Q: ulate the present value of each cashflow using a discount rate of 7%. Which do you prefer me w and…
A: Present value is value of money today considering the interest and period of time that is to be…
Q: Manjean is making car payments of $662 per month for the next 3 years. Manjean knows that the car…
A: Formula Car price = P*[1-(1+I)-N]/I Where P - Monthly payment i.e. $662 I - Monthly interest rate…
Q: Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is…
A: Generally, the risk involved in an investment is measured by the volatility. Volatility tells about…
Q: estiöñ 15 Question 18 A firm with a 14 percent WACC is evaluating two projects for this year's…
A: (Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…
Q: Kinston Industries just announced that it will cut its dividend from $3.00 to $2.00 and use the…
A: Answer - Step 1 - Calculation of Cost of Equity - Stock Price = Dividend / (Cost of Equity -…
Q: fund is to be set up for an annual scholarship of $5000. If the first payment is due in three years…
A: Solved using Financial Calculator FV = 5000 N = 3 years * 4 = 12 I/Y = 6.2/4 = 1.55 CPT PV = -…
Q: Stéphanie visited a financial institution and signed a 10-year, non-interest-bearing promissory note…
A: We have; Value of note now is $6000 Time period of note is 10 years Interest rate is 2.15%…
Q: The buying and selling commission schedule shown in the table is from an online discount brokerage…
A: Here, No. of Shares Purchased is 125 Purchase Price per Share is $50 Time Period to hold the shares…
Q: San Diego Enterprises is planning to invest in a five-year project costing $270,000. The project is…
A: Payback period is the amount of time required to recover initial investment. It can be calculated…
Q: What is the future value of P4500 per year for 10 years invested at 5%? P56,600 P7,330 P45,000…
A: FORMULA FVA = P*[(1+i)n-1]/i Where FVA - Future value of annuity P - Annual amount i.e. P4500 i -…
Q: O $800,000
A: Present worth states the concept that the amount which is present today is more valuable than the…
Q: How does shareholder value relate to capital structure?
A: The combination of various types of external funds, known as capital, used to finance a corporation…
Q: The XYZ Company paid $1.75 dividend yesterday. Its dividend growth rate is expected to be constant…
A: Dividend discount model refers to a stock valuation model which is used by the company for…
Q: You are considering two mutually exclusive projects with the following cash flows. The discount rate…
A: Pay back period is the amount of years required to recover the initial investment of the project and…
Q: 000 1000 1500 3000 $2.000
A: Future value is amount of deposit made and also interest accumulated over the period of time of…
Q: b. $ 864
A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Two investment opportunities are available, with expected income flows as Table Q4: Table Q4:…
A: Net present value is the difference between Present Value of cash Inflows and Initial Investment. A…
Q: Jiminy's Cricket Farm issued a 25-year, 5 percent semiannual coupon bond 4 years ago. The bond…
A: Bond is the security that provides coupon payment to the bondholder over the maturity period. The…
Q: project's NPV?
A: Net present value is helpful in calculating the current total value of the payments based on the…
Q: Payments on a six-year lease valued at $42050 are to be made at the beginning of every six months.…
A: Semi - annual payment can be calculated as: = Total amount / Present Value Factor of annuity (i%, n…
Q: 13 Suppose that Argentina’s 10-year bonds are yielding more than 100 percent annually. Does this…
A: A bond is a bond that represents a loan that an investor makes to a borrower (usually a company or…
Q: Which of the following coupon bonds have the highest yield to maturity (YTM)? Notation: P = Current…
A: Solved Using Financial Calculator
Q: What is the present value of a $90,000 annual annuity for 10 years with an additional $1,000,000…
A: The present value of investment is the sum of present value of annuity and the present value of…
Q: Stuart Rentals can purchase a van that costs $105,000; it has an expected useful life of three years…
A: Payback period = Initial investment/Expected revenue per year
Q: usand pesos shall be received each year for five years. Assuming an opportunity cost of 4%,…
A: Given a specified rate of return, current value is the current value of a prospective quantity of…
Q: ermine the amount of each payment?
A: Monthly payment refers to the amount which is due to be paid at regular intervals for some…
Q: Given the information below for HooYah! Corporation, compute the expected share price at the end of…
A: Given: Year 2014 2015 2016 2017 2018 2019 Price $22.00 $58.50 $130.00 $207.00 $97.00 $27.50…
Q: BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it…
A: Net present value = present value of future cash inflows - initial investment
Q: (a) It is April 19th. The quoted price of a Treasury bond with an Actual/365 day count and 2% coupon…
A: Here, Face Value of Bond is 100 Coupon rate is 2% Coupon Compounding Period is Semi Annual Quoted…
Q: Compute the additional funds needed. JHOPE "I am your hope" Company has 10% net profit margin on…
A: Given: Particulars Current Projected Net profit margin 10% 10% Sales $1,000,000 $1,255,000…
Q: 96.A large profitable corporation is considering a capital investment of $50,000. The equipment has…
A: Taxable income will be calculated by deducting the depreciation and expenses from annual gross…
Q: Ja. A company made an additional (incremental) income of $10,000 during the last week of the year.…
A: The main source of income for government is the tax collected from both individuals and businesses.…
Q: QUESTION 1 You have a down payment of $10,000 saved up to purchase a new vehicle. If yoou are also…
A: The act in which one person or entity provides funds to another person for defined term and agreed…
Q: Following is information for two stocks: Investment r σ Stock X 8% 10%…
A: Relative risk can be judged by comparing the coefficient of variation (CV) of both the securities.…
Q: 17. With risk-free rate of 6%, Beta of 1.5, market return of 8%, prevailing credit spread of 3% and…
A: We need to use CAPN method to calculate cost of equity Cost of equity =Risk free rate+Beta(market…
Q: 8. Which of the following statements is FALSE? A) In general, the difference between the cost of…
A: Given, In this question we have to choose the correct answer out of the four given options. The…
Q: Your bank offers you a new savings account that earns a 20% annual percentage rate (nominal interest…
A: An effective interest rate is defined as an interest rate, which is applied on loan or financial…
Q: Entei Bank granted a P5,000,000 loan to Raikou Company on January 1, 2020. The annual interest on…
A: Here in this question we are required to find out the total interest income to be presented on the…
Q: What is the expected return on a portfolio? How can the expected return on a portfolio be…
A: Expected Return on Portfolio =( Weights of Stock 1 * Return of Stock 1) + ( Weights of Stock 2 *…
Q: Question 31: An analyst has assembled the following information regarding Net-Zone Incorporated and…
A: Net Zone Dividend paid Yeasterday is $2.15 Dividend growth rate is 3% Expected return on S&P 500…
Q: An analyst offers three investment alternatives with the A= $200,000; B= $300,000 and C= $100,00O.…
A: Solved using Financial Calculator Option A CF Mode: Press CF C0 = +/- 200,000 C1 = 40,000 F1 = 10…
Q: Approximately what percentage of CPAS surveyed earn between $75,000 and $90,000 annually?
A: A box and whisker plot is a graphical representation of a data set. It highlights five important…
Q: The next expected dividend for Stock P is 10 and the current price of the stock is P40. The risk…
A: Expected Return: The expected return is the minimum required rate of return which an investor…
Q: increases the unit variable cost by $18 per unit but it does not have any fixed costs. The company…
A: Operating income = total revenue - total variable costs - total fixed costs. We will now use the…
Q: A long forward contract on a dividend-paying stock was entered into some time ago. It currently has…
A:
Q: An equity analyst has been asked to estimate the intrinsic value of the common stock of Apple. Apple…
A: Intrinsic value is the actual or true value of the share. this value is calculated using various…
Q: An unlevered firm has a cost of capital of 11.3 percent and a tax rate of 34 percent. The firm is…
A: We need to calculate weighted average cost of capital(WACC) which will be the firm's levered cost of…
Q: If $2,000 is withdrawn from the bank by a customer, the bank's Assets rise O Assets and liabilities…
A: When the customer withdraws money, in his books, the cash account is debited and bank account is…
Q: 6. Suppose that the DCF (discounted cash flow) value of TLV stock is 2.15 lei and forecasted EPS is…
A: Value of a stock or price of the stock can be calculated by discounted cash flow technique. This…
Q: What are some very interesting and unique questions to ask an investment analyst in an informational…
A: Stocks, bonds, currencies, and commodities are among the assets that investment analysts collect…
Step by step
Solved in 2 steps with 2 images
- Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all three models, the waste container is the same. The number of waste containers that Jonfran will need during the following years is estimated as follows: The equipment used to manufacture the waste container must be replaced because it is broken and cannot be repaired. The new equipment would have a purchase price of 945,000 with terms of 2/10, n/30; the companys policy is to take all purchase discounts. The freight on the equipment would be 11,000, and installation costs would total 22,900. The equipment would be purchased in December 20x4 and placed into service on January 1, 20x5. It would have a five-year economic life and would be treated as three-year property under MACRS. This equipment is expected to have a salvage value of 12,000 at the end of its economic life in 20x9. The new equipment would be more efficient than the old equipment, resulting in a 25 percent reduction in both direct materials and variable overhead. The savings in direct materials would result in an additional one-time decrease in working capital requirements of 2,500, resulting from a reduction in direct material inventories. This working capital reduction would be recognized at the time of equipment acquisition. The old equipment is fully depreciated and is not included in the fixed overhead. The old equipment from the plant can be sold for a salvage amount of 1,500. Rather than replace the equipment, one of Jonfrans production managers has suggested that the waste containers be purchased. One supplier has quoted a price of 27 per container. This price is 8 less than Jonfrans current manufacturing cost, which is as follows: Jonfran uses a plantwide fixed overhead rate in its operations. If the waste containers are purchased outside, the salary and benefits of one supervisor, included in fixed overhead at 45,000, would be eliminated. There would be no other changes in the other cash and noncash items included in fixed overhead except depreciation on the new equipment. Jonfran is subject to a 40 percent tax rate. Management assumes that all cash flows occur at the end of the year and uses a 12 percent after-tax discount rate. Required: 1. Prepare a schedule of cash flows for the make alternative. Calculate the NPV of the make alternative. 2. Prepare a schedule of cash flows for the buy alternative. Calculate the NPV of the buy alternative. 3. Which should Jonfran domake or buy the containers? What qualitative factors should be considered? (CMA adapted)Thaler Company bought 26,000 of raw materials a year ago in anticipation of producing 5,000 units of a deluxe version of its product to be priced at 75 each. Now the price of the deluxe version has dropped to 35 each, and Thaler is now deciding whether to produce 1,500 units of the deluxe version at a cost of 48,000 or to scrap the project. What is the opportunity cost of this decision? a. 175,000 b. 375,000 c. 48,000 d. 26,000Filkins Fabric Company is considering the replacement of its old, fully depreciated knitting machine. Two new models are available: Machine 190-3, which has a cost of $190,000, a 3-year expected life, and after-tax cash flows (labor savings and depreciation) of $87,000 per year; and Machine 360-6, which has a cost of $360,000, a 6-year life, and after-tax cash flows of $98,300 per year. Knitting machine prices are not expected to rise because inflation will be offset by cheaper components (microprocessors) used in the machines. Assume that Filkins’ cost of capital is 14%. Should the firm replace its old knitting machine? If so, which new machine should it use? By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
- Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at 860,000 and includes computerized equipment, software, and installation. There is no expected salvage value. The new system has a useful life of 8 years and is projected to produce cash operating savings of 225,000 per year over the old system (reducing labor costs and costs of processing and disposing of toxic waste). The cost of capital is 16%. Required: 1. Compute the NPV of the new system. 2. One year after implementation, the internal audit staff noted the following about the new system: (1) the cost of acquiring the system was 60,000 more than expected due to higher installation costs, and (2) the annual cost savings were 20,000 less than expected because more labor cost was needed than anticipated. Using the changes in expected costs and benefits, compute the NPV as if this information had been available one year ago. Did the company make the right decision? 3. CONCEPTUAL CONNECTION Upon reporting the results mentioned in the postaudit, the marketing manager responded in a memo to the internal audit department indicating that cash inflows also had increased by a net of 60,000 per year because of increased purchases by environmentally sensitive customers. Describe the effect that this has on the analysis in Requirement 2. 4. CONCEPTUAL CONNECTION Why is a postaudit beneficial to a firm?Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.Gelbart Company manufactures gas grills. Fixed costs amount to 16,335,000 per year. Variable costs per gas grill are 225, and the average price per gas grill is 600. Required: 1. How many gas grills must Gelbart Company sell to break even? 2. If Gelbart Company sells 46,775 gas grills in a year, what is the operating income? 3. If Gelbart Companys variable costs increase to 240 per grill while the price and fixed costs remain unchanged, what is the new break-even point?
- NoFat manufactures one product, olestra, and sells it to large potato chip manufacturers as the key ingredient in nonfat snack foods, including Ruffles, Lays, Doritos, and Tostitos brand products. For each of the past 3 years, sales of olestra have been far less than the expected annual volume of 125,000 pounds. Therefore, the company has ended each year with significant unused capacity. Due to a short shelf life, NoFat must sell every pound of olestra that it produces each year. As a result, NoFats controller, Allyson Ashley, has decided to seek out potential special sales offers from other companies. One company, Patterson Union (PU)a toxic waste cleanup companyoffered to buy 10,000 pounds of olestra from NoFat during December for a price of 2.20 per pound. PU discovered through its research that olestra has proven to be very effective in cleaning up toxic waste locations designated as Superfund Sites by the U.S. Environmental Protection Agency. Allyson was excited, noting that This is another way to use our expensive olestra plant! The annual costs incurred by NoFat to produce and sell 100,000 pounds of olestra are as follows: In addition, Allyson met with several of NoFats key production managers and discovered the following information: The special order could be produced without incurring any additional marketing or customer service costs. NoFat owns the aging plant facility that it uses to manufacture olestra. NoFat incurs costs to set up and clean its machines for each production run, or batch, of olestra that it produces. The total setup costs shown in the previous table represent the production of 20 batches during the year. NoFat leases its plant machinery. The lease agreement is negotiated and signed on the first day of each year. NoFat currently leases enough machinery to produce 125,000 pounds of olestra. PU requires that an independent quality team inspects any facility from which it makes purchases. The terms of the special sales offer would require NoFat to bear the 1,000 cost of the inspection team. Based solely on financial factors, explain why NoFat should accept or reject PUs special sales offer.NoFat manufactures one product, olestra, and sells it to large potato chip manufacturers as the key ingredient in nonfat snack foods, including Ruffles, Lays, Doritos, and Tostitos brand products. For each of the past 3 years, sales of olestra have been far less than the expected annual volume of 125,000 pounds. Therefore, the company has ended each year with significant unused capacity. Due to a short shelf life, NoFat must sell every pound of olestra that it produces each year. As a result, NoFats controller, Allyson Ashley, has decided to seek out potential special sales offers from other companies. One company, Patterson Union (PU)a toxic waste cleanup companyoffered to buy 10,000 pounds of olestra from NoFat during December for a price of 2.20 per pound. PU discovered through its research that olestra has proven to be very effective in cleaning up toxic waste locations designated as Superfund Sites by the U.S. Environmental Protection Agency. Allyson was excited, noting that This is another way to use our expensive olestra plant! The annual costs incurred by NoFat to produce and sell 100,000 pounds of olestra are as follows: In addition, Allyson met with several of NoFats key production managers and discovered the following information: The special order could be produced without incurring any additional marketing or customer service costs. NoFat owns the aging plant facility that it uses to manufacture olestra. NoFat incurs costs to set up and clean its machines for each production run, or batch, of olestra that it produces. The total setup costs shown in the previous table represent the production of 20 batches during the year. NoFat leases its plant machinery. The lease agreement is negotiated and signed on the first day of each year. NoFat currently leases enough machinery to produce 125,000 pounds of olestra. PU requires that an independent quality team inspects any facility from which it makes purchases. The terms of the special sales offer would require NoFat to bear the 1,000 cost of the inspection team. Assume for this question that NoFat rejected PUs special sales offer because the 2.20 price suggested by PU was too low. In response to the rejection, PU asked NoFat to determine the price at which it would be willing to accept the special sales offer. For its regular sales, NoFat sets prices by marking up variable costs by 10%. If Allyson decides to use NoFats 10% markup pricing method to set the price for PUs special sales offer, a. Calculate the price that NoFat would charge PU for each pound of olestra. b. Calculate the relevant profit that NoFat would earn if it set the special sales price by using its markup pricing method. (Hint: Use the estimate of relevant costs that you calculated in response to Requirement 1b.) c. Explain why NoFat should accept or reject the special sales offer if it uses its markup pricing method to set the special sales price.NoFat manufactures one product, olestra, and sells it to large potato chip manufacturers as the key ingredient in nonfat snack foods, including Ruffles, Lays, Doritos, and Tostitos brand products. For each of the past 3 years, sales of olestra have been far less than the expected annual volume of 125,000 pounds. Therefore, the company has ended each year with significant unused capacity. Due to a short shelf life, NoFat must sell every pound of olestra that it produces each year. As a result, NoFats controller, Allyson Ashley, has decided to seek out potential special sales offers from other companies. One company, Patterson Union (PU)a toxic waste cleanup companyoffered to buy 10,000 pounds of olestra from NoFat during December for a price of 2.20 per pound. PU discovered through its research that olestra has proven to be very effective in cleaning up toxic waste locations designated as Superfund Sites by the U.S. Environmental Protection Agency. Allyson was excited, noting that This is another way to use our expensive olestra plant! The annual costs incurred by NoFat to produce and sell 100,000 pounds of olestra are as follows: In addition, Allyson met with several of NoFats key production managers and discovered the following information: The special order could be produced without incurring any additional marketing or customer service costs. NoFat owns the aging plant facility that it uses to manufacture olestra. NoFat incurs costs to set up and clean its machines for each production run, or batch, of olestra that it produces. The total setup costs shown in the previous table represent the production of 20 batches during the year. NoFat leases its plant machinery. The lease agreement is negotiated and signed on the first day of each year. NoFat currently leases enough machinery to produce 125,000 pounds of olestra. PU requires that an independent quality team inspects any facility from which it makes purchases. The terms of the special sales offer would require NoFat to bear the 1,000 cost of the inspection team. Assume for this question that Allysons relevant analysis reveals that NoFat would earn a positive relevant profit of 10,000 from the special sale (i.e., the special sales alternative). However, after conducting this traditional, short-term relevant analysis, Allyson wonders whether it might be more profitable over the long term to downsize the company by reducing its manufacturing capacity (i.e., its plant machinery and plant facility). She is aware that downsizing requires a multiyear time horizon because companies usually cannot increase or decrease fixed plant assets every year. Therefore, Allyson has decided to use a 5-year time horizon in her long-term decision analysis. She has identified the following information regarding capacity downsizing (i.e., the downsizing alternative): The plant facility consists of several buildings. If it chooses to downsize its capacity, NoFat can immediately sell one of the buildings to an adjacent business for 30,000. If it chooses to downsize its capacity, NoFats annual lease cost for plant machinery will decrease to 9,000. Therefore, Allyson must choose between these two alternatives: Accept the special sales offer each year and earn a 10,000 relevant profit for each of the next 5 years or reject the special sales offer and downsize as described above. Assume that NoFat pays for all costs with cash. Also, assume a 10% discount rate, a 5-year time horizon, and all cash flows occur at the end of the year. Using an NPV approach to discount future cash flows to present value, a. Calculate the NPV of accepting the special sale with the assumed positive relevant profit of 10,000 per year (i.e., the special sales alternative). b. Calculate the NPV of downsizing capacity as previously described (i.e., the downsizing alternative). c. Based on the NPV of Requirements 5a and 5b, identify and explain which of these two alternatives is best for NoFat to pursue in the long term.
- Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since competition is most keen for dishwashers, the production process for this line has been selected for initial evaluation. The automated system for the dishwasher line would replace an existing system (purchased one year ago for 6 million). Although the existing system will be fully depreciated in nine years, it is expected to last another 10 years. The automated system would also have a useful life of 10 years. The existing system is capable of producing 100,000 dishwashers per year. Sales and production data using the existing system are provided by the Accounting Department: All cash expenses with the exception of depreciation, which is 6 per unit. The existing equipment is being depreciated using straight-line with no salvage value considered. The automated system will cost 34 million to purchase, plus an estimated 20 million in software and implementation. (Assume that all investment outlays occur at the beginning of the first year.) If the automated equipment is purchased, the old equipment can be sold for 3 million. The automated system will require fewer parts for production and will produce with less waste. Because of this, the direct material cost per unit will be reduced by 25 percent. Automation will also require fewer support activities, and as a consequence, volume-related overhead will be reduced by 4 per unit and direct fixed overhead (other than depreciation) by 17 per unit. Direct labor is reduced by 60 percent. Assume, for simplicity, that the new investment will be depreciated on a pure straight-line basis for tax purposes with no salvage value. Ignore the half-life convention. The firms cost of capital is 12 percent, but management chooses to use 20 percent as the required rate of return for evaluation of investments. The combined federal and state tax rate is 40 percent. Required: 1. Compute the net present value for the old system and the automated system. Which system would the company choose? 2. Repeat the net present value analysis of Requirement 1, using 12 percent as the discount rate. 3. Upon seeing the projected sales for the old system, the marketing manager commented: Sales of 100,000 units per year cannot be maintained in the current competitive environment for more than one year unless we buy the automated system. The automated system will allow us to compete on the basis of quality and lead time. If we keep the old system, our sales will drop by 10,000 units per year. Repeat the net present value analysis, using this new information and a 12 percent discount rate. 4. An industrial engineer for Mallette noticed that salvage value for the automated equipment had not been included in the analysis. He estimated that the equipment could be sold for 4 million at the end of 10 years. He also estimated that the equipment of the old system would have no salvage value at the end of 10 years. Repeat the net present value analysis using this information, the information in Requirement 3, and a 12 percent discount rate. 5. Given the outcomes of the previous four requirements, comment on the importance of providing accurate inputs for assessing investments in automated manufacturing systems.