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
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
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
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
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
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%
Prepare a Statement of Cash Flow Accounting Report statement showing the amount of cash flow from operations, cash flow related to investment activities, and cash flow associated with financing activi
Use the following information to prepare a Statement of Cash Flow Accounting Report. The indirect method should be used to find cash flow from operations. ABC Corporation retails specialty chairs for individuals who like to change sitting positions rather frequently. ABC has been particularly profitable in recent years wit
Part A: Describe the following project evaluation processes: NPV, Payback, AAR, IRR. Is any one evaluation process better the others? Why? Part B: What is the difference between Operating Leverage and Financial Leverage? Also, describe the concepts of DOL, DFL and DCL
If the discount rate in not known with certainty, which project should the firm take as a function of the discount rate?
A firm is considering two mutually exclusive projects. Both projects cost $300,000 today. The first, the quick-payoff option, produces after-tax cash inflows of $100,000 per year for each of the next four years (and nothing thereafter). The second, the slow-payoff option, produces after-tax cash inflows of $50,000 per year fo
The Pauncefort Group is active in a number of different industrial sectors, particularly Engineering. Quentin plc is the group holding company. The Board of Directors of Quentin plc are actively considering a number of projects that might be undertaken by the company or one of its subsidiaries. As a matter of policy, the Boar
Since the buy-and-hold investor will realize greater cash flow from the investment, does it follow that he should be willing to pay a higher price for it?
Two investors are considering buying shares in a given company. One investor is a "buy-and-hold" type of individual and the other likes to trade stocks about every two years, on average. Since the buy-and-hold investor will realize greater cash flow from the investment, does it follow that he should be willing to pay a higher pr
Explain how the following terms affect cash flow: 0. Stock dividends declared 1. Amortization of bond discount 2. Building and land purchased by issuing common stock 3. Decrease in prepaid expenses 4. Depreciation expense on equipment 5. Decrease in dividends payable 6. Common stock issued for cash
BPC Inc. must decide between two mutually exclusive projects. Each costs $6,750 and has an expected life of 3 years. Annual project cash flows begin 1 year after the initial investment, and are subject to the following probability distributions: PROJECT A PROJECT B Probability Cash Flows
1.. Investors require a 15 percent rate of return on Levine Company's stock (rs = 15%). a. What will be Levine's stock value if the previous dividend was D0 = $2 and if investors expect dividend to grow at a constant compound annual rate of (1) -5 percent, (2) 0 percent, (3) 5 percent, and (4) 10 percent? b. Using data
11. What is the yield-to-maturity of the following bond? WHY? Price = 113 Discount Rate Present Value of Cash Flow of Bond 6% 120 8% 114 9% 112 10% 98 12. What is the return on the following investment? Income =
Theme 1 1. Find a company stock that has at least 5 years of quarterly return data (60 data points). Determine what the company Beta is by running a regression, and compare your calculation with what the financial source is reporting for the Beta. 2. Is your calculation of Beta the same as what the financial source report
You are interested in a bond. It has a 15 year remaining term and a 7% coupon rate. The price is 100. 1.What is the bond's YTM? 2.What is the formula you used to arrive at the answer? 3.Beacon Products has a project with an NPV of $500,000. a. Should the company accept the project? b. Why/why not? c. What is the impac
Discuss the free cash flow model, the adjusted present value model, and the residual income model. Provide an example of a situation where each model would be applicable. IN 4-5 paragraphs Objective is to discuss the concepts and methods underlying the valuation of companies, including both profitability and risk analysis
Problem 1. The following inventory data have been established for Company A: (1) Orders must be placed in multiples of 100 units. (2) Annual sales are 338,000 units. (3) The purchase price per unit is $6. (4) Carrying costs are 20 percent of the purchase price of goods. (5) The fixed order cost is $48. (6) Three day
1. Johnson Industries is considering an expansion project. The necessary equipment could be purchased for 9 million, and the project would also require an initial 3 million investment in net operating working capital. The company's tax rate is 40 percent. What is the projects initial investment outlays? 2. Nixon Communicati
Calculate the payback period and the NPV using the information below. Cost of Capital = 13% Initial Investment 100,000 Cash inflow 1 15,000 Cash inflow 2 20,000 Cash inflow 3 30,000 Cash inflow 4 35,000 Cash inflow 5 40,000 the IRR is closest to:
Fair Weather Friend Corporation has earnings before depreciation and taxes of $90,000; and depreciation of $40,000 and that it has a 30 percent tax bracket.
Fair Weather Friend Corporation has earnings before depreciation and taxes of $90,000; and depreciation of $40,000 and that it has a 30 percent tax bracket. a. Compute its cash flow using the format below. Earnings before depreciation and taxes Depreciation Earnings before taxes Taxes @ 30% Earnings af
Marston Marble Corporation is considering a merger with the Conroy Concrete Company. Conroy is a publicly traded company, and its current beta is 1.30. Conroy has been barely profitable, so it has paid an average of only 20 percent in taxes during the last several years. In addition, it uses little debt, having a target d
You have bid for a possible export order that would provide a cash inflow of ?1 million in six months. The spot exchange rate is $1.2375 = ?1 and the six-month forward rate is $1.2318 = ?1. There are two sources of uncertainty: (1) the euro could appreciate or depreciate and (2) you may or may not receive the export order. Illustrate in each case the final payoffs if (a) you sell one million euros forward, and (b) you buy a six-month option to sell euros with an exercise price of $1.2318/?.
You have bid for a possible export order that would provide a cash inflow of ?1 million in six months. The spot exchange rate is $1.2375 = ?1 and the six-month forward rate is $1.2318 = ?1. There are two sources of uncertainty: (1) the euro could appreciate or depreciate and (2) you may or may not receive the export order. Illus
A) What is the duration for each of the bonds? b) What is the relationship between duration and the amount of coupon interest that is paid?
An insurance company is analyzing three bonds and is using duration as the measure of interest rate risk. All three bonds trade at a yield to maturity of 10% , have maturity of 5 years and have $10,000 par values. The bonds differ only in the amount of annual coupon interest they pay: 8, 10, and 12% a) What is the d
3(2). Suppose a company's most recent free cash flow (i.e., yesterday's free cash flow) was $100 million and is expected to grow at a constant rate of 5 percent. If the company's weighted average cost of capital is 15 percent, what is the current value of operations? 3(3). Suppose a company's projected free cash flow for n
1. The primary objective of business financial management is to a. maximize total corporate profit. b. maximize net income. c. minimize the chance of losses. d. maximize shareholder wealth (i.e. stock price). 2. Theoretically, stock price is not directly determined by a. the risk associated with expected cash flows
On a warm Chicago evening in August 2005, Regina Ryan leaned back in an overstuffed armchair in her brightly lit apartment above Ryan Funeral Home. Seventy-five years old and a widow, Regina smiled as she looked at the sons and daughters gathered before her: Maureen, Patrick, Sean, Brendan, Conner, and Siobhan. Finally sh
I would like the process to for these questions to be explained in plain language and systematically so I can grasp and understand. I am preparing for in-class exams so I need to ensure that I know and recognize what process should be used for the different problems. Thank you! 1. The president of Crandall Ceramics is trying
What information should be included in a financial forecast accompanying a strategic plan and why?