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Get college assignment help at uniessay writers Qd = 100 – 5P 0.004M – 5PR where P is the price of good X, M is income and PR is the price of a related good, R. From the demand function it is apparent that related good R is A) a complement for good X. B) a substitute for good X. C) a normal good. D) an inferior good. 9 Qd = 100 – 5P 0.004M – 5PR where P is the price of good X, M is income and PR is the price of a related good, R. From the demand function it is apparent that good X is A) in high demand. B) a substitute for good R. C) a normal good. D) an inferior good.

## It’s been 2 months since you took a position as an

It’s been 2 months since you took a position as an assistant financial analyst at Caledonia Products. Although your boss has been pleased with your work, he is still a bit hesitant about unleashing you without supervision. Your next assignment involves both the calculation of the cash flows associated with a new investment under consideration and the evaluation of several mutually exclusive projects. Given your lack of tenure at Caledonia, you have been asked not only to provide a recommendation but also to respond to a number of questions aimed at judging your understanding of the capital-budgeting process. The memorandum you received outlining your assignment follows: To: The Assistant Financial Analyst From: Mr. V. Morrison, CEO, Caledonia Products Re: Cash Flow Analysis and Capital Rationing We are considering the introduction of a new product. Currently we are in the 34 percent marginal tax bracket with a 15 percent required rate of return or cost of capital. This project is expected to last 5 years and then, because this is somewhat of a fad product, be terminated. The following information describes the new project: Cost of new plant and equipment $7,900,000 Shipping and installation costs $ 100,000 Unit sales YEAR UNITS SOLD 1 70,000 2 120,000 3 140,000 4 80,000 5 60,000 Sales price per unit $300/unit in years 1 through 4, $260/unit in year 5 Variable cost per unit $180/unit Annual fixed costs $200,000 Working-capital requirements There will be an initial working-capital requirement of $100,000 just to get production started. For each year, the total investment in net working capital will be equal to 10 percent of the dollar value of sales for that year. Thus, the investment in working capital will increase during years 1 through 3, then decrease in year 4. Finally, all working capital is liquidated at the termination of the project at the end of year 5. The depreciation method Use the simplified straight-line method over 5 years. Assume that the plant and equipment will have no salvage value after 5 years. a. Should Caledonia focus on cash flows or accounting profits in making its capital-budgeting decisions? Should the company be interested in incremental cash flows, incremental profits, total free cash flows, or total profits? b. How does depreciation affect free cash flows? c. How do sunk costs affect the determination of cash flows? d. What is the project’s initial outlay? e. What are the differential cash flows over the project’s life? f. What is the terminal cash flow? g. Draw a cash flow diagram for this project. h. What is its net present value? i. What is its internal rate of return? j. Should the project be accepted? Why or why not? k. In capital budgeting, risk can be measured from three perspectives. What are those three measures of a project’s risk? l. According to the CAPM, which measurement of a project’s risk is relevant? What complications does reality introduce into the CAPM view of risk, and what does that mean for our view of the relevant measure of a project’s risk? m. Explain how simulation works. What is the value in using a simulation approach? n. What is sensitivity analysis and what is its purpose?

## Ironwood Boats, Inc. has taken a project that has reduced working

Ironwood Boats, Inc. has taken a project that has reduced working capital needs of $12,000 last year as well as $23,000 this year. What should be the terminal cash flow at the conclusion of the project, with respect to the additional working capital? $23,000 inflow $23,000 outflow $35,000 inflow $35,000 outflow

## Working capital items include cash and cash equivalents, accounts receivable, inventories,

Working capital items include cash and cash equivalents, accounts receivable, inventories, and accounts payable. True False

## (Constant growth model) Medtrans is a profitable firm that is not

(Constant growth model) Medtrans is a profitable firm that is not paying a dividend on its common stock. James Weber, an analyst for A. G. Edwards, believes that Medtrans will begin paying a $1.00 per share dividend in two years and that the dividend will increase 6% annually thereafter. Bret Kimes, one of James’ colleagues at the same firm, is less optimistic. Bret thinks that Medtrans will begin paying a dividend in four years, that the dividend will be $1.00, and that it will grow at 4% annually. James and Bret agree that the required return for Medtrans is 13%. a. What value would James estimate for this firm? b. What value would Bret assign to the Medtrans stock?

## The NPV method is called a discounted cash flow technique. True

The NPV method is called a discounted cash flow technique. True False

## Your firm purchased machinery with a 7 year MACRS life for

Your firm purchased machinery with a 7 year MACRS life for $15 million. The project will end after 5 years. If the equipment can be sold for $3 million at the completion of the project, and your firm’s tax rate is 38%, what is the after-tax cash flow from the sale of machinery?

## Fundamentals of Derivatives Markets 1. Assume that you open a 100

Fundamentals of Derivatives Markets 1. Assume that you open a 100 share short position in Jiffy, Inc. common stock at the bid‐ask prices of $32.00 ‐ $32.50. When you close your position the bid‐ask prices are $32.50 ‐ $33.00. You pay a commission rate of 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. What is your additional gain or loss due to leasing the asset? A. $96.00 gain B. $160.00 loss C. $0 D. $64.00 loss

## Fundamentals of Derivatives Markets 2. Assume that an investor lends 100

Fundamentals of Derivatives Markets 2. Assume that an investor lends 100 shares of Jiffy, Inc. common stock to a short seller. The bidask prices are $32.00 ‐ $32.50. When the position is closed the bid‐ask prices are $32.50 ‐ $33.00. The commission rate is 0.5%. The market interest rate is 5.0% and the short rebate rate is 3.0%. Calculate the gain or loss to the lender. Assume the lender is not subject to a bid‐ask loss or commissions. A. $164.00 loss B. $100.00 gain C. $100.00 loss D. $164.00 gain

## Fundamentals of Derivatives Markets 7. The spot price of the market

Fundamentals of Derivatives Markets 7. The spot price of the market index is $900. A 3‐month forward contract on this index is priced at $930. The market index rises to $920 by the expiration date. The annual rate of interest on treasuries is 4.8% (0.4% per month). What is the difference in the payoffs between a long index investment and a long forward contract investment? (Assume monthly compounding) A. $19.16 B. $26.40 C. $43.20 D. $10.84

## Disregard my question; for now… thanks.

Get college assignment help at uniessay writers Disregard my question; for now… thanks.

## 2. What set of assumptions regarding Home Depot’s future growth rate,

2. What set of assumptions regarding Home Depot’s future growth rate, return on equity, and cost of equity are consistent with its observed stock price of $48,20 on February 1, 2001?

## The Blue Lagoon is considering a project with a five-year life.

The Blue Lagoon is considering a project with a five-year life. The project requires $110,000 of fixed assets that are classified as five-year property for MACRS. Variable costs equal 71 percent of sales, fixed costs are $9,600, and the tax rate is 35 percent. What is the operating cash flow for year 4 given the following sales estimates and MACRS depreciation allowance percentages? a. -$1,806 b. $640 c. $1,809 d. $2,342 e. $2,811

## Could you please provide the answers in excel to these two

Could you please provide the answers in excel to these two problems in Finance. One file, One problem per sheet. Thank you.

## 19.) Based on the following information, calculate the sustainable growth rate

19.) Based on the following information, calculate the sustainable growth rate for Hendrix Guitars, Inc.: Profit margin 6.4% Total asset turnover 1.80 Total debt ratio .60 Payout ratio 60% What is the ROA here?

## Preferred stock is normally expected to provide steadier, more reliable income

Preferred stock is normally expected to provide steadier, more reliable income to investors than the same firm’s common stock, and, as a result, the expected after-tax yield on the preferred is lower than the after-tax expected return on the common stock

## I have resubmitted the file.

I have resubmitted the file.

## you are 26 years old and decide to save 7500 each

you are 26 years old and decide to save 7500 each year(with the first deposit year from now in an account paying 7% interest rate per year .you will make your last deposit 39 years from now)when you retire at 65 . During retirement, you plan to withdraw funds from the account at the end of each year.(so your first withdrawal is at age 68).what amount will be able to withdraw each year if you want the fund to last until you are 85.

## Two companies, Energen and Hastings Corporation, began operations with identical balance

Two companies, Energen and Hastings Corporation, began operations with identical balance sheets. A year later, both required additional manufacturing capacity at a cost of $50,000. Energen obtained a 5-year, $50,000 loan at an 8% interest rate from its bank. Hastings, on the other hand, decided to lease the required $50,000 capacity for 5 years, and an 8$ return was built into the lease. The balance sheet for each company, before the asset increases, follows: Total Assets $150,000 Total Debt $50,000 Total Equity $100,000 Total Claims $150,000 A. Show the balance sheets for both firms after the asset increases and calculate each firm’s new debt ratio. (Assume that the lease is not capitalized.) B. Show how Hastings’s balance sheet would look immediately after the financing if it capitalized the lease. C. Would the rate of return (1) on assets and (2) on equity be affected by the choice of financing? How?

## Big Sky Mining Company must install 1.5 million of new machinery

Big Sky Mining Company must install 1.5 million of new machinery it its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply: (1)The machinery falls into the MACRS 3-year class. (2)Under either the lease or the purchase, Big Sky must pay for insurance, propery taxes, and maintenance. (3)The firms tax rate is 40%. (4)The loan would have an interest rate of 15%. (5)The lease terms call for $400,000 payments at the end of each of the next 4 years. (6)Assume that Big Sky Mining has no use for the machine beyond the expiration of the lease. The machine has an estimated residual value of $250,000 at the end of the 4th year. What is the NAL of the lease?

## pleasant view nursing home has decided to immunize

pleasant view nursing home has decided to immunize

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