FIN323 Test2

Dog Up! Franks is looking at a new sausage system with an installed cost of $803,400. This cost will be depreciated straight-line to zero over the project's 4-year life, at the end of which the sausage system can be scrapped for $123,600. The sausage system will save the firm $247,200 per year in pretax operating costs, and the system requires an initial investment in net working capital of $57,680. Required: If the tax rate is 31 percent and the discount rate is 10 percent, what is the NPV of this project?

$-25,389.14

Summer Tyme, Inc., is considering a new 6-year expansion project that requires an initial fixed asset investment of $3.186 million. The fixed asset will be depreciated straight-line to zero over its 6-year tax life, after which time it will be worthless. The project is estimated to generate $2,832,000 in annual sales, with costs of $1,132,800. Required: If the tax rate is 30 percent, what is the OCF for this project?

$1,348,740

Metroplex Corporation will pay a $3.40 per share dividend next year. The company pledges to increase its dividend by 6.30 percent per year indefinitely. Required: If you require an 8.40 percent return on your investment, how much will you pay for the company's stock today?

$161.90

Winnebagel Corp. currently sells 21,600 motor homes per year at $32,400 each, and 8,640 luxury motor coaches per year at $61,200 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 13,680 of these campers per year at $8,640 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 3,240 units per year, and reduce the sales of its motor coaches by 648 units per year. Required : What is the amount to use as the annual sales figure when evaluating this project?

$183,513,600

Weisbro and Sons common stock sells for $43 a share and pays an annual dividend that increases by 4.7 percent annually. The market rate of return on this stock is 10.40 percent. What is the amount of the last dividend paid by Weisbro and Sons?

$2.34

Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 5 years ago for $4 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $10 million. The company wants to build its new manufacturing plant on this land; the plant will cost $12.2 million to build, and the site requires $1,200,000 worth of grading before it is suitable for construction. Required : What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

$23,400,000

An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $16,380,000 and will be sold for $3,640,000 at the end of the project. Required: If the tax rate is 33 percent, what is the aftertax salvage value of the asset?

$3,372,853

The Red Bud Co. pays a constant dividend of $3.30 a share. The company announced today that it will continue to do this for another 2 years after which time they will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 8.9 percent?

$5.81

Your parents are giving you $140 a month for 6 years while you are in college. At a 7 percent discount rate, what are these payments worth to you when you first start college?

$8,211.62

Staind, Inc., has 7 percent coupon bonds on the market that have 6 years left to maturity. The bonds make annual payments. If the YTM on these bonds is 10 percent, what is the current bond price?

$869.34

Suppose the real rate is 8 percent and the inflation rate is 2.8 percent. What rate would you expect to see on a Treasury bill?

11.02%

Lee Sun's has sales of $4,250, total assets of $3,950, and a profit margin of 6 percent. The firm has a total debt ratio of 42 percent. What is the return on equity?

11.13 percent

A preferred stock pays an annual dividend of $6.75 and sells for $58.60 a share. What is the rate of return on this security?

11.52 percent

Two years ago, you invested $2,800.00. Today, it is worth $3,600.00. What rate of interest did you earn?

13.39 percent

The Lo Sun Corporation offers a 6.0 percent bond with a current market price of $809.50. The yield to maturity is 8.24 percent. The face value is $1,000. Interest is paid semiannually. How many years is it until this bond matures?

14.94 years

Project A has cash flows of -$50,000, $29,400, $27,200, and $24,500 for years 0 to 3, respectively. Project B has an initial cost of $50,000 and an annual cash inflow of $26,500 for three years. These are mutually exclusive projects. What is the crossover rate?

28.15 percent

The next dividend payment by Hot Wings, Inc., will be $2.65 per share. The dividends are anticipated to maintain a 2 percent growth rate forever. Required: If the stock currently sells for $59 per share, what is the required return?

6.49%

Ackerman Co. has 10 percent coupon bonds on the market with seven years left to maturity. The bonds make annual payments. If the bond currently sells for $1,130.69, what is its YTM? Assume a par value of $1,000.

7.53%

A. 2,612.53 B. -3,181.78

Required: (a) At a required return of 18 percent, what is the NPV for this project? (b) At a required return of 35 percent, what is the NPV for this project?

(a) $0.91 (b) $0.847 (c) 0.741

Required : (a) What is the profitability index for the cashflows if the relevant discount rate is 10 percent? (b) What is the profitability index for the cashflows if the relevant discount rate is 14 percent? (c) What is the profitability index for the cashflows if the relevant discount rate is 22 percent?

Both Bond Sam and Bond Dave have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has 3 years to maturity, whereas Bond Dave has 16 years to maturity. (Do not round your intermediate calculations.) Requirement 1: (a) If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Sam? (b) If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Dave? Requirement 2: (a) If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Sam be then? (b) If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond Dave be then?

Requirement 1: A. -5.16% B. -16.79% Requirement 2: A. 5.51% B. 21.85%