14

LL Incorporated's currently outstanding 11% coupon bonds have a yield to maturity of 13%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is LL's after-tax cost of debt? Round your answer to two decimal places.

 %

REDO WITH THE FOLLOWING EQUATION

You need to accumulate $10,000. To do so, you plan to make deposits of $2,000 per year - with the first payment being made a year from today - into a bank account that pays 7.3% annual interest. Your last deposit will be less than $2,000 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal? Round your answer up to the nearest whole number.  year(s)

How large will the last deposit be? Round your answer to the nearest cent. $

15

Summerdahl Resort's common stock is currently trading at $39.00 a share. The stock is expected to pay a dividend of $2.75 a share at the end of the year (D1 = $2.75), and the dividend is expected to grow at a constant rate of 8% a year. What is the cost of common equity? Round your answer to two decimal places.

 %

16

Booher Book Stores has a beta of 0.8. The yield on a 3-month T-bill is 3% and the yield on a 10-year T-bond is 7%. The market risk premium is 6.5%, and the return on an average stock in the market last year was 13.5%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.

 %

17

David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 10.95%. What is the company's cost of equity capital? Round your answer to two decimal places.

 %

18

A project has an initial cost of $58,050, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 9%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent.

$

REDO WITH THE FOLLOWING EQUATION

A project has an initial cost of $49,400, expected net cash inflows of $15,000 per year for 7 years, and a cost of capital of 11%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent.

19

A project has an initial cost of $50,000, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 9%. What is the project's IRR? Round your answer to two decimal places.

 %

20

A project has an initial cost of $36,925, expected net cash inflows of $8,000 per year for 11 years, and a cost of capital of 13%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

 %

REDO WITH THE FOLLOWING EQUATION

A project has an initial cost of $72,100, expected net cash inflows of $8,000 per year for 9 years, and a cost of capital of 11%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

 %

21

A project has an initial cost of $68,700, expected net cash inflows of $8,000 per year for 10 years, and a cost of capital of 13%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places.____

Answer: PI = 0.75

REDO WITH THE FOLLOWING EQUATION

A project has an initial cost of $37,275, expected net cash inflows of $12,000 per year for 9 years, and a cost of capital of 10%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places.

22

A project has an initial cost of $54,175, expected net cash inflows of $11,000 per year for 8 years, and a cost of capital of 13%. What is the project's payback period? Round your answer to two decimal places.

 years

23

A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 9 years, and a cost of capital of 11%. What is the project's discounted payback period? Round your answer to two decimal places.

 years

24

NPVs, IRRs, and MIRRs for Independent Projects

Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $17,100 and that for the pulley system is $22,430. The firm's cost of capital is 14%. After-tax cash flows, including depreciation, are as follows:

a. Calculate the IRR for each project. Round your answers to two decimal places.

Truck:  % What is the correct accept/reject decision for this project? Is it accept or reject

Accept

a. Pulley:  % What is the correct accept/reject decision for this project?

b. Calculate the NPV for each project. Round your answers to the nearest dollar, if necessary. Enter each answer as a whole number. For example, do not enter 1,000,000 as 1 million.

Truck: $  What is the correct accept/reject decision for this project?

Pulley: $  What is the correct accept/reject decision for this project?

c. Calculate the MIRR for each project. Round your answers to two decimal places.

Truck:  % What is the correct accept/reject decision for this project?

Pulley:  % What is the correct accept/reject decision for this project?

25

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $14 million, and production and sales will require an initial $3 million investment in net operating working capital. The company's tax rate is 30%.

a. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000. $

b. The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer?

No change in investment outlay - it still remains at $ 17 million.

c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer? The project's cost will  .

26

The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:

The company faces a 30% tax rate. What is the project's operating cash flow for the first year (t = 1)? Write out your answer completely. For example, 2 million should be entered as 2,000,000.

$

REDO WITH THE FOLLOWING EQUATION

The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:

The company faces a 35% tax rate. What is the project's operating cash flow for the first year (t = 1)? Write out your answer completely. For example, 2 million should be entered as 2,000,000.

$

27

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $19 million, of which 70% has been depreciated. The used equipment can be sold today for $6.65 million, and its tax rate is 40%. What is the equipment's after-tax net salvage value? Write out your answer completely. For example, 2 million should be entered as 2,000,000.

$6,270,000

28

Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $41,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $8,400 per year. It would have zero salvage value at the end of its life. The Project cost of capital is 10%, and its marginal tax rate is 35%. Should Chen buy the new machine?

29

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,080,000, and it would cost another $21,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $669,000. The machine would require an increase in net working capital (inventory) of $18,000. The sprayer would not change revenues, but it is expected to save the firm $366,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.

a. What is the Year 0 net cash flow? $

b. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.

c. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar. $

d. If the project's cost of capital is 10 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should the machine be purchased?

REDO WITH THE FOLLOWING EQUATION

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $800,000, and it would cost another $19,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $506,000. The machine would require an increase in net working capital (inventory) of $16,000. The sprayer would not change revenues, but it is expected to save the firm $441,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 40%.

a. What is the Year 0 net cash flow? $

b. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.

c. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar. $

d. If the project's cost of capital is 15 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should the machine be purchased?

30

Broussard Skateboard's sales are expected to increase by 15% from $9.0 million in 2016 to $10.35 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 75%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.

$

31

Broussard Skateboard's sales are expected to increase by 25% from $7.6 million in 2016 to $9.50 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar. $

Assume that an otherwise identical firm had $5 million in total assets at the end of 2016. The identical firm's capital intensity ratio (A0*/S0) is  than Broussard's; therefore, the identical firm is  capital intensive - it would require  increase in total assets to support the increase in sales.

more

a larger

Item 4

15.05

12.2

14.65

8367.8

17.31

15

4.93

6.44

14.99

20.00

Accept

409

Item 6

3318

14.54

8.45

17.19

1700000

increase

1700000

Yes

-1040500

375612

418521

304148

803657

26

309750

632500

higher than

Lab Report Format

This Individual Lab Report format is required for all (6 in total) required laboratory investigations. All reports must be typed and include raw data from the investigation.

The General Lab Reports must contain the following:

· Student/Lab Identification

· Results and Raw Data

· Graphs

· Data Summary

· References

Student/Lab Identification The student identification should contain the lab name, date, student name and instructor name. Title should be centered and bold at the top of the first page of text.

Results and Raw Data This section should include a table of all data collected during investigation. 

Graphs                                         Graphs are a tool, much as a calculator. They allow you to represent a lot of data in a very short space. Graphs allow you to analyze data in interesting ways, but graphs do not make an analysis. 

Data Summary The data summary section should 1) show an understanding of the data, and 2) offer an analysis of the data that draws conclusions from the data, including the available quantitative (that is, the numerical) information that is in the table.  It will also be essential that you communicate this clearly to the reader. This part of the lab will be graded on how well these tasks are completed.  You should be careful to use all the data that you have collected in this summary!   Before you can do this, presenting the data properly in a table is essential to complete the task of understanding the data and making something of it, so it is important that earlier task be done well.  Also, to understand the data, it may be necessary to spend a little time on the Internet to get a little background on any aspects that you are not familiar with.  So these are  important aspects of the lab - to show that you have been able to organize information (your set of data) and then extract meaning from it.

Example Lab Report

Use this format for all Lab Reports:

Result and Raw data

U.S. Energy Consumption by source, 2015

Source: U.S. Energy Information Administration, Monthly Energy Review, Table 1.3, March 2016, preliminary data.

Graphs

…..

Data Summary

A variety of types of energy are utilized for U.S. energy consumption, as noted in the first column of the table.  There are two important observations that can be made from observing this table.  The first is that the energy sources can be grouped into two main groups, renewable and nonrenewable.   Renewable energy sources include biomass, hydropower, geothermal, wind, and solar.  Most of us are familiar with solar energy, harnessing wind energy, and creating dams to harness hydropower.  Biomass is energy derived from plants and plant-derived materials.  This is primarily burning wood but also includes burning other plant materials, extracting ethanol from corn and biodiesel from soybeans, utilizing methane gas from landfills, and utilizing municipal and industrial waste.  Biomass is renewable with the exception that clearing forests that cannot quickly be replaced not only results in a carbon penalty (generating more carbon than is absorbed, contributing to greenhouse emissions), but clearing forests on mountains can cause mudslides, burning wood causes pollution, and soil erosion (e.g. Haiti).  Geothermal energy makes use of heat from deep in the earth, and can also be utilized by building underground or earth-sheltered homes, pioneered by Malcolm Wells in the 1970s, as the temperature of the earth just underground remains fairly constant.  For the most part, when deployed with prudence, there are little risks associated with utilizing renewable energy sources, and benefits, including little impact on greenhouse gases, except as noted.

Non-renewable energy sources include petroleum, natural gas, coal, and uranium, all of which have to be mined or otherwise extracted from underground.  Risks are associated with obtaining all of these energy sources, including oil spills, earthquakes from hydraulic fracturing (fracking), altering stability of the local tectonics from both oil and gas drilling, safety and health risks to coal miners, pollution of water sources and cancers and death from exposure to radiation from uranium mining (which has been a serious issue on some American Indian reservations).  And when these energy sources are used, they cause significant pollution and contribution to greenhouse gases.

The second column of data dramatically shows the second important observation: our energy sources are almost exclusively from the non-renewable energy sources, in spite of the fact that the technology to obtain energy from renewable sources has existed for decades.  Specifically, the energy consumption by renewable sources totals 9.8%, while energy consumption by nonrenewables sources totals 89.8%.  Thus we can say that roughly 90% of our energy utilization is from non-renewable sources.

References

https://energy.gov/science-innovation/energy-sources

http://www.eia.gov/energyexplained/index.cfm?page=nonrenewable_home

http://www.eia.gov/energyexplained/index.cfm?page=renewable_home

Helpful hints:

In the example, you may not have been familiar with geothermal or biomass, and if so, you should look up these terms.  Also, if you were not already aware of it, after some Internet research, you should become aware that energy consumption is related to issues such as managing limited global resources and contributing to greenhouse warming gases.  In the example, this is the first "light bulb" moment when you should understand how to categorize the data: you should realize it can be broken up into two subsets - into renewable and non-renewable energy sources.  Explicitly identify this in the data summary section.

Now in the example lab report, there was a column of numbers.  You need to make use of this too in order to complete the lab report.  This is an example of the quantitative data that you will be required to collect.  It is necessary for you to examine this data and discuss it in the data summary section.  What is the meaning of the data?  In this case, once you have figured out that energy sources fall into two categories, renewable and non-renewable, you should look at the numbers associated with each group separately.  When you do this, you see right away that the numbers are much larger for one group, non-renewable energy sources, than the other group, renewable energy sources.  This is a key point that you want to discuss explicitly and quantitatively.  And in this example, if we are using primarily non-renewable energy sources, what are the concerns associated with that?   If you have a lab where the data has a date and time, consider how this might be beneficial in sorting out the data.  Would it be useful to separate the data into daytime and nighttime?  Usually there will be at least one way you can group the data in order to gain some understanding about it. Now that you understand the data, you should consider what type of graph would best show the conclusions that you came to.  In this case, a pie graph is very useful for showing the relative quantities that are being used, and brings home the point that non-renewable energy sources are being used primarily in the U.S.  What could have made the graph better?  How about if one set of similar colors was used for non-renewable energy sources, and another set of colors for the renewable energy sources, in order to tell them apart more clearly on the graph? We use a pie chart to most effectively demonstrate this disparity.

Introduction (Florida Panther)

Florida Panther

(Puma concolor coryi)

Mountain lions, pumas, cougars, catamounts and panthers are names for the same species: Puma concolor. Florida panthers are one of more than 20 subspecies of pumas. Scientists determine subspecies by differences in physical and genetic features. The Florida panther (Puma concolor coryi) has distinct morphological and genetic differences that scientists can differentiate from other Puma concolor subspecies. Even with the restoration of genetic variability from the Texas cougars in 1995, the Florida panther continues to be distinct from other subspecies of pumas. Because it is distinct from other subspecies and is a small, isolated relic population, the Florida panther is listed as a federal and state endangered species.  

A single wild population in south Florida of 100-160 adult panthers is all that remains of a species that once ranged throughout most of the southeastern United States. (See the Statement on Estimating Panther Population Size (Links to an external site.) for info on how this number was reached.) This remnant breeding population is in Lee, Collier, Hendry, Dade and Monroe counties. A few males have been documented in central Florida, but no females are known to be in that area. The Florida panther was eliminated over much of its historical range by the late 1800's by human persecution and habitat destruction. Because the panther was geographically isolated in south Florida, no natural gene exchange occurred with other puma subspecies. Inbreeding caused a decline in the health and reproduction of the few remaining panthers. By 1995, only 20-30 panthers remained in the wild. That year, eight female Texas cougars were relocated to south Florida to restore genetic variability to the population. All offspring of the Texas cougars are considered to be Florida panthers. The genetic restoration of the Florida panther was successful and the number of panthers tripled in 10 years.

Adult male panthers average between 130 and 160 lbs with an average length of 6-8 feet. Adult female panthers weigh between 70-100 lbs and have an average length of 5-7 feet. If you see a Florida panther, consider yourself very lucky . These notoriously elusive animals prefer to be as far away from humans as possible. Deer, bobcats, coyotes, dogs, and even the domestic cat are often mistaken for a panther.

It is a common misconception that Florida panthers are black. They are actually tawny and brown with cream or white colored undersides. Small amounts of black coloring can be found around the face, paws, legs, and tip of tail. Baby panthers are born with black spots that last approximately two months after birth. This is so that their mother can camouflage them better from potential predators.

There is no species of "black panther." The large black cats seen in zoos or used by media outlets are usually either the black (or melanistic) phase of jaguars or leopards. Some species of wild felines, especially those that are spotted as adults (including bobcats) have melanistic or black color phases. This color phase is unusual. However, there has never been a black or melanistic panther, cougar, or mountain lion documented in the wild or in captivity.

The average male panther has a home range of approximately 150 square miles, with 200 square miles not uncommon. Males are territorial and will defend their home range against other males. A male's home range overlaps with female panthers. A female's home range is smaller, approximately 80 square miles, and overlaps with other females. It is not uncommon for a panther to travel 20 miles in a single day. Intensive radio-instrumentation and monitoring of panthers was initiated in 1981 by the Florida Fish and Wildlife Conservation Commission. Information from tracking radio-collared panthers helped determine preferred habitat, home range size, dispersal behavior, and provided information on birth rates and causes of death. The research also indicated that the panther was suffering health and reproduction problems due to inbreeding. This knowledge led to the genetic restoration project involving Texas panthers. Currently, state and National Park Service biologists are tracking approximately 30 radio-collared panthers for research purposes. For more information about genetic restoration, read the US Fish & Wildlife Service's brochure on  Florida Panther and the Genetic Restoration Program (Links to an external site.) .

Source: U.S. Fish and Wildlife & University of Florida

More links below please check

Florida Fish and WildlifeConservation Commission

https://myfwc.com/wildlifehabitats/wildlife/panther/biology/

Florida Fish and WildlifeConservation Commission

https://myfwc.com/wildlifehabitats/profiles/mammals/land/florida-panther/

By the Numbers: Saving the Florida Panther

https://www.youtube.com/watch?v=t-TiDWndD-4

Panther Project: How We Collar a Florida Panther

https://www.youtube.com/watch?v=EvNphm7VQn4

Endangered Species of Florida. The Panther. Felis Concolor Coryi.

https://www.youtube.com/watch?v=6sG-KaymwaY

Florida Panthers in the Wild (Raw Video)

https://www.youtube.com/watch?v=8KCn469cFBM

Okaloacoochee Slough State Forest

https://www.fdacs.gov/Divisions-Offices/Florida-Forest-Service/Our-Forests/State-Forests/Okaloacoochee-Slough-State-Forest#history

1.

eBook

Problem 2-3 Income statement

Molteni Motors Inc. recently reported $2.25 million of net income. Its EBIT was $5.25 million, and its tax rate was 40%. What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $2.25 million net income by 1 − T = 0.6 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense.) Round your answer to the nearest dollar. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.

Answer:

We have the following info:

Tax = PBT*0.40

PBT=5.25-x

Hence 5.25-x-(2.1-0.4x) =2.25

5.25-x-2.1+0.4x=2.25

3-x-2.1=-0.4x

0.9-x=-0.4x

0.9=0.6x

x=1.5

Hence interest =$1.5 million or $1,500,000

2

Kendall Corners Inc. recently reported net income of $2.4 million and depreciation of $456,000. What was its net cash flow? Assume it had no amortization expense. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.

Answer:

Net income = 2,400,000

Depreciation = 456,000

Amortization = 0

Net cash flow = Net income + depreciation + amortization

= 2,400,000 + 456,000

= 2,856,000

3.

In its most recent financial statements, Del-Castillo Inc. reported $50 million of net income and $850 million of retained earnings. The previous retained earnings were $843 million. How much in dividends did the firm pay to shareholders during the year? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.

Answer:

Ending retain earning = opening retain earning + net profit of the year - dividend paid

Therefore, dividend paid = opening retain earning + net profit of the year -ending retain earning

Therefore, div paid = 843,000,000 +50,000,000 -850,000,000

= 43,000,000

4.

Vigo Vacations has $195 million in total assets, $5.4 million in notes payable, and $22.5 million in long-term debt. What is the debt ratio? Round your answer to two decimal places.

Answer:

Total liabilities includes both short term and long term debt

= (5.4 +22.5) = 27.9 million

Debt ratio = Total Debt (liabilities) /Total asset

= 27.9 / 195

= 0.14 or 14% 14.3%

REDO THIS PROBLEM WITH THESE NUMBERS:

Vigo Vacations has $197 million in total assets, $4.9 million in notes payable, and $25.5 million in long-term debt. What is the debt ratio? Round your answer to two decimal places.

5.

Reno Revolvers has an EPS of $1.10, a cash flow per share of $4.85, and a price/cash flow ratio of 10.0. What is its P/E ratio? Round your answer to two decimal places.

Answer:

Price / Cash Flow Ratio of 10.0 = Price Per Share / $4.85

Price Per Share = 10 X $4.85 = $48.5

Use the Price to Earnings Equation for the final computation:

P/E Ratio = Market Value Per Share/ EPS = $48.5/$1.10

= 40.09

REDO THIS PROBLEM WITH THE EQUATION BELOW

Reno Revolvers has an EPS of $1.70, a cash flow per share of $3.45, and a price/cash flow ratio of 10.0. What is its P/E ratio? Round your answer to two decimal places.

6.

Needham Pharmaceuticals has a profit margin of 2.5% and an equity multiplier of 1.9. Its sales are $100 million and it has total assets of $40 million. What is its Return on Equity (ROE)? Round your answer to two decimal places.

Answer:

Prof Margin = 2.5%

Equity Multiplier = 1.9

Sales = 100,000,000

Total assets = 40,000,000

What is RoE?

ROE = Profit margin *Total assets turnover * Equity multiplier

ROE = Profit margin*(Sales/TA)* Equity multiplier

ROE = 2.5 %*( 100M/40M)*1.9 = 10.56

ROE = 10.56

REDO WITH THE FOLLOWING EQUATION

Needham Pharmaceuticals has a profit margin of 5% and an equity multiplier of 2.5. Its sales are $110 million and it has total assets of $58 million. What is its Return on Equity (ROE)? Round your answer to two decimal places.

7.

Assume you are given the following relationships for the Haslam Corporation:

1. Calculate Haslam's profit margin. Do not round intermediate calculations. Round your answer to two decimal places.

Profit margin = Return on assets (ROA)/(Sales/total assets)

Profit margin = 4%/2.2  %

2. Calculate Haslam's liabilities-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.

Haslam's liabilities-to-assets ratio = 1- ROA/ROE

Haslam's liabilities-to-assets ratio = 1- 4/5  %

3. Suppose half of Haslam's liabilities are in the form of debt. Calculate the debt-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.

Debt-to-assets ratio = Haslam's liabilities-to-assets ratio*1/2

Debt-to-assets ratio = 20%*1/2  %

8.

The Nelson Company has $1,080,000 in current assets and $400,000 in current liabilities. Its initial inventory level is $200,000, and it will raise funds as additional notes payable and use them to increase inventory.

1. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.3? Round your answer to the nearest cent.

$1,866,666.67

2. What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places. 0.39

9.

The Morris Corporation has $350,000 of debt outstanding, and it pays an interest rate of 9% annually. Morris's annual sales are $1.75 million, its average tax rate is 30%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 3 to 1, its bank will refuse to renew the loan and bankruptcy will result. What is Morris's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.

Answer:

Interest amount = 350,000*.09 = 31500

Net profit = 3% of 1.75 million = 52500

Net profit + tax = profit before tax = 52500/.40 = 105,000

Profit before tax + interest = earnings before interest and tax = 105,000+31500 = 136500

TIE ratio = EBIT/Interest = 136500/31500 = 4.33

REDO WITH THE FOLLOWING EQUATION

The Morris Corporation has $850,000 of debt outstanding, and it pays an interest rate of 8% annually. Morris's annual sales are $3.4 million, its average tax rate is 40%, and its net profit margin on sales is 4%. If the company does not maintain a TIE ratio of at least 3 to 1, its bank will refuse to renew the loan and bankruptcy will result. What is Morris's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.

10.

What is the future value of a 6%, 5-year ordinary annuity that pays $600 each year? Round your answer to the nearest cent. $  

If this were an annuity due, what would its future value be? Round your answer to the nearest cent. $  

REDO WITH THE FOLLOWING EQUATION

What is the future value of a 4%, 5-year ordinary annuity that pays $800 each year? Round your answer to the nearest cent. $  

If this were an annuity due, what would its future value be? Round your answer to the nearest cent. $  

Use both the TVM equations and a financial calculator to find the following values. Round your answers to the nearest cent. (Hint: Using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.)

a. An initial $500 compounded for 10 years at 6.9 percent. $  974.4

b. An initial $500 compounded for 10 years at 13.8 percent. $  1821.3

c. The present value of $500 due in 10 years at a 6.9 percent discount rate. $  256.56

d. The present value of $500 due in 10 years at a 13.8 percent discount rate. $  137.26

11

a. Find the present values of the following cash flow streams. The appropriate interest rate is 6%. Round your answers to the nearest cent. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the calculator's cash flow register, you must enter CF0 = 0. Note also that it is quite easy to work the problem with Excel, using procedures described in the Chapter 4 Tool Kit.)

b. Stream A = $ 1,327.20  Stream B = $  1,366.43

c. What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest cent. Stream A = $ 1,600  Stream B = $ 1,600 

12

While Mary Corens was a student at the University of Tennessee, she borrowed $11,000 in student loans at an annual interest rate of 8%. If Mary repays $1,800 per year, then how long (to the nearest year) will it take her to repay the loan? Do not round intermediate calculations. Round your answer to the nearest whole number.

 year(s)

REDO WITH THE FOLLOWING EQUATION

While Mary Corens was a student at the University of Tennessee, she borrowed $9,000 in student loans at an annual interest rate of 7%. If Mary repays $1,200 per year, then how long (to the nearest year) will it take her to repay the loan? Do not round intermediate calculations. Round your answer to the nearest whole number.

13.

You need to accumulate $10,000. To do so, you plan to make deposits of $1,800 per year - with the first payment being made a year from today - into a bank account that pays 9.47% annual interest. Your last deposit will be less than $1,800 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal? Round your answer up to the nearest whole number.  year(s)

How large will the last deposit be? Round your answer to the nearest cent.

$987.51

14

LL Incorporated's currently outstanding 11% coupon bonds have a yield to maturity of 13%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is LL's after-tax cost of debt? Round your answer to two decimal places.

 %

REDO WITH THE FOLLOWING EQUATION

You need to accumulate $10,000. To do so, you plan to make deposits of $2,000 per year - with the first payment being made a year from today - into a bank account that pays 7.3% annual interest. Your last deposit will be less than $2,000 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal? Round your answer up to the nearest whole number.  year(s)

How large will the last deposit be? Round your answer to the nearest cent. $

20

10

3382.26

4185.19

8.72

5

8.45

1.81

1.

eBook

Problem 2-3 Income statement

Molteni Motors Inc. recently reported $2.25 million of net income. Its EBIT was $5.25 million, and its tax rate was 40%. What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $2.25 million net income by 1 − T = 0.6 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense.) Round your answer to the nearest dollar. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.

2

Kendall Corners Inc. recently reported net income of $2.4 million and depreciation of $456,000. What was its net cash flow? Assume it had no amortization expense. Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.

3.

In its most recent financial statements, Del-Castillo Inc. reported $50 million of net income and $850 million of retained earnings. The previous retained earnings were $843 million. How much in dividends did the firm pay to shareholders during the year? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.

4.

Vigo Vacations has $195 million in total assets, $5.4 million in notes payable, and $22.5 million in long-term debt. What is the debt ratio? Round your answer to two decimal places.

5.

Reno Revolvers has an EPS of $1.10, a cash flow per share of $4.85, and a price/cash flow ratio of 10.0. What is its P/E ratio? Round your answer to two decimal places.

6.

Needham Pharmaceuticals has a profit margin of 2.5% and an equity multiplier of 1.9. Its sales are $100 million and it has total assets of $40 million. What is its Return on Equity (ROE)? Round your answer to two decimal places.

7.

Assume you are given the following relationships for the Haslam Corporation:

1. Calculate Haslam's profit margin. Do not round intermediate calculations. Round your answer to two decimal places.  %

2. Calculate Haslam's liabilities-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.  %

3. Suppose half of Haslam's liabilities are in the form of debt. Calculate the debt-to-assets ratio. Do not round intermediate calculations. Round your answer to two decimal places.  %

8.

The Nelson Company has $1,080,000 in current assets and $400,000 in current liabilities. Its initial inventory level is $200,000, and it will raise funds as additional notes payable and use them to increase inventory.

1. How much can Nelson's short-term debt (notes payable) increase without pushing its current ratio below 1.3? Round your answer to the nearest cent.

$  

2. What will be the firm's quick ratio after Nelson has raised the maximum amount of short-term funds? Round your answer to two decimal places.

9.

The Morris Corporation has $350,000 of debt outstanding, and it pays an interest rate of 9% annually. Morris's annual sales are $1.75 million, its average tax rate is 30%, and its net profit margin on sales is 3%. If the company does not maintain a TIE ratio of at least 3 to 1, its bank will refuse to renew the loan and bankruptcy will result. What is Morris's TIE ratio? Do not round intermediate calculations. Round your answer to two decimal places.

10.

eBook

What is the future value of a 6%, 5-year ordinary annuity that pays $600 each year? Round your answer to the nearest cent. $  

If this were an annuity due, what would its future value be? Round your answer to the nearest cent. $  

Use both the TVM equations and a financial calculator to find the following values. Round your answers to the nearest cent. (Hint: Using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain the second answer. This procedure can be used in parts b and d, and in many other situations, to see how changes in input variables affect the output variable.)

a. An initial $500 compounded for 10 years at 6.9 percent. $  

b. An initial $500 compounded for 10 years at 13.8 percent. $  

c. The present value of $500 due in 10 years at a 6.9 percent discount rate. $  

d. The present value of $500 due in 10 years at a 13.8 percent discount rate. $  

11

a. Find the present values of the following cash flow streams. The appropriate interest rate is 6%. Round your answers to the nearest cent. (Hint: It is fairly easy to work this problem dealing with the individual cash flows. However, if you have a financial calculator, read the section of the manual that describes how to enter cash flows such as the ones in this problem. This will take a little time, but the investment will pay huge dividends throughout the course. Note that, when working with the calculator's cash flow register, you must enter CF0 = 0. Note also that it is quite easy to work the problem with Excel, using procedures described in the  Chapter 4 Tool Kit .)

b. Stream A $   Stream B $  

c. What is the value of each cash flow stream at a 0% interest rate? Round your answers to the nearest cent. Stream A $   Stream B $  

12

While Mary Corens was a student at the University of Tennessee, she borrowed $11,000 in student loans at an annual interest rate of 8%. If Mary repays $1,800 per year, then how long (to the nearest year) will it take her to repay the loan? Do not round intermediate calculations. Round your answer to the nearest whole number.

 year(s)

13.

You need to accumulate $10,000. To do so, you plan to make deposits of $1,800 per year - with the first payment being made a year from today - into a bank account that pays 9.47% annual interest. Your last deposit will be less than $1,800 if less is needed to round out to $10,000. How many years will it take you to reach your $10,000 goal? Round your answer up to the nearest whole number.  year(s)

How large will the last deposit be? Round your answer to the nearest cent. $

14

LL Incorporated's currently outstanding 11% coupon bonds have a yield to maturity of 13%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is LL's after-tax cost of debt? Round your answer to two decimal places.

 %

15

Summerdahl Resort's common stock is currently trading at $39.00 a share. The stock is expected to pay a dividend of $2.75 a share at the end of the year (D1 = $2.75), and the dividend is expected to grow at a constant rate of 8% a year. What is the cost of common equity? Round your answer to two decimal places.

 %

16

Booher Book Stores has a beta of 0.8. The yield on a 3-month T-bill is 3% and the yield on a 10-year T-bond is 7%. The market risk premium is 6.5%, and the return on an average stock in the market last year was 13.5%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.

 %

17

David Ortiz Motors has a target capital structure of 40% debt and 60% equity. The yield to maturity on the company's outstanding bonds is 9%, and the company's tax rate is 40%. Ortiz's CFO has calculated the company's WACC as 10.95%. What is the company's cost of equity capital? Round your answer to two decimal places.

 %

18

A project has an initial cost of $58,050, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 9%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent.

$

19

A project has an initial cost of $50,000, expected net cash inflows of $12,000 per year for 8 years, and a cost of capital of 9%. What is the project's IRR? Round your answer to two decimal places.

 %

20

A project has an initial cost of $36,925, expected net cash inflows of $8,000 per year for 11 years, and a cost of capital of 13%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places.

 %

21

A project has an initial cost of $68,700, expected net cash inflows of $8,000 per year for 10 years, and a cost of capital of 13%. What is the project's PI? Do not round your intermediate calculations. Round your answer to two decimal places.______

22

A project has an initial cost of $54,175, expected net cash inflows of $11,000 per year for 8 years, and a cost of capital of 13%. What is the project's payback period? Round your answer to two decimal places.

 years

23

A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 9 years, and a cost of capital of 11%. What is the project's discounted payback period? Round your answer to two decimal places.

 years

24

NPVs, IRRs, and MIRRs for Independent Projects

Edelman Engineering is considering including two pieces of equipment, a truck and an overhead pulley system, in this year's capital budget. The projects are independent. The cash outlay for the truck is $17,100 and that for the pulley system is $22,430. The firm's cost of capital is 14%. After-tax cash flows, including depreciation, are as follows:

a. Calculate the IRR for each project. Round your answers to two decimal places.

Truck:  % What is the correct accept/reject decision for this project? Is it accept or reject

a. Pulley:  % What is the correct accept/reject decision for this project?

b. Calculate the NPV for each project. Round your answers to the nearest dollar, if necessary. Enter each answer as a whole number. For example, do not enter 1,000,000 as 1 million.

Truck: $  What is the correct accept/reject decision for this project?

Pulley: $  What is the correct accept/reject decision for this project?

c. Calculate the MIRR for each project. Round your answers to two decimal places.

Truck:  % What is the correct accept/reject decision for this project?

Pulley:  % What is the correct accept/reject decision for this project?

25

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $14 million, and production and sales will require an initial $3 million investment in net operating working capital. The company's tax rate is 30%.

a. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000. $

b. The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer?

c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer? The project's cost will  .

26

The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:

The company faces a 30% tax rate. What is the project's operating cash flow for the first year (t = 1)? Write out your answer completely. For example, 2 million should be entered as 2,000,000.

$

27

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $19 million, of which 70% has been depreciated. The used equipment can be sold today for $6.65 million, and its tax rate is 40%. What is the equipment's after-tax net salvage value? Write out your answer completely. For example, 2 million should be entered as 2,000,000.

$

28

Although the Chen Company's milling machine is old, it is still in relatively good working order and would last for another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $41,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $8,400 per year. It would have zero salvage value at the end of its life. The Project cost of capital is 10%, and its marginal tax rate is 35%. Should Chen buy the new machine?

29

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $1,080,000, and it would cost another $21,500 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $669,000. The machine would require an increase in net working capital (inventory) of $18,000. The sprayer would not change revenues, but it is expected to save the firm $366,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.

a. What is the Year 0 net cash flow? $

b. What are the net operating cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.

c. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar. $

d. If the project's cost of capital is 10 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Should the machine be purchased?

30

Broussard Skateboard's sales are expected to increase by 15% from $9.0 million in 2016 to $10.35 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 6%, and the forecasted payout ratio is 75%. Use the AFN equation to forecast Broussard's additional funds needed for the coming year. Round your answer to the nearest dollar. Do not round intermediate calculations.

$

31

Broussard Skateboard's sales are expected to increase by 25% from $7.6 million in 2016 to $9.50 million in 2017. Its assets totaled $4 million at the end of 2016. Broussard is already at full capacity, so its assets must grow at the same rate as projected sales. At the end of 2016, current liabilities were $1.4 million, consisting of $450,000 of accounts payable, $500,000 of notes payable, and $450,000 of accruals. The after-tax profit margin is forecasted to be 5%, and the forecasted payout ratio is 70%. What would be the additional funds needed? Do not round intermediate calculations. Round your answer to the nearest dollar. $

Assume that an otherwise identical firm had $5 million in total assets at the end of 2016. The identical firm's capital intensity ratio (A0*/S0) is  than Broussard's; therefore, the identical firm is  capital intensive - it would require  increase in total assets to support the increase in sales.