Break-even Quantity Calculations Assignment

Problem 15-1 : Break-even Quantity: Shapland Inc. has fixed operating costs of $550,000 and variable costs of $41 per unit. If it sells the product for $85 per unit, what is the break-even quantity?

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Problem 15-2: Unlevered Beta: Counts Accounting has a beta of 1.40. The tax rate is 35%, and Counts is financed with 40% debt. What is Counts’ unlevered beta? Round your answer to two decimal places.

 

 

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Premium for Financial Risk: Ethier Enterprise has an unlevered beta of 1.25. Ethier is financed with 50% debt and has a levered beta of 1.75. If the risk free rate is 3.5% and the market risk premium is 7%, how much is the additional premium that Ethier’s shareholders require to be compensated for financial risk? Round your answer to two decimal places.

 

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Problem 15-4 Value of Equity after Recapitalization

Nichols Corporation’s value of operations is equal to $400 million after a recapitalization (the firm had no debt before the recap). It raised $180 million in new debt and used this to buy back stock. Nichols had no short-term investments before or after the recap. After the recap, wd = 45%. What is S (the value of equity after the recap)? Enter your answer in millions of dollars.

 

 

 

 

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Problem 15-5  Stock Price After Recapitalization

Lee Manufacturing’s value of operations is equal to $900 million after a recapitalization (the firm had no debt before the recap). Lee raised $514.29 million in new debt and used this to buy back stock. Lee had no short-term investments before or after the recap. After the recap, wd = 4/7. The firm had 35 million shares before the recap. What is P (the stock price after the recap)? Round your answer to the nearest cent.

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Problem 15-6 Shares Remaining After Recapitalization Dye Trucking raised $200 million in new debt and used this to buy back stock. After the recap, Dye’s stock price is $5.25. If Dye had 65 million shares of stock before the recap, how many shares does it have after the recap? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.

 

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Problem 15-7 Break-even Point Schweser Satellites Inc. produces satellite earth stations that sell for $95,000 each. The firm’s fixed costs, F, are $1.5 million, 50 earth stations are produced and sold each year, profits total $400,000; and the firm’s assets (all equity financed) are $4 million. The firm estimates that it can change its production process, adding $3.5 million to investment and $410,000 to fixed operating costs. This change will (1) reduce variable costs per unit by $12,000 and (2) increase output by 20 units, but (3) the sales price on all units will have to be lowered to $89,000 to permit sales of the additional output. The firm has tax loss carryforwards that render its tax rate zero, its cost of equity is 15%, and it uses no debt.

a. What is the incremental profit? To get a rough idea of the project’s profitability, what is the project’s expected rate of return for the next year (defined as the incremental profit divided by the investment)? Round your answer to two decimal places.

The incremental profit is %

b. Would the firm’s break-even point increase or decrease if it made the change? By how much? Enter your answer as positive number if it increases or negative number if it decreases.

The break-even point changes by units.

 

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Problem 15-10  Optimal Capital Structure with Hamada

Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 6%, and its stock price is $30 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm’s EBIT is $12.401 million, and it faces a 30% federal-plus-state tax rate. The market risk premium is 5%, and the risk-free rate is 4%. BEA is considering increasing its debt level to a capital structure with 50% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 10%. BEA has a beta of 1.1.

a. What is BEA’s unlevered beta before restructuring? Use market value D/S (which is the same as   wd/ws) when unlevering. Round your answer to three decimal places.

Unlevered beta is

b. What are BEA’s new beta after releveraging and cost of equity if it has 50% debt? Round your answers to two decimal places.

The new beta is .

The new cost of equity is %.

 

c. What is BEA’s WACC after releveraging? Round your answer to two decimal places.

BEA’s WACC after releveraging is %.

 

d. What is its total value of the firm with 50 % debt? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to two decimal places.

The total value of the firm with 50% debt is $  million.

Principal-Agent Framework Assignment

1. 1. Monitoring is done by: I) Shareholders; II) Board of Directors; III) Independent accountants; IV) Lenders  A. I only B. I and II only C. I, II, and III only D. I, II, III and IV

Select one:

A

B

C

D

 

2. In the Principal-Agent framework, the ultimate principal is: I) Managers; II) Board of directors; III) Shareholders; IV) Government  A. I and II only B. IV only C. III only D. I, II and IV only

Select one:

A

B

C

D

 

3. The following are agency problems in capital budgeting except:  A. Empire building B. Entrenching investment C. Avoiding risks D. Accepting all the positive NPV projects

Select one:

A

B

C

D

 

 

4. The following capital expenditure(s) are (is) included in the capital budget:  A. Investment in information technology B. Investment in research and development C. Investment in training and personal development D. Investment in a new office building

Select one:

A

B

C

D

 

5. When stock options are given to managers as incentives, typically the exercise price of these options is set equal to the firm’s:  A. stock price on the day the options are granted. B. expected stock price in one year from the day the options are granted. C. expected stock price on the expiration date of the options. D. none of the above.

Select one:

A

B

C

D

 

6. Which of the following capital expenditure may not appear in capital budget? I) Investment in a new plant II) Investment in a new machine III) Investment in training employees  A. I only B. II only C. III only D. I and II only

Select one:

C

A

B

D

 

7. Managers on a fixed salary are subjected to following temptations all the time: I) reduced effort II) perks or private benefits III) empire building IV) entrenching investments V) avoiding risks  A. I, II and V only B. I, II, and IV only C. I, II, III and IV only D. I, II, III, IV and V

Select one:

A

B

C

D

 

8. The term Economic Value Added (EVA) is copyrighted by:  A. Brealey-Myers B. Brealey-Myers-Allen C. Ross-Westerfield D. Stern-Stewart

Select one:

A

B

C

D

 

9. Economic Value Added (EVA) is calculated as follows:  A. EVA = Income Earned – (cost of debt) * (investment) B. EVA = Income Earned – (cost of equity) * (investment) C. EVA = Income Earned – (cost of capital) * (investment) D. none of the above

Select one:

A

B

C

D

10. The following are advantages of using EVA as a measure of performance except:  A. EVA is a substitute for explicit monitoring by top management B. EVA makes the cost of capital visible to the operating management hence reduce capital employed C. EVA does not measure present value D. EVA highlights the parts of business that are not performing

Select one:

A

B

C

D

 

11. A firm has an average investment of $10,000 during the year.

During the same time the firm has an after tax income of $2,000.

If the cost of capital is 15%, what is the ‘net return on the investment’?

(Find your answer in %, up to 2 decimals; but do not enter % sign in the answer box.

Eg., If your answer is 7.65%, just enter 7.65 in the answer box)

Answer:

 

12. A fiirm has an average investment of $10,000 during the year.

During the same period, the firm has an after tax investment of $2,000.

Calculate the economic value added (EVA) for the firm, if the Cost of capital is 15%.

(indicate the answer in round numbers, without decimals; do not indicate $)

Insurance And Risk Managment “Homeowner Policy”

Note: You MUST show your work (how to arrive at your final solution) for problem-solving questions to get credit. Your answers should be typed and bring a hard copy of them in class. This assignment is due on Monday, October 5.

Ch. 21

1.  Indicate whether the following losses are covered under Section II of the homeowners policy. Assume there are no special endorsements. Give reasons for your answers.

a. The named insured’s dog bites a neighbor’s child and also chews up the neighbor’s coat.

b. A son living at home accidentally injures another player while playing softball.

c. A guest slips on a waxed kitchen floor and breaks an arm.

d. A neighbor’s child falls off a swing in the named insured’s yard and breaks an arm.

e. The named insured accidentally falls on an icy sidewalk and breaks a leg.

f. While driving to the supermarket, the named insured injures another motorist with the automobile.

g. A ward of the court, age 10, in the care of an insured, deliberately breaks a neighbor’s window.

h. The named insured paints houses for a living. A can of paint accidentally spills onto a customer’s roof and discolors it.

i. The named insured falls asleep while smoking a cigarette in a rented hotel room, and the room is badly damaged by the fire.

j. The named insured borrows a camera, and it is stolen from a motel room while the insured is on vacation.

2.  Joseph is the named insured under a Homeowners 3 policy (special form) with a liability limit of $100,000 per occurrence and a $1000 limit for medical payments to others. For each of the following situations, explain whether the loss is covered under Section II of Joseph’s homeowners policy.

a. Joseph is a self-employed accountant who works out of his home. One of Joseph’s clients sues him for negligence in the preparation of a tax return and is awarded a $3000 judgment against him.

b. Joseph’s 25-year-old son, who recently married and now lives in his own apartment, egligently kills another hunter in a hunting accident. The son is sued for $1 million in a wrongful-death lawsuit.

3.  Jerry and Lois Gower own and operate the Gower Painting Co. The couple is insured under a Homeowners 3 policy with no special endorsements. The policy has a $100,000 per occurrence limit for personal liability and a $1000 limit for medical payments to others. For each of the following situations, indicate to what extent, if any, the loss is covered under Section II of their homeowners policy.

a. Jerry left a ladder standing against a house that he was painting. When Jerry went to lunch, a child, age 7, climbed the ladder and was seriously injured when the ladder collapsed. Jerry is sued by the child’s parents for $200,000.

b. Lois accidentally fell off the roof of a house that she was painting and injured her leg. She incurred medical expenses of $3000.

c. The couple’s daughter, Jennifer, age 22, attends college at a large Midwestern university. While playing softball, Jennifer made a hard slide into second base and accidentally injured the opposing player. The injured player claims Jennifer intended to injure her and sues Jennifer for $50,000.

d. Lois has a pet basset hound, Huey. Huey is a friendly, docile dog and loves people. One morning, Lois carelessly left the backyard gate open, and Huey escaped from the fenced yard. A neighbor tried to catch the dog, and Huey bit him on the hand and leg. The neighbor incurred medical bills of $800. Lois is later sued by the neighbor for $50,000 when the dog bite became infected and did not heal.

e. Jerry is playing golf with a friend who is riding in a golf cart that he is operating. The cart overturned when Jerry carelessly drove the cart off the fairway and hit a tree. Jerry’s friend is seriously injured and sues Jerry for $150,000.

 

 

PEST ANALYSIS PAPER

PEST analysis tool about coffee war in India, revealed that social factors are most important.

1pg of ppt.

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Personal Finance Assignment

Q 1, 2, and 4.

Q1 Mike and Mary Jane Lee have a yearly income of $65,000 and own a house worth $90,000, two cars worth a total of $20,000, and furniture worth $10,000. The house has a mortgage of $50,000, and the cars have outstanding loans of $2,000 each. Utility bills, totaling $150 for this month, have not been paid. Calculate or use Worksheet 4 to determine their net worth, and explain what it means. How would the Lees’ ages affect your assessment of their net worth?

Q2 Using the preceding information, calculate the debt ratio for the Lee household.

Q4: A rumor of “right sizing” at Ojai’s engineering firm has him and his wife, Kaya, concerned about their preparation for meeting financial emergencies. Help them calculate their net worth or complete Worksheet 4, and calculate and interpret the current ratio, given the following assets and liabilities:

Checking account $2,000
Savings account $4,000
Stocks $8,000
Utility bills $500
Credit card bills $1,000
Auto loan $2,600

 

Chapter 3: Questions from Develop Your Skills – Problems and Activities

 

Q 1, 3, 5, and 6

Q1: Your mother just won $250,000 for splitting a Nobel Prize with three coworkers. If she invests her prize money in a diversified equity portfolio returning 8 percent per year, approximately how long will it take her to become a millionaire, before accounting for taxes?

Q3: Paul Ramos just graduated from college and landed his first “real” job, which pays $23,000 a year. In 10 years, what will he need to earn to maintain the same purchasing power if inflation averages 3 percent?

Q5: Calculate the future value of $5,000 earning 10 percent after 1 year, assuming annual compounding. Now, calculate the future value of $5,000 earning 10 percent after 20 years.

Q6: Ahmed Mustafa just turned 22 and wants to have $10,283 saved in 8 years, by his 30th birthday. Assuming no additional deposits, if he currently has $6,000 in an intermediate-term bond fund earning a 5 percent yield, will he reach his goal? If not, what rate of return is required to meet his goal?

 

Problems and Activities: #1, 2, 8, and 9

 

Question 1: The Lees, a family of two adults and two dependent children under age 16, had a gross annual income of $68,000 for 2014. Determine their standard deduction, exemption, and child tax credit amounts, as well as their marginal and average tax rates, assuming their filing status is married filing jointly.

 

Question 2: Consider three investors who need to partially liquidate investments to raise cash. In this case, all investments have been held for 3 or more years. Investor A waited for a $1,500 qualified dividend distribution from her mutual fund, and Investor B received $1,500 in interest income from a CD. However, because Investor C could not wait for a distribution, he decided to sell $1,500 of appreciated stock shares. Assuming no commissions, no sales charges, and no state income tax and a 25 percent federal marginal tax bracket, which investment will provide the greatest after-tax amount? Would your answer change if all investors were in the 15 percent marginal tax bracket?

 

Question 8: Given the following information, would it be better for Illinois resident Salem Marcos to itemize her sales tax or her state income tax on her federal tax return?

 

Federal taxable income $47,900

Federal marginal income tax rate 25%

State taxable income $41,250

State marginal income tax rate 3%

Total sales tax paid $1,300

 

Question 9: Calculate the Lifetime Learning Credit available to a single filer earning $40,000 per year if she spent $8,500 on qualified education expenses during 2014.

 

Chapter 5:

 

Problems and Activities: #6, 7 and 8

 

Question 6: Calculate the percentage return on a 1-year Treasury bill with a face value of $10,000 if you pay $9,800 to purchase it and receive its full face value at maturity.

 

Question 7: Calculate the after-tax return of a 4.65 percent, 20-year, A-rated corporate bond for an investor in the 15 percent marginal tax bracket. Compare this yield to that of a 3.25 percent, 20-year, A-rated, tax-exempt municipal bond, and explain which alternative is better. Repeat the calculations and comparison for an investor in the 33 percent marginal tax bracket.

 

Question 8: Assuming a 1-year money market account investment at 1.5 percent (APY), a 2.5 percent inflation rate, a 28 percent marginal tax bracket, and a constant $50,000 balance, calculate the after-tax rate of return, the real rate of return, and the total monetary return. What are the implications of this result for cash management decisions?

Chapter 6: Problems and Activities

#6, #8

Question 6: With only a part-time job and the need for a professional wardrobe, Rachel quickly maxed out her credit card the summer after graduation. With her first full-time paycheck in August, she vowed to pay $240 each month toward paying down her $8,000 outstanding balance and to not use the card. The card has an annual interest rate of 18 percent. How long will it take Rachel to pay for her wardrobe? Should she shop for a new card? Why or why not?

 

Question 8: Javier is currently paying $1,200 in interest on his credit cards annually. If, instead of paying interest, he saved this amount every year, how much would he accumulate in a tax-deferred account earning 8 percent over 10, 15, and 20 years?

 

Chapter 7: Problems and Activities

#1

Question 1: Rico needs approximately $2,500 to buy a new computer. A 2-year unsecured loan through the credit union is available for 12 percent interest. The current rate on his revolving home equity line is 8.75 percent, although he is reluctant to use it. Rico is in the 15 percent federal tax bracket and the 5.75 percent state tax bracket. Which loan should he choose? Why? Regardless of the loan chosen, Rico wants to pay off the loan in 24 months. Calculate the payments for him, assuming both loans use the simple interest calculation method.

 

Chapter 8: Problems and Activities

#1, #5

Question 1: Determine the total first-year cost of car ownership for Milagros. She just purchased a vehicle valued for $15,000 with the following costs:

 

· Auto Loan: Amount—$15,000, Duration—4 years, APR—6.65 percent

· Property Taxes: 2 percent of vehicle value/year

· Sales Taxes: 3 percent of the sales price

· Title and Tags: $40/year

· Maintenance and Usage Costs: $1,500/year

· Insurance: $2,000/year

 

Question 5: Calculate the monthly payments on a 30-year fixed-rate mortgage at 5 percent for $100,000. How much interest is paid over the life of the loan?

Masters Level Finance Assignment

Hello,

 

I just need one problem answered. It’s just text answer. There isn’t any problem solving involved. The problem I need done is P14-24.

Question:

 

Some companies’ debt-equity targets are expressed not as a debt ratio, but as a target debt rating on a firm’s outstanding bonds. What are the pros and cons of setting a target rating, rather than a target ratio?

 

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Case: Tombstones (HBS 5-213-085)

It is a case study, please answer all those questions and make it as a report doc. Around 5 pages. The requirements and questions are in the word doc, the pdf file is the case tombstones.

 

Case: Tombstones (HBS 5-213-085)

 

Assignment:

 

1.      MSFT Notes:

a.      Why is MSFT raising money?

b.      Is this paper really cheap? What is YTM for each issue?

c.       Why YTM differs from coupon rate? What should we compare YTM with?

d.      Why did MSFT issue four papers instead of one?

e.      Do you expect that those notes will be called or redeemed?

2.      Coca Cola Enterprise Notes:

a.      What is YTM for CCE issue?

b.      What are the differences w.r.t. MSFT note above?

c.       What is default risk for CCE note?

d.      Why is CCE raising funds?

3.      Norfolk Southern Century Bond:

a.      Why did NSC “reopen” this issue to raise another $250M?

b.      Do you think NSC is going to be around in 2105? Does this matter?

c.       Who buys those century bonds?

d.      Why don’t we see more of these?

e.      Under what conditions do you expect NSC to redeem those bonds?

 

4.      IBM Floating Rate Note:

a.      What is different about this issue?

b.      What is the rate? What should we compare it with?

c.       Why IBM is raising funds?

5.      Cephalon Convertible notes:

a.      How do these work?

b.      How can small no-name company issue debt at 2.5% when Coca Cola has to pay 4.25%?

c.       How do you participate in upside?

 

If you feel that you have to make any assumptions, please do it by stating them clearly in your report. I expect the report to be no longer than 10 pages plus appendices if necessary. Please use 11pt font or larger, decent line spacing and margins. You can also submit whatever supporting material you can see fit.

 

 

Financial Analysis and Planning Assignment

Problem 2 Financial Analysis and Planning

 

Database systems is considering expansion into a new product line. Assets to support expansion will cost $380,000. It is estimated that database can generate $1,410,000 in annual sales, with a 8 percent profit margin. What would net income and return on assets (investments) be for the year

 

Problem 8

 

Easter egg and Poultry Company has $2,000,000 in assets and $1,400,000 of debt. It reports net income of $200,000

 

a.       What is the firm’s return on assets?

 

b.      What is its return on stockholders’ equity?

 

c.       If the firm has an asset turnover ratio of 2.5 times, what is the profit margin (return on sales)?

 

Problem 22

 

The balance sheet for stud clothiers is shown below. Sales for the year were $2,400,000 with 90 percent of sales sold on credit.

 

Assets                                                                  Liabilities and Equity

 

Cash                            $60,000                           Accounts payable              $220,000

 

Accounts receivable 240,000                           Accrued taxes                      30,000

 

Inventory                    350,000                           Bonds payable (long term) 150,000

 

Plant and equipment410, 000                          Common stock                      80,000

 

Total assets $1,060,000                                   Paid in capital                        200,000

 

Retained earnings                 380,000

 

Total liabilities and equity $1,060,000

 

Compute the following

 

a.       Current ratio

 

b.      Quick ratio

 

c.       Debt to total assets ratio

 

d.      Asset turnover

 

e.      Average collection period

 

 

 

Chapter 9 the Time Value of Money

 

Problem 2. What is the present value of

 

a.       $7,900 in 10 years at 11 percent

 

b.      $16,600 in 5 years at 9 percent

 

c.       $26,000 in 14 years at 6 percent

 

Problem 5

 

If you invest $9,000 today, how much will you have?

 

a.       In 2 years at 9 percent

 

b.      In 7 years at 12 percent

 

c.       In 25 years at 14 percent

 

d.      In 25 years at 14 percent (compounded semiannually

 

Chapter 10

 

Problem 3

 

Exodus Limousine Company has $1,000 par value bonds outstanding at 10 percent interest. The bonds will mature in 50 years. Compute the current price of the bonds if the percent yield to maturity is

 

a.       5 percent

 

b.      15 percent

 

Chapter 12

 

Problem 3

 

Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 40 percent tax bracket

 

a.       Compute its cash flow

 

b.      Assume it has $200,000 in depreciation. Recompute its cash flow

 

c.       How large a cash flow benefit did the depreciation provide?

 

Problem 6

 

Assume a $250,000 investment and the following cash flows for two products

 

Year       Product X             Product Y

 

1              $90,000               $50,000

 

2               90,000                 80,000

 

3                60,000                60,000

 

4               20,000                  70,000

 

 

 

Problem 11

 

You buy a new piece of equipment for $16,230 and you receive a cash inflow of $2,500 per year for 12 years. What is the internal rate of return?

 

Problem 18

 

The Pan American Bottling Co. is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $60,000. The annual cash flows have the following projections.

 

Year        Cash Flow

 

1              $23,000

 

2               26,000

 

3               29,000

 

4               15,000

 

5                8,000

 

a.       If the cost of capital is 13 percent, what is the net present value of selecting a new machine

 

b.      What is the internal rate of return?

Should the project be accepted? Why?

Investment Recommendation Paper

5. As an investor, discuss which company you would choose to invest in and provide a rationale for your decision. Support your conclusions, why or why not?

6. After concluding your research about each company and reviewing their annual report, Discuss what non-financial criteria you would consider when choosing between these two investment options? Support your conclusions, why or why not?

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