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- LONG-TERM FINANCING NEEDED At year-end 2019, total assets for Arrington Inc. were 1.8 million and accounts payable were 450,000. Sales, which in 2019 were 3.0 million, are expected to increase by 25% in 2020. Total assets and accounts payable are proportional to sales, and that relationship will be maintained; that is, they will grow at the same rate as sales. Arrington typically uses no current liabilities other than accounts payable. Common stock amounted to 500,000 in 2019, and retained earnings were 475,000. Arrington plans to sell new common stock in the amount of 130,000. The firms profit margin on sates is 5%; 35% of earnings will be retained. a. What were Arringtons total liabilities in 2019? b. How much new long-term debt financing will be needed in 2020? (Hint: AFN - New stock = New long-term debt.)Net present value method for a service company Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for 70,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of 15,000 at the end of five years. The expected additional revenues from the added delivery capacity are anticipated to be 65,000 per year for each of the next five years. A driver will cost 40,000 in 20Y1, with an expected annual salary increase of 2,000 for each year thereafter. The annual operating costs for the truck are estimated to be 6,000 per year. a. Determine the expected annual net cash flows from the delivery truck investment for 20Y120Y5. b. Compute the net present value of the investment, assuming that the minimum desired rate of return is 12%. Use the present value table appearing in Exhibit 2 of this chapter. c. Is the additional truck a good investment based on your analysis? Explain.USE INFORMATION FOR QUESTION 35 and 36. Provo, Inc., had revenues of $10 million, cash operating expenses of $5 million, and depreciation and amortization of $1 million during 2020. The firm purchased $500,000 of equipment during the year while increasing its inventory by $300,000 (with no corresponding increase in current liabilities). The marginal tax rate for Provo is 40 percent. TOOL: Revenue - Operating Ex EBITDA - D&A EBIT - Taxes NOPAT + D&A CF Opns - Capital Expenditures + Add WC = FCF
- A company is considering investing in one of two projects for a period of three years. Information relating to both projects is shown below. Project A (000) Project B (000) Initial cost 390 690 Accounting Net Profit (this profit includes depreciation) Year 1 120 200 Year 2 230 320 Year 3 160 320 Residual Value at the end of 3 years 150 240 All assets are depreciated on a straight-line basis. The company’s cost of capital is 20% per annum. The following discount table is provided. Periods 8% 10% 12% 15% 20% 25% 1 0.926 0.909 0.893 0.870 0.833 0.8000 2 0.857 0.826 0.797 0.756 0.694 0.6400 3 0.794 0.751 0.712 0.658 0.579 0.5120 4 0.735 0.683 0.636 0.572 0.482 0.4096 5 0.681 0.621 0.567 0.497 0.402 0.3277 Required: (a) Calculate annual cashflow for Project A and Project B. (b) Where applicable, using annual cashflow in (a) for…Legardalast Company uses a 12% hurdle rate for all capital expenditures. Based on company policy, only projects that have a discounted payback of 3 years or less are acceptable. It has lined up four projects with the following information. A B C D Initial cash outflow 400,000 596,000 496,000 544,000 Annual cash inflows Year 1 130,000 200,000 160,000 190,000 2 140,000 270,000 190,000 250,000 3 180,000 180,000 180,000 4 130,000 160,000 120,000 If the company has a capital budget of P1,500,000, what project/s should be pursued based on the discounted payback period? Show necessary computations on your solution.Colter Steel has $5,000,000 in assets. Temporary current assets $ 2,000,000 Permanent current assets 1,550,000 Fixed assets 1,450,000 Total assets $ 5,000,000 Assume the term structure of interest rates becomes inverted, with short-term rates going to 11 percent and long-term rates 3 percentage points lower than short-term rates. Earnings before interest and taxes are $1,060,000. The tax rate is 20 percent. If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be?
- Noma’s Hair Salon’s monthly current fixed and total asset requirements schedule for the previous year is given below. The firm pays 8% on current liabilities and 10% on long-term debt. Month Current Assets Fixed Assets Total Assets January 125 000 250 000 375 000 February 130 000 250 000 380 000 March 135 000 250 000. 385 000 April 150 000 250 000 400 000 May 150 000 250 000 400 000 June 125 000 250 000 375 000 July 115 000 250 000 365 000 August 120 000…Noma’s Hair Salon’s monthly current fixed and total asset requirements schedule for the previous year is given below. The firm pays 8% on current liabilities and 10% on long-term debt. Month Current Assets Fixed Assets Total Assets January 125 000 250 000 375 000 February 130 000 250 000 380 000 March 135 000 250 000. 385 000 April 150 000 250 000 400 000 May 150 000 250 000 400 000 June 125 000 250 000 375 000 July 115 000 250 000 365 000 August 120 000…The business units of contractor companies carry out investment expenditures for a capital of 80,015,000 the investment is expected to be generate a cash flow of 6,015,000 per year for 8 years, costs capital (cost of money) of 5% per year and an assumed interest rate of 10%. Pelase Count : a. Payback Period of Investment b. NPV c. Profitability Index d. IRR
- Christopher Company borrowed $6 million at 11% on January 1, 2020, to build a new building. The building is expected to take 18 months to complete. Christopher invests the money from the project until it is needed for construction. He is currently earning 10%. The following is the expenditures as they relate to the construction of the building.January 1$1,500,000April 1$1,850,000October 1$1,100,000December 31$1,000,000Required: 2. Compute the amount of interest revenue Christopher would recognize.The management of Arkansas Corporation is considering the purchase of a new machine costing $490,000. The company's desired rate of return is 10%. The present value factors for $1 at compound interest of 10% for 1 through 5 years are 0.909, 0.826, 0.751, 0.683, and 0.621, respectively. In addition to the foregoing information, use the following data in determining the acceptability of this investment: Year Income fromOperations Net CashFlow 1 $100,000 $180,000 2 40,000 120,000 3 40,000 100,000 4 10,000 90,000 5 10,000 120,000Andronicus Corporation (AC) has the following jumbled information about an investment proposal: Revenues in each of years 1–4 = $37,000 Year 0 initial investment = $57,000 Inventory level = $18,500 in year 1, $20,700 in year 2, and $13,500 in year 3 Production costs = $12,100 in each of years 1–4 Salvage value = $13,700 in year 4 Depreciation = 100% immediate bonus depreciation Tax rate = 21% There is an additional 6-month lag for all cash flows after year 0. For example, customers pay consistently with a 6-month lag, as AC does for production costs, taxes, etc. Draw up a set of cash flow forecasts as in Table 6.4. If the cost of capital is 10%, what is the project’s NPV? Assume that, if the project generates losses, those losses can be used to offset profits for tax purposes elsewhere in the business.
