for $100,000
each. The firm’s fixed costs, F, are $2 million, 50 earth stations are produced and
sold each year, profits total $500,000, and the firm’s assets (all equity financed) are
$5 million. The firm estimates that it can change its productionprocess, adding $4
million to investment and $500,000 to fixed operating costs. This change will (1)
reduce variable costs per unit by $10,000 and (2) increase output by 20 units, but
(3) the sales price on all units will have to be lowered to $95,000 to permit sales of
the additional output. The firm has tax loss carry forwards that render its tax rate
zero, its costof equity is 16%, and it uses no debt.
5. What is the incremental profit? To get a rough idea of the project’s profitability,
what is the project’s expected rate of return for the next year (defined as the
incremental profit divided by the investment)? Should the firm make the
investment? Why or why not?
6. Would the firm’s break-even point increase or decrease if it made the change?
Use the following information for Questions 7 and 8:
Supposeyou are provided the following balance sheet information for two firms,
Firm A and Firm B (in thousands of dollars)
Earnings before interest and taxes for both firms are $30 million, and the effective
federal plus-state tax rate is 35%.
7. What is the return on equity for each firm if the interest rate on current liabilities
is12% and the rate on long-term debt is 15%?
8. Assume that the short-term rate rises to 20%, that the rate on new long-term debt
rises to 16%, and that the rate on existing long-term debtremains unchanged. What
would be the return on equity for Firm A and Firm B under these conditions?
7. 9. In 1983 the Japanese yen-U.S. dollar exchange rate was 250 yen per dollar, and
the dollar costof a compactJapanese-manufactured car was $10,000. Supposethat
now the exchange rate is 120 yen per dollar. Assume there has been no inflation in
the yen costof an automobile so that all price changes are due to exchange rate
changes. What would the dollar price of the car be now, assuming the car’s price
changes only with exchange rates?