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# The Discounted Cash Flows Model

### What impact does the number of years until maturity have on the value of a bond?

1. What impact does the number of years until maturity have on the value of a bond? 2.List three capital budgeting methods (decision rules) and rank them from least to most useful. Defend your ranking. 3. Should capital budgeting projects be evaluated on their pre-tax or after tax cash flows? Why? 4. What is a stockhold

### Constant-Growth Model

Constant-Growth Model. A stock sells for \$40. The next dividend will be \$4 per share. If the rate of return earned on reinvested funds is 15 percent and the company reinvests 40 percent of earnings in the firm, what must be the discount rate?

### Office King Corp

This is a problem in managerial accounting. Can you give me some direction? Problem: Office King Corp. makes three different models of paper shredders including the waste container that serves as the base. While the shredder heads are different for three models, the waste container is the same. The number of waste containers

### Discounted Cash Flow Analysis

Trying to find the present value of the cash flows with a discount rate of 11% componded quarterly. Year Cash Flow 1 \$ 900 2 850 3 0 4 1,140

### Internal Rate of Return and Net Present Value of the Product

The Danforth Tire Company is considering the purchase of a new machine that would increase the speed of manufacturing and save money. The net cost of this machine is \$66,000. The annual cash flows have the following projections. Year Cash Flow 1. . . . . . . . . \$21,000 2. . . . . . . . . 29,000 3. . . . . . . . . 36,000 4.

### Present value of future cash flows

XYZ, Inc. has an offer to buy ABC & Sons. XYZ thinks ABC can produce cash flows of \$5k, \$9k, & \$15k over the next three years (respectively). After that, XYZ thinks ABC will be worthless. Using a 14% rate of return, XYZ must make it's purchase decision now. What should XYZ pay today to buy ABC? Please use Excel (prefera

### Present Value & Future Value

1. Present Values. Compute the present value of a \$100 cash flow for the following combinations of discount rates and times: a. r = 8 percent, t = 10 years. b. r = 8 percent, t = 20 years. c. r = 4 percent, t = 10 years. d. r = 4 percent, t = 20 years. 2. Future Values. Compute the future value of a \$100 cash flow for the

### Multiple Choice Questions in Investment: current yield, value of any asset, free cash flow approach to valuation, bank discount yield

Question 6: In looking at the current yield curve you see the following spot rates: one year 6.19%, two years 5.90%, and three years 5.71%. If you assume that the yield curve is best explained by the "pure expectations theory", what is the expected one-year rate two years from now? a. 5.9% b. 5.71% c. 5.04% d. 5.33%

### Net Income, Operating Cash Flow & Cash Flow from Assets

Trying to find the Net Income, Operating Cash Flow & The Cash Flow from Assets. sales = \$15,200 cost of goods = \$11,400 Depreciation expense = \$2,700 Interest Expense = \$520 Dividends Paid \$600 At the begging of the year: net fixed assets = \$9100 current assests = \$3200 current liabilities = \$1800 At the end of

### How would financial managers use discounted-cash flow models for decision-making.

Some capital-budgeting choices require managers to decide between upgrading high-technology research equipment and not upgrading. How would financial mangers at a Pharmaceutical, a drug manufacturer, use discounted-cash-flow models in their decision-making process? Be sure to address impact not replacing the equipment has on f

### Working Capital and Financing

Please help me complete and submit a 3,500-4,200-word Capital Structure Analysis Report. For this report, use Target. This report will consist of three sections: a. Working Capital Management Section 1) Identify which of the liquidity or efficiency ratios were under-performing relative to industry standard or were deterioratin

### Corporate Valuation - Dozier Corporation

Question: Dozier Corporation is a fast-growing supplier of office products. Analysis project the following free cash flows (FCS) during the next 3 years after which FCF is expected to grow at a constant 7 percent rate. Dozier's cost of capital is WACC = 13% Time 1 2 3 Free Cash Flow -\$20

### The factors involved in setting a dividend policy include all of the following except

The ________ is utilized to value preferred stock. a. Capital Asset Pricing Model (CAPM) b. Constant Growth Model c. Variable Growth Model d. Zero Growth Model e. Gordon Model The factors involved in setting a dividend policy include all of the following except: a. Operating Constraints b. Legal Constraints c. Con

### Financing Growth Question

A leading retailer finds itself in a financial bind. It doesn't have sufficient cash flow from operations to finance its growth, and it is close to violating the maximum debt-to-assets ratio allowed by its covenants. The Vice-President for Marketing suggests: "We can raise cash for our growth by selling the existing stores and l

### Cash Rebates on Electronics

Among the cash managment techniques used by most business are those that slow down their bill payments. A good example for this is "Cash Rebates" offered on household items like computers and other electronics 1) Are these practices sound business decisions? Are they ethical? Explain 2) What percentage of the rebaates offe

### Acquisition Decisions at Kellogg's

Kellogg Co. agreed to acquire Keebler Foods Co. for \$3.86 billion, or \$42 per share. How would discounted cash flow analysis be used in analyzing such a major acquisition decision? What were Kellogg's objectives in the acquisition? What kinds of qualitative issues could enter into the decision?

### Forecast model for sales

I need to create a forecast model for sales through operating income for Microsoft. The information needs to come from (http://www.sec.gov/)

### Present Value

Calculate the present value of the following cash flows discounted at 10% (using Microsoft Excel): 1. \$1,000 received seven years from today 2. \$2,000 received one year from today 3. \$500 received eight years from today

### Evaluating Cash Flows

Garvin Enterprises is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? WACC: 10.00% Year: 0 1 2 3 Cash Flows: -\$1,000 \$500 \$500 \$500 A. 2.12 years B. 2.35 years C. 2.59 years D. 2.85 years E. 3.13 years

### Evaluating Cash Flows

Wachowicz Inc. is considering two average-risk alternative ways of producing its patented polo shirts. Process S has a cost of \$8,000 and will produce net cash flows of \$5,000 per year for 2 years. Process L will cost \$11,500 and will produce cash flows of \$4,000 per year for 4 years. The company has a contract that requires

### Zeta Software - project's operating cash flow for Year 1

Zeta Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the

### Cash Flow Estimation and Risk Analysis

Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the MACRS rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year life. What is the

### Calculating the WACC for Amazon

Describe how the Weighted Average Cost of Capital (WACC) is calculated in amazon.com. Evaluate the effectiveness of this approach.

### Acme: Decision Regarding Taking a Business Deal

Acme is also considering the acquisition of a firm in the Czech Republic and would like your opinion on this. It plans to operate the firm for 3 years and then re-evaluate the holding. Free Cash flows are estimated as follows: Year 1 - 38.63M Czech Koruna (CZK), Year 2 - 44.33 M CZK, Year 3 - 50.48M CZK The third year

### Net Income and Cash Flow

The Monday Corporation expects to have sales of \$20,000,000. Costs other than depreciation are expected to be 70% of sales, and depreciation is expected to be \$3,000,000. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Monday's federal-plus-state tax rate is 40

### Capital Budgeting

Propose to launch a new computerized assembly line, which costs \$5,000,000, for replacing the existing assembly line. If replace the existing assembly line would result in a before-tax reduction of cash expenses by \$1,200,000 per year. The new assembly line will be fully depreciated by the simplified straight-line method over

### Calculating Bond Yield

A 6 year government bond makes annual coupon payments of 5 percent and offers a yield of 3 percent annually compounded. Suppose that one year later the bond still yields 3 percent. What return has the bondholder earned over the 12-month period? Now suppose instead that the bond yield is 2 percent at the end of the year.

### Compute the duration for bond C, and rank the bonds on the basis of their price volatility. what is the price of each of the following bonds (\$1,000 principal), if the current interest rate is 9%? Rank the bonds in terms of price fluctuations with the least volatile bond first and the most volatile bonds last as judged by each bond's duration

1. Compute the duration for bond C, and rank the bonds on the basis of their price volatility. The current rate of interest is 8%, so the prices of bonds A and B are \$1,000 and \$1,268, respectively . BOND COUPON TERM DURATION A 8% 10 YRS 7.25 B 12% 10 YRS 6.74 C 8% 5YRS ? Confirm your ranking by calculating the percenta

### Financial/Accounting Question

1. Financial leverage is beneficial only if the firm can employ the borrowed funds to earn a higher rate of return than the interest rate on the borrowed amount. Generally speaking, the higher the financial leverage, the greater the profits at high levels of operating profit. a) true b) false 2. How long must one wait (to t

### Selling a Goldmine/Bonds

Part I: Suppose you owned a goldmine. All of the gold will run out in two years, but your expected profits from the gold over the next two years are: Year 1: \$110,000 Year 2: \$350,000 A. If the discount rate is 5% what is the present value of your profits at the end of Year 1 and Year 2? B. With a discount rate of 7%