Question: In the situation at Wachusett Window outlined

> Contrast real assets and financial (paper) assets. What is the basis for the value of each?

> Corporate executives sometimes abuse their positions by overpaying themselves at the expense of stockholders. When that happens are the executives’ gains dollar for dollar losses to stockholders or can investors lose more or less than the amounts by whi

> How and why do sinking funds enhance the safety of lenders?

> Describe the difference between a floating and a fixed exchange rate system.

> Under what conditions is a bond almost certain to be called at a particular date in the future? How does this condition affect its price?

> The Greenbay Motor Company ordered six German built engines at, €15,000 each when the direct exchange rate was $1.2500 per euro, and elected not to cover the obligation with a forward contract. When the bill was due three months later, the rate was $1.1

> Suppose a car manufactured in Japan in the mid-1980s, when there were 250 yen to the dollar, cost 2 million yen to produce, and was marked up 25% for sale in the United States. Assume the car's cost in yen and markup are the same today, but that the e

> The Cline family made a trip to Europe in 2015. They paid the following amounts in local currency for hotel, entertainment, and transportation. How much did the trip cost once they got to Europe? Use the exchange rates in Table 18.1. England.

> Segwick Petroleum Ltd. has a dividend reinvestment plan in which new stock is issued to participating investors. Segwick's payout ratio is 40%, and 30% of stockholders participate in the plan. The firm's ROE is 10%. What percentage increase in flotati

> Bob and Chris received a grant through their University to travel to Germany to do research. The grant awarded them $2,000 for room and board during their stay. It was paid to them in U.S. dollars on May 31 at which time the dollar was worth €.77980.

> Atkins Company has just issued a series of bonds with 5- through 10-year maturities. The company’s default risk is 0.5% on 5-year bonds, and grows by 0.2% for each year that’s added to the bond’s term. Atkins’ liquidity risk is 1.0% on 5-year bonds, an

> The following direct quote exchange rates are found on the spot market today. a. Euro: $.9347 b. Israeli shekel: $.2586 c. British (U.K.) pound: $1.6544 d. Japanese yen: $0.009423 Calculate the price of a U.S. dollar in terms of each currency, the ind

> Using words only, describe the process of finding a bond's yield at a given selling price.

> Construct an amortization schedule for the last six months of the loan. (Hint: What is the unpaid balance at the end of 29 ½ years?)

> What are the monthly payments on the loan? Construct an amortization table for the first six months of the loan.

> Partridge Inc. sells about $45 million a year on credit. Good credit and collections performance in the industry results in a 35-day ACP. a. What is the maximum receivables balance Partridge can tolerate and still receive a good rating with respect to

> Construct an amortization schedule for a four-year, $10,000 loan at 6% interest compounded annually.

> A $10,000 car loan has payments of $361.52 per month for three years. What is the interest rate? Assume monthly compounding and give the answer in terms of an annual rate.

> Harry Clements would like to buy a new car. He can afford payments of $650 a month. The bank makes four-year car loans at 12% compounded monthly. How much can Harry borrow toward a new car?

> You are a securities salesperson. Many of your clients are elderly people who want very secure investments. They remember the days when interest rates were very stable (before the 1970s) and bond prices hardly fluctuated at all regardless of their term

> Annuities are attractive investment vehicles for retirement savings as many people prefer an income stream in retirement to a lump sum in the bank. It’s easy to trade one for the another by purchasing an annuity for its discounted value from a bank or a

> What would you pay for an annuity of $2,000 paid every six months for 12 years if you could invest your money elsewhere at 10% compounded semiannually?

> The Winthrop Company is constructing a five-year plan. The firm's ACP is currently 90 days, while its inventory turnover ratio is 3 × based on COGS. The company has forecast aggressive revenue growth along with efficiency improvements in man

> What causes maturity risk? In other words, why do long-term bonds respond differently to interest rate changes than short-term bonds? (Hint: Think about how the present value formulas work.)

> Go to a currency exchange site on the internet and look up today's exchange rates for the currencies in problem 1. Resolve the problems using today's rates. Analyze how the rates have changed since May 6, 2015.

> Livetree Ltd. is developing a detailed financial plan for next year, and expects to have the following fixed asset accounts by the end of this year ($000) The capital plan already completed calls for expenditures of $7,042,000 on new equipment next yea

> How many years will it take for $850 per year to amount to $20,000 if the interest rate is 8%?

> Emmons Motors is a distributor of electric motors. The firm projects product demand next year of 25,000 units. It costs $320 to place an order with suppliers. Management has determined that the EOQ is 1,000 units. How much per year does it cost Emmon

> Zuker Distributors handles the warehousing of perishable foods and is considering replacing one of its primary cold storage units. One supplier has offered a unit for $250,000 with an expected life of 10 years. The unit is projected to reduce electrici

> How much will $650 per year be worth in eight years at interest rates of a. 12% b. 8% c. 6%

> The Longenes Company uses a target capital structure when calculating the cost of capital. The target structure and current component costs based on market conditions follow. * The costs of debt and preferred stock are already adjusted for taxes and/o

> Suppose the strategic options available to the Rollins Company in the last problem result in temporarily enhanced growth. Each option can be associated with a super normal growth rate that lasts for some period after which growth returns to the firm's n

> Suppose Hammell of the previous problem needs to issue new stock to raise additional equity capital. What is its cost of new equity if and flotation costs are 12%?

> The Framingham Company expects to grow at 4% indefinitely. Economists are currently asserting that investment opportunities in short term government securities (treasury bills) are readily available at a risk-free rate of 5%. The stock market is returni

> What is interest rate or price risk? Why is it sometimes called maturity risk? Explain fully.

> The Longlife Insurance Company of the preceding problem has several bonds outstanding that are currently selling to yield 9%. What does this imply about the cost of the firm's equity?

> Grandma's Cookies Inc. is considering acquiring Mother's Baked Goods Inc. After consideration of all benefits, synergies and tax effects, Grandma (originally a finance major) has estimated that the incremental cash flows from the acquisition will be abo

> The Longlife Insurance Company has a beta of .8. The average stock currently returns 15% and short-term treasury bills are offering 6%. Estimate Longlife's cost of retained earnings.

> Schoen Industries pays interest of $3 million each year on bonds with an average coupon rate of 7.5%. The firm has 4.5 million shares of stock outstanding and pays out 100% of earnings in dividends. Earnings per share (EPS) is $3.50. Schoen’s cost of

> Klints Inc. paid an annual dividend of $1.45 last year. The firm’s stock sells for $29.50 per share, and the company is expected to grow at about 4% per year into the foreseeable future. Estimate Klints’ cost of retained earnings.

> Assume that Meade Metals Inc of the previous problem is replacing an old truck with a new one instead of replacing an outside delivery service. The old truck was purchased 8 years ago for $120,000. It has been depreciated straight line based on a ten-y

> A few years ago Hendersen Corp issued preferred stock paying 8% of its par value of $50. The issue is currently selling for $38. Preferred stock flotation costs are 15% of the proceeds of the sale. What is Hendersen's cost of preferred stock?

> The York Company has an average receivables balance of $55,000, which turns over once every 30 days. It offers all of its receivables to its bank as collateral for short-term borrowing (pledging). The bank generally accepts 60% of the accounts offered

> Harris Inc.’s preferred stock was issued five years ago to yield 9%. Investors buying those shares on the secondary market today are getting a 14% return. Harris generally pays flotation costs of 12% on new securities issues. What is Harris’s cost of

> Jenkins Appliances has cash flow problems and needs to borrow between $50,000 and $60,000 for approximately sixty (60) days. Because the business is small and relatively new, unsecured loans are very hard to get and are expensive when they are available.

> What is valuation, and why are we interested in the results?

> Calculate the effective interest rate on loans with the following minimum compensating balance requirements: Compensating Balance 20% Loan Rate a. 6.5% b. 12.0% 10% с. 10.5% 15% d. 14.0% 25% е. 8.5% 30%

> Hampshire Motors Ltd., a British manufacturing company, wants to buy a production machine that isn’t available in England. Comparable products are made by an American company and a French firm. The Americans have quoted Hampshire a price of $175,000 whil

> An American importer owes vendors the following sums a. 140,560 Canadian dollars b. 392,000 Australian dollars c. 1,362,000 Mexican pesos d. 680,540 British (U.K.) pounds e. 14,673 Euros State each debt in U.S. dollars.

> You're interested in investing in the Peters Company, which has shown a remarkable increase in EPS over the last three years. You investigate and find that the company's debt-to-equity ratio has increased dramatically over the same period and is now fou

> The Cranston Company would like to acquire the Lamont Company, but overtures made to management have been emphatically rebuffed. Five investors who were involved in the company's founding and continue to be active in its management own 45% of Lamont's st

> Shelton Pharmaceuticals Inc. is planning to introduce a new drug for pain relief. Management expects to sell 3 million units in the first year at $8.50 each, and anticipates 10% growth in sales per year thereafter. Operating costs are estimated at 70%

> The Grass Ridge Company has the following current asset accounts Its current ratio is 2.5:1. The bank is willing to lend the company enough to finance its working capital needs under a $10 million revolving credit arrangement at a base rate of 12% wi

> Using the information from the previous problem, randomly select four NPV outcomes from the data. (Select one cash flow from each year and compute the project NPV and the probability of that NPV implied by those selections.) Do your selections give a sen

> The Montauk Company has a dividend reinvestment plan in which shareholders owning 25% of its common stock participate. Last year the firm’s EPS was $4.20 and its payout ratio was 50%. There are 2 million shares of common stock outstanding. How much ne

> The amount formulas share a closer relationship than the annuity formulas. Explain and interpret this statement.

> Calculate the effective interest rate implied by the following terms of sale, using a 365-day year. 2/10, net 30 1/5, net 15 .5/10, net 30 2.5/10, net 25 1/5, net 20

> Moser Materials Inc. is considering acquiring Newkirk Products, which produces a number of products that would enhance Moser’s product line. Last year Newkirk reported a $30 million loss. Moser has estimated that Newkirk will break even in the fourth y

> What is the effective interest rate on a $750,000 loan at 8% for 120 days if a 20% minimum compensating balance is required?

> Scherbert Industries has the following balance sheet accounts as of 12/31/x3 (not a complete balance sheet): Calculate gross and net working capital. Accounts Payable. $650,000 Accounts Receivable 845,000 Accruals. 257,500 Cash .. 137,200 Common S

> Willerton Industries Inc. has the following balances in its capital accounts as of 12/31/x3: Calculate Willerton’s capital structure based on book values. Long Term Debt $65,000,000 Preferred Stock $15,000,000 Common Stock $40,000

> Southport Inc. has an inventory turnover of 10X, an ACP of 45 days, and turns over its payables once a month. How long are Southport's operating and cash conversion cycles? (Use a 360-day year.)

> The Manning Company's stock is currently selling for $23. It has the following prospects for next year: Calculate Manning's expected return for a one-year holding period. Next year's Stock Price Dividend $1.00 $1.50 $2.00 Probability $25 $30 $35 .

> Watson Waterbed Works Inc. has an EBIT of $2.75 million, can borrow at 15% interest, and pays combined state and federal income taxes of 40%. It currently has no debt and is capitalized by equity of $12 million. The firm has 1.5 million shares of common

> What interest rate would you need to get to have an annuity of $7,500 per year accumulate to $279,600 in 15 years?

> The Aztec Corporation has the following capital components and costs. Calculate Aztec's WACC. Value $23,625 $ 4,350 $52,275 Component Debt Cost 12.0% Preferred Stock Common Equity 13.5% 19.2%

> What is a sinking fund? How is it related to time value?

> Calculate BWP’s DFL and DTL before and after the acquisition of the new machine

> The Alligator Lock Company is planning a two-for-one stock split. You own 5,000 shares of Alligator's common stock that is currently selling for $120 a share. a. What is the value of your Alligator stock now, and what will it be after the split? b. Alli

> The Dentite Corporation’s bonds are currently selling to yield new buyers a 12% return on their investment. Dentite’s marginal tax rate including both federal and state taxes is 38%. What is the firm’s cost of debt?

> Asbury Corp. issued 30-year bonds 11 years ago with a coupon rate of 9.5%. Those bonds are now selling to yield 7%. The firm also issued some 20-year bonds two years ago with an 8% coupon rate. The two bond issues are rated equally by Standard and Poor

> Blazingame Inc.'s capital components have the following market values: Calculate the firm's capital structure and show the weights that would be used for a weighted average cost of capital (WACC) computation. Debt . $35,180,000 Preferred Stock.

> Sanville Quarries is considering acquiring a new drilling machine which is expected to be more efficient than their current machine. The project is to be evaluated over four years. The initial outlay required to get the new machine operating is $675,000

> The Olson Company plans to replace an old machine with a new one costing $85,000. The old machine originally cost $55,000, and has six years of its expected 11-year life remaining. It has been depreciated straight line assuming zero salvage value, and

> Kleig Inc.'s bonds are selling to yield 9%. The firm plans to sell new bonds to the general public and will therefore incur flotation costs of 6%. The company's marginal tax rate is 42%. a. What is Kleig's cost of debt with respect to the new bonds? (H

> Mitech Corp’s stock has been growing at approximately 8% for several years and is now $30. Based on past growth rate performance, what would you expect the stock’s price to be in five years?

> The Pepperpot Company's stock is selling for $52. Its last dividend was $4.50, and the firm is expected to grow at 7% indefinitely. Flotation costs associated with the sale of common stock are 10% of the proceeds raised. Estimate Pepperpot's cost of e

> What's an opportunity cost interest rate?

> Fuller, Inc. issued $100, 8% preferred stock five years ago. The shares are currently selling for $84.50. Assuming Fuller has to pay floatation costs of 10%, what is Fuller’s cost of preferred stock?

> Keener Clothiers Inc. is considering investing $2 million in an automatic sewing machine to produce a newly designed line of dresses. The dresses will be priced at $200, and management expects to sell 12,000 per year for six years. There is, however, so

> Haley Motors is considering a maintenance contract for its heavy equipment. One firm has offered Haley a four-year contract for $100,000 to be paid in advance. Another firm has offered an eight-year contract for $165,000 also to be paid in advance. Both

> The Paxton Homes Co. is a successful builder of moderate to high-priced houses. The firm is currently considering an expansion into light commercial construction in which it would build shopping centers and small office buildings. Management considers t

> Calculate IRRs for the projects in the previous problem. Problem 19: Initial Outlay (C) Project Length (in years) Annual Cost of NPV Cash Flow Сapital ($100,000) ($200,000) ($300,000) ($400,000) ? 5 $35,000 8% ? $35,000 $15,000 $20,000 $25,000 4

> Auburn Concrete Inc. is considering the purchase of a new concrete mixer to replace an inefficient older model that is completely worn out. If purchased, the new machine will cost $90,000 and is expected to generate savings of $40,000 per year for five

> Blue & Noble is a small law firm that does all of its business through billings (no cash sales). Historically the firm has collected 40% of its revenue in the month of billing, 50% during the first month after billing and 8% during the second month after

> Fox Woodworking Inc. issued preferred shares at a face value of $50 to yield 9% 10 years ago. The shares are currently selling at $60. What return are they earning for investors who buy them today?

> Olson-Jackson Corp. (OJC) is considering replacing a machine that was purchased only two years ago because of dramatic improvements in new models. The old machine has been depreciated straight line anticipating a ten years life based on a cost of $240,0

> Meade Metals Inc plans to start doing its own deliveries instead of using an outside service for which it has been paying $150,000 per year. To make the change Meade will purchase a $200,000 truck that it will depreciate straight line over ten years to

> Deferred payment terms are equivalent to a cash discount. Discuss and explain this idea.

> Harrington Inc. is introducing a new product in its line of household appliances. Household products generally have ten-year life cycles and are viewed as capital budgeting projects over that period. Harrington’s working capital forecast for the projec

> How many years will it take for $850 per year to accumulate to $20,000 if the interest rate is 8%?

> Softek has two potentially big-selling products under development. Alpha, the first new product, seems very likely to catch on and is expected to drive the firm's growth rate to 25% for the next two years. However, software products have short lives, a

> Laurel Wilson has a portfolio of five stocks. The stocks’ actual investment performance last year is given below along with an estimate of this year’s performance. Compute the actual return on Laurelâ€&

> Harry and Flo Simone are planning to start a restaurant. Stoves, refrigerators, other kitchen equipment, and furniture are expected to cost $50,000 all of which will be depreciated straight line over five years. Construction and other costs of getting

> A project that is expected to last six years will generate a profit and cash flow contribution before taxes and depreciation of $23,000 per year. It requires the initial purchase of equipment costing $60,000, which will be depreciated straight line over

> Voxland Industries purchased a computer for $10,000, which it will depreciate straight line over five years to a $1,000 salvage value. The computer will then be sold at that price. The company’s marginal tax rate is 40%. Calculate the cash flows assoc

> A four-year project has cash flows before taxes and depreciation of $12,000 per year. The project requires the purchase of a $50,000 asset that will be depreciated over five years, straight line. At the end of the fourth year the asset will be sold for

> Flextech Inc. is considering a project that will require new equipment costing $150,000. It will replace old equipment with a book value of $35,000 that can be sold on the second-hand market for $75,000. The company’s marginal tax rate is 35%. Calcula

> Imagine making choices in the following situation to test your degree of risk aversion. Someone offers you the choice between the following game and a sure thing. The Game: A coin is tossed. If it turns up heads, you get a million dollars. If tails,

> Write a brief, verbal description of the logic behind the development of the time value formulas for annuities.