Problem 1
Mr. Adamo just put $ 11,000 into a new savings account, and he plans to contribute another $22.000 one year from now, and $60,000 two years from now. The savings account pays 7% annual interest. With no other deposits or withdrawals, how much will he have in the account 10 years frorn today?
Problem 2
Mr. Alessandro Cesti needs capital for its expansion program. One bank will lend the required 52,725,145 if Mr. Alessandro Cesti agrees to pay interest each quarter and repay the principal at the end of the year. The quoted rate is 12%. A second lender offers 11% daily compounding (365-day year), with interest and principal due at the end of the year. What is the difference in the effective annual rates charged by the two banks?
Problem 3
The G.P. Telemann Corporation's last dividend was $2.30. The dividend growth rate is expected to be constant at 22% or 3 years, after which dividends are expected to grow at a rate of 6% forever. G.P. Telemann Corporation's required return (r.) is 9%. What is G.P. Telemann Corporation's current stock price?
Problem 4
Pergolesi Corporation's financial manager, Mr. Morandi, has collected the following information to .1culate its WACC:
• Pergolesi Corporation's capital structure consists of 30% debt and 70% common stock.
• Pergolesi Corporation has 20-year, 10% annual coupon bonds that have a face value of $1.000 and sell for $1,212.
• Pergolesi Corporation uses the CAPM to calculate the cost of common stock. Currently, the risk-free rate is 4% and the market risk premium is 7%. Pergolesi Corporation's common stock has a beta of 1.70. Pergolesi Corporation's tax rate is 43%.
a. What is the company's after-tax cost of deb,
b. What is the company's cost of common equity?
C. What is the company's weighted average cost of .pital (WACC) of Pergolesi Corporation?
Problem 5
Gianni Corporation (GC) is considering a project where they would open a new facility in Portland. The GC's Project Manager, Mr. Mliva Paoli. has assembled the following information regarding the proposed project:
• It would cost $500000 today (at t = 0) 0 construct the new facility. The cost of the facility will be depreciated on a straight-line basis over five years.
• If GC opens the facility, it will need to increase its inventory by $100,000 at t = O. $70,000 of this inventory will be financed with accounts payable.
• The project will generate the following amount of revenue over the next three years:
Year 1 Revenue = 51.0 million
Year 2 Revenue = $1.2 million
Year 3 Revenue = 51.5 million
• Operating costs excluding depreciation equal 70% of revenue.
• GC plans to abandon the facility after three years. At t = 3. the project's estimated salvage value will be S200.000. At t = 3, GC will also recover the net operating working capital investment that it made at t = O.
• The project, cost of .pital is 12%.
• The GC's tax rate is 40%.
What is the project's net present value (NPV)?
What is the project's modified internal rate of return (MIRR)?
Problem 6
Torelli Company is deciding between two mutually exclusive projects. The two projects have the following cash flows:
|
Year
|
Project A
Cash Flow
|
Project B
Cash Flow
|
|
0
|
-$50.000
|
-S30.000
|
|
1
|
10.000
|
6,000
|
|
2
|
15.000
|
12,000
|
|
3
|
40,000
|
18,000
|
|
4
|
20,000
|
12,000
|
The company's weighted average cost of capital (WACC) is 11 percent. What is the net present value (NPV) of the project with the highest internal rate of return (IRR)?
Problem 7
Gagliardi Company issued 25-year, non-callable. 6.5% annual coupon bonds at their par value of $1,000 two years ago. Today, the market interest rate on these bonds is 4.5%. What is the current price of the bonds? Are these bonds discount or premium bonds? Please explain in one line.