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Get college assignment help at uniessay writers Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 10% of the year’s projected sales; for example, NWC0 = 10%(Sales1). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company’s nonvariable costs would be $1 million at Year 1 and would increase with inflation. The server project would have a life of 4 years. If the project is undertaken, it must be continued for the entire 4 years. Also, the project’s returns are expected to be highly correlated with returns on the firm’s other assets. The firm believes it could sell 1,000 units per year. The equipment would be depreciated over a 5-year period, using MACRS rates. The estimated market value of the equipment at the end of the project’s 4-year life is $500,000. Webmasters’ federal-plus-state tax rate is 40%. Its cost of capital is 10% for average-risk projects, defined as projects with a coefficient of variation of NPV between 0.8 and 1.2. Low-risk projects are evaluated with a WACC of 8%, and high-risk projects at 13%. a. Develop a spreadsheet model, and use it to find the project’s NPV, IRR, and payback.

## Sunny Orange is considering expanding its juice-making operations. The expansion will

Sunny Orange is considering expanding its juice-making operations. The expansion will require new equipment costing $489,000 that would be depreciated on a straight-line basis to a zero balance over the 5-year life of the project. The estimated salvage value is $172,000. The project requires $41,000 initially for net working capital, all of which will be recouped at the end of the project. The projected operating cash flow is $201,500 a year. What is the initial cash flow at year 0 of this project if the relevant discount rate is 16 percent and the tax rate is 34 percent?

## 6. Weiss Inc. arranged a $9,000,000 revolving credit agreement with a

6. Weiss Inc. arranged a $9,000,000 revolving credit agreement with a group of banks. The firm paid an annual commitment fee of 0.5% of the unused balance of the loan commitment. On the used portion of the revolver, it paid 1.5% above prime for the funds actually borrowed on a simple interest basis. The prime rate was 3.25% during the year. If the firm borrowed $6,000,000 immediately after the agreement was signed and repaid the loan at the end of one year, what was the total dollar annual cost of the revolver?

## Getaway Ltd is considering a project that involves acquiring a machine

Getaway Ltd is considering a project that involves acquiring a machine for $500,000 that is anticipated to generate $200,000 of revenue per year and $80,000 of expenses per year over its six year life. The machine is expected to have a residual value of $150,000 and is depreciated on a straight line basis. The firm’s cost of capital is 8%. What is the Accounting Rate of Return of the project?

## Larisa Warren, the owner of East Coast Yachts? Larisa Warren, the

Larisa Warren, the owner of East Coast Yachts? Larisa Warren, the owner of East Coast Yachts, has decided to expand her operations. She asked her newly hired financial analyst, Dan Ervin, to enlist an underwriter to help sell $40 million in new 20-year bonds to finance new construction. Dan has entered into discussions with Kim, an underwriter from the firm of Crowe

## 1: You obtained a business loan for four months. The loan

1: You obtained a business loan for four months. The loan will allow you to paid $300 in interest for three months and a final payment of interest and principal at the end of the four month. 2: You obtained a mortgage to buy a home. You will pay $800 per month to cover both interest and principal. 3: a way used by the US government to borrow money on short-term basis. 4: You borrow $1,000 from your best friend. In return, you will give him back $1150 in 3 months. :Pure discount loan : Amortized Loan : Interest-only Loan : Treasury Bill match them together

## The accounting rate of return method ignores the time value of

The accounting rate of return method ignores the time value of money. True False

## The payback technique is criticized for not using discounted cash flows.

The payback technique is criticized for not using discounted cash flows. Under what conditions will this matter most? That is, under what patterns of cash flow will payback and NPV or IRR be likely to give different answers?

## Your firm is considering leasing a new computer. The lease lasts

Your firm is considering leasing a new computer. The lease lasts for 9 years. The lease calls for 10 payments of $1,000 per year with the first payment occurring immediately. The computer would cost $7,650 to buy and would be straight-line depreciated to a zero salvage over 9 years. The actual salvage value is negligible because of technological obsolescence. The firm can borrow at a rate of 8%. The corporate tax rate is 30%.

## Hello, Please hel a. Using the financial statements shown below, calculate

Hello, Please hel a. Using the financial statements shown below, calculate net operating working capital, total net operating capital, net operating profit after taxes, free cash flow, and return on invested capital for the most recent year. Lan

## You just deposited $9,500 in a bank account that pays a

Get college assignment help at uniessay writers You just deposited $9,500 in a bank account that pays a 4.0% nominal interest rate, compounded quarterly. If you also add another $5,000 to the account one year (4 quarters) from now and another $7,500 to the account two years (8 quarters) from now, how much will be in the account three years (12 quarters) from now?

## Your uncle has $1,135,000 and wants to retire. He expects to

Your uncle has $1,135,000 and wants to retire. He expects to live for another 25 years and to earn 7.5% on his invested funds. How much could he withdraw at the end of each of the next 25 years and end up with zero in the account?

## Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate

Suppose 10-year T-bonds have a yield of 5.30% and 10-year corporate bonds yield 8.90%. Also, corporate bonds have a 0.25% liquidity premium versus a zero liquidity premium for T-bonds, and the maturity risk premium on both Treasury and corporate 10-year bonds is 1.15%. What is the default risk premium on corporate bonds?

## n 8 5 points Save Kay Corporation’s 5-year bonds yield 6.20%

n 8 5 points Save Kay Corporation’s 5-year bonds yield 6.20% and 5-year T-bonds yield 4.40%. The real risk-free rate is r* = 2.5%, the inflation premium for 5-year bonds is IP = 1.50%, the default risk premium for Kay’s bonds is DRP = 1.30% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP = (t – 1) mc065-1.jpg 0.1%, where t = number of years to maturity. What is the liquidity premium (LP) on Kay’s bonds?

## Samantha Jones of Gorsuch Capital likes Thompson’s plan, but thinks it

Samantha Jones of Gorsuch Capital likes Thompson’s plan, but thinks it naive in one respect: to recruit a senior management team, she believes Thompson will have to grant generous stock options in addition to the salaries projected in his business plan. From past experience, she thinks management should have the ability to own at least a 15% share of the company by the end of year 5. Given her beliefs, what share of the company should Samantha insist on today if her required return is 30 million? a. How much of the company does management own at the end of year 5? b. Given the valuation above, what is the value of the company at the end of year 5? c. If Ms. Jones now insists that managers own 15% of the company at the end of year 5, how much of the company is left for investors to own? d. If Ms. Jones wants her investment in the company to be worth $30 million, how much of the company’s equity should she insist on owning?

## Bailey Company sells small appliances to hardware stores in the southern

Bailey Company sells small appliances to hardware stores in the southern California Area. Michael Bailey, the president of the company is thinking about changing the credit policies offered by the firm to attract customers away from competitors. The current policy calls for a 1/10, net 30 and the new policy would call for a 3/10, net 50. Currently 40% of Bailey customers are taking the discount, and it is anticipated that this number would go up to 50 % with the new policy. It is further anticipated that the annual sales would increase form a level 0f $200,000 to $250,000 as a result of the change in the cash discount policy. The increased sales would also affect the inventory level. The average inventory carried by Bailey is based on a determination of an EOQ. Assume unit sales of small appliances will increase from $20,000 to $25,000 units. The ordering cost for each order is $100 and the carrying cost per unit is $1 (these values will not change with the discount). The average inventory is based on EOQ/2. Each unit in inventory has an average cost of $6.50. Cost of goods sold is equal to 65% of net sales; general and administrative expenses are 10 % of net sales; and interest payments of 12% will be necessary only for the increase in the accts. receivable and inventory balances. Taxes will equal 25 % of before tax income A- Compute the accounts receivable balance before and after the change in the cash discount policy. Use the net sales (total sales – cash discounts) to determine the average daily sales and the accounts receivable balances. B- Determine EOQ before and after the change in the cash discount policy. Translate this into average inventory (in units and dollars) before and after the change in the cash discount policy. C- Complete a before and after income statement including: Net sales, COGS, Gross profit, general and administrative expense, operating profit, Interest on increase in accts rec. and inventory (12%), Income before taxes, Taxes, Income after taxes.

## what might the price of a $1000 bond with a 5.8%

what might the price of a $1000 bond with a 5.8% coupon rate, annual coupons, and 30 year maturity if ytm is 7.5% apr?

## Swan’s Bicycle Boats had a degree of accounting operating leverage equal

Swan’s Bicycle Boats had a degree of accounting operating leverage equal to 1.50 during the most recent period. If the firm’s EBITDA was $5,000 and its fixed costs were equal to $1,750, then what was Swan’s depreciation and amortization expense during the same period?

## How do you calculate the Profitability Index for multiple cash flows

How do you calculate the Profitability Index for multiple cash flows on a TI BAII Plus. The study problem goes like this: Given the following cash flows; Yr 0 = -$12,000, Yr 1 = $6,200, Yr 2 = $5,600, Yr 3 = $3,900. If the relevant discount rate is 10% and 15%, what is the profitability index?

## Homework Assignment 1 (Case 1-1, page 24

Homework Assignment 1 (Case 1-1, page 24

## Ali Storage Company projects 800 customers next year. Of these, 600

Ali Storage Company projects 800 customers next year. Of these, 600 have been profitable and have never defaulted on past obligations, while 200 have not been profitable. All of the unprofitable accounts are expected to default if given credit. Ali can pay $0.40 to an agency that will tell them whether a customer has been profitable. If Ali’s price per unit is $10, and its cost per unit is $6, should they allow the credit check to be performed? Assume a discount rate of 1%.

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