Entrepreneurial Finance Assignment 1

QUESTION 2: What total contribution is required to cover the new fixed costs and earn $500 profit per issue?

The fixed cost is assumed that Larry has discovered the other fixed cost incurred. The total investment is $800,000. The worst case scenario assumes that Larry got a total line of credit from the bank in the amount of $400,000 and invested $400,000 from other source. The Notes payable – short term and the long-term debt is (11.8 + 3.7) = 15.5 % from Table F in the handout. The Loan interest and payment per year is ($400,000 * 0.155)= $62,000. The Income data from Table F indicates that there is a 0.4% of all other expenses net out of the total sales which equals to $109,908 (5,700,666 gallons * $4.82 *0.4%) .

11. What is the Cost of Equity? ke = Risk Free Rate + (Beta X Risk Premium of 7.5% points). .03 + (.99 x .075) = 10.43%.

This Fund is targeting the following annual return for Limited Partners; class A Shares will have a 5% per annum, plus a limited share of profits, on invested capital. Class B shares will have approximately 10% - 15% per annum. However, these anticipated returns (which is not a guarantee of performance) is based on good faith assumptions

1. Visit the website of a large national bank, regional bank, or credit union, and use the information you find there to answer the questions below. EXAMPLE: Some large banks you might consider include Bank of America®, JPMorgan Chase®, Wells Fargo®, Citibank®, and U.S. Bank®.

Question Number One (1) Value the processing plant proposal. Ignore the Industrial Revenue Bond financing. Assume: Market Risk Premium 8.8%, Riskless Rate 11.41%, and Harris Long Term Debt Rate 13.5%.

CAPM is a model that describes the relationship between risk and expected return, and the formula itself measures the expected return of the portfolio. Mathematically, when beta is higher, meaning the portfolio has more systematic risk (in comparison to the market portfolio), the formula yields a higher expected return for the portfolio (since it is multiplied by the risk premium and is added to the risk free interest rate). This makes sense because the portfolio needs to

* Compute the value with leverage, VL, by discounting the free cash flows of the investment using the WACC.

Assume the ROE and payout ratio stay the same for the next 4 years. After that competition forces ROE down to 11.5% and the payout increases to 0.8. The cost of capital is 11.5%. (15 points)

Using time series regression on the monthly returns we have estimated the beta coefficient for each stock. Using the market model of CAPM i.e., regressing each stock’s monthly returns against the market index (Nifty100) we have estimated individual stock beta’s.

The risk premium should be calculated by using holding-period returns, as 9.90%-3.48%= 6.42%. Then we can compute the cost of equity is 3.48%+0.97*(6.42%) =9.71%. According to Exhibit1, 1987, we calculate the tax rate by dividing income tax over EBIT. $175.9/$398.9=44%. Then we can calculate the firm’s WACC = (1-44%)*(9.34%)*60%+9.71%*40%=7.02%.

However, the R Square of this regression is 0.5939 that means only about 59% variable can be explained by this regression. This result show that the CAPM model lacks some factors or information to explain these variable.

If we look at the financial summary of M.L.I we can calculate how much Winkler can bid for this company. We can calculate Net Present Value, Indicial Rate of Return and Payback period for this project. If we take last year and estimated after tax Income as a projection and investment of $2 million we can calculate:

General partner is paid either by way of a management fee or it can be by way of compensation. Management fee is a fixed percentage of total amount of the fund’s capital. Generally this fee range from 1% to 2% annually of the capital committed.

The Amana Growth Fund invests in large-cap value investments. The Fund favors businesses with an expected higher growth than the economy. The ethical investments increase the positive impacts of an organization (Amjad, R., Ashiq, H., Hassan, M., Inam, H., Kausar, A., Lodhi, M., Nasar, H. 2012). The minimum initial investment for Investor Shares is $250 and for Institutional Shares is $100,000. The annual fund operating expenses under the Amana Growth Fund for Investor Shares (AMAGX) has a management fee of 0.81%, distribution (12b-1) fee of .25%, and other expenses of .03%; in total an annual fund operating expense of 1.09%. As for the Institutional Shares (AMIGX), the management fee is .81%, the distribution (12b-1) has no fee, and other expenses of .04%; in total an annual fund operating expense of .85%. There is a redemption Fee of 2% if Fund is held