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# Finance

### Equity cost of retained earnings

A Company's common stock is currently selling for \$40.00 per share. Its most recent dividend was \$1.60, and the financial community expects that its dividend will grow at 10% per year in the foreseeable future. I. What is the company's equity cost of retained earnings? II. If the company sells new common stock to finance

### Expected value of cash flow and revenue

I. The Widget Company has estimated the following revenue possibilities for the year: Sales Probability 100 0.15 150 0.20 220 0.30 290 0.20 310 0.15 Determine the expected value II. The XYZ Company has estimated expected cash flows for 1996 to be as follows: Probability Cash flow .10 \$120,000 .15 14

### Time Value of Money

A. Albrecht - Chapter 18, Exercise 18-2 Exercise 18-2 Time Value of Money Your late, rich uncle left you \$250,000. The executor of the estate has asked if you would rather receive the full amount now or \$30,000 a year for the next 40 years. Which of these options would you take, assuming that your desired rate of return is:

### MCLG and MCL

A. Explain the practical difference between the MCLG and the MCL. b. Draw the relationship of marginal social benefit and marginal social cost for the MCLG for lead, assuming it is set at an efficient level. Intuitively explain your model NOTE: One of the key elements of a primary drinking water regulation is the maximum c

### Indicate whether it would normally be recorded in a cash receipt, cash payment journal...

2. Below are some typical transactions incurred by City Company. For each transaction, indicate whether it would normally be recorded in a cash Receipts journal (CR); cash payments journal (CP); sales journal (S); single-column purchases journal (P); or general journal (G). Please put your answer in the space provided next to

### What is the present value of future benefits?

I have several accounting problems that I cannot do. I need help with the formulas for the problems. ex. Jack Hammer invests in a stock that will pay dividends of \$2.00 at the end of the first year; \$2.20 at the end of the second year; and \$2.40 at the end of the third year. Also, he believes that at the end of the third yea

### Financial Economics - The Rate of Return

See attached file for full problem description. Within the context of the CAPM assume: (1) the expected return on the market is 15%, the risk free rate of 8% the expected return pn Hennessy.com is 17% and the beta of Hennessy.com is 1.25.

### Intro to Economics

As a manager of a financial planning business you have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 8 phone calls, while Francis can either produce 2 financial statements or answer 10 phone calls. Does either person have an absolute advantage in producing both pr

### Personal Finance - Future Value and Monthly Payments Calculations

You are 30 years old and plan to retire at age 60. Your goal is to create a fund that will allow you to receive \$100,000 per year for 25 years after the retirement. You know that you will be able to earn an average of 8% per year for all your accounts. If you make annual payments into a retirement account, how much will you need

### Annual year-end payments

How do I start this problem? Jim Rodriguez is borrowing \$50,000 for his small business. If he pays equal annual installments for 5 years and 6% interest, what are his annual year-end payments?

### Using Percentage of Sales

Using Percentage of Sales. The 2003 financial statements for Growth Industries are presented below. Sales and costs in 2004 are projected to be 20 percent higher than in 2003. Both curent assets and accounts payable are projected to rise in proportion to sales. The firm is currently operating at full capacity, so it plans to inc

### Building Financial Models.

Building Financial Models. The following tables contain financial statements for Dynastatics Corporation. Although the company has not been growing, it now plans to expand and will increase net fixed assets (that is, assets net of depreciation) by \$200,000 per year for the next 5 years and forecasts that the ratio of revenues to

### Finance

Using Percentage of Sales. Eagle Sports Supply has the following financial statements. Assume that Eagle's assets are proportional to its sales INCOME STATEMENT, 2003 Sales \$950 Costs 250 Interest 50 Taxes 150 Net Income \$500 BALANCE SHEET, YEAR-END 2002 2003 20

### Determining Whether a Company Will Retain Its Earnings

See the attached file. Dividend Policy For each of the following four groups of companies, state whether you would expect them to distribute a relatively high or low proportion of current earnings and whether you would expect them to have a relatively high or low price-earnings ratio. a. High-risk companies. b. Compa

### Financial Economics

1. Mark Harrywitz proposes to invest in two different stocks, X and Y. He expects a return of 12% from X and 8% from Y. The standard deviation of returns is 20% for X and 10% for Y. The correlation coefficient between the returns is .2. a. Compute the expected return and the standard deviation of the following portfolios

### Biogenetics, Inc plans to retain and reinvest all of their earnings for the next 30 years. Beginning in year 31, the firm will begin to pay a \$12.00 per share dividend. The dividend will not subsequently change. Given a required return of 15%, what should the stock sell for today?

Biogenetics, Inc plans to retain and reinvest all of their earnings for the next 30 years. Beginning in year 31, the firm will begin to pay a \$12.00 per share dividend. The dividend will not subsequently change. Given a required return of 15%, what should the stock sell for today?

### J& J just issued a bond with a \$1,000 face value and a coupon rate of 7%. If the bond has a life of 30 years, pays annual coupons and the yield to maturity (YTM) is 6.8%, what will be the bond sell for?

J& J just issued a bond with a \$1,000 face value and a coupon rate of 7%. If the bond has a life of 30 years, pays annual coupons and the yield to maturity (YTM) is 6.8%, what will be the bond sell for?

### Janice Smith wishes to accumulate \$8,000 by the end of 5 years by making equal annual end-of-year deposits over the next five years. If Janice can earn 7 percent on her investments, how much must she deposit at the end of each year to meet this goal?

Janice Smith wishes to accumulate \$8,000 by the end of 5 years by making equal annual end-of-year deposits over the next five years. If Janice can earn 7 percent on her investments, how much must she deposit at the end of each year to meet this goal?

### What is the net present value and the profitability index for Sunshine Corporation?

Sunshine Corporation is considering several long-term investments. Management wants to accept the two best projects, given the following data: Project A B C D E Present value of . . . . . . . \$24,000 \$44,000 \$15,000 \$30,000 \$50,000 net cash inflows . . . . . . 20,000 40,000 1

### Show the cost implications using three graphs, each of a different polluter with a unique MAC curve drawn to depict a low cost abater, a moderate cost abater and a high cost abater.

A. Under a strict command and control framework, supple abatement standards are se equally across polluters. Assume the total abatement target is 30 units. Show the cost implications using three graphs, each of a different polluter with a unique MAC curve drawn to depict a low cost abater, a moderate cost abater and a high cos

### Demand for Rice - Price Elasticity

2. The price elasticity for rice is estimated to be -0.4 and the income elasticity is 0.8. At a price of \$0.40 per pound and a per capita income of \$20,000, the demand for rice is 50 million tons per year. a. Is rice an inferior good, a necessity or a luxury? Explain. b. If per capita income increases to \$20,500 approximatel

### Elasticity of Demand Calculations

Beagle, Inc., is a catalog retailer of distinctive women's clothing. In an audit of Christmas season sales data, the company noted that sales of its popular \$184 Harris Tweed sports jacket fell to 2,000 units form the 5,000 units sold last season. Apparently, this sales downturn was caused by department store competitors who r

### As a manager of a financial planning business you have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 8 phone calls, while Francis can either produce 4 financial statements or answer 10 phone calls. Does either person have an absolute advantage in producing both products? Should these two planners be self-sufficient (each producing statements and answering phones) or specialize?

As a manager of a financial planning business you have two financial planners, Phil and Francis. In an hour, Phil can produce either one financial statement or answer 8 phone calls, while Francis can either produce 4 financial statements or answer 10 phone calls. Does either person have an absolute advantage in producing both pr

### Financial Planning

Looking at the planning model, I have to run out the projections to 2007. What would happen if the firm would continue to expand at 10% and relied on new issues of debt to make up any required external financing. Would the standard measures of leverage, such has the debt ratio and the interest cover start to spin out of control?

### Present Value / Future Values

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 th

### Uncertain Expected Cash Flows

The company is considering an investment that costs \$785,000 today and has a salvage value in 10 years of \$137,714, but the company is not sure how much net annual cash inflow will be provided by the investment. The company has a discount rate of 7%. How do I compute the net amount of annual cash inflow required to break even.

### Capital Budgeting notes

1) Projects c and d both have normal cash flows. In other words, there is an up-front cost followed over time by a series of positive cash flows. Both projects have the same risk and a WACC equal to 10 percent. However, Project c has a higher internal rate of return than Project d. Assume that changes in the WACC have no effect

### Find the alternative that should be selected using IRR or Present Worth on the incremental investment.

6. Three mutually exclusive alternatives requiring different investment levels are being considered. The life of all three is 20 years with no salvage value. The MARR is 15%. Al A2 A3 Investment \$ 60,000 \$ 30,000 \$ 100,000 Cash flow per year \$ 10,692 \$ 6,162 \$ 17,000 Return on total inv. 17.1% 20.0%

### With MARR equal to 20%, construct a decision tree and analyze expected present worth. Would you buy these patent rights?

3. An inventor offers to sell you patent rights to a device for \$100,000. You have data to suggest a 35% chance of market success yielding net cash flows of \$200,000 per year for 5 years. If not a success, no revenues are expected. With MARR equal to 20%, construct a decision tree and analyze the expected present worth. Would yo

### Bond Yields

Assume the par value of the bonds in the following problem is \$1,000. Garland Corp. has a bond outstanding with a \$90 annual interest payment, a market price of \$820, and a maturity date in 10 years. a. What is the coupon rate? b. What is the current rate? c. What is the approximate yield to maturity?