Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

problem 1

You have won a $1 million cash prize.  Those awarding the prize have given you four payout choices:

• $1 million today
• $1.2 million lump sum in two years
• $1.5 million lump sum in five years
• $2 million lump sum in eight years

Your stockbroker tells you that must be capable to earn 10% on an investment portfolio.  For each alternative noted above where you know the prospect value, compute the present value and elucidate why your choice of a payoff alternative is the best course of action.

problem 2

You are faced with a decision on whether to purchase a machine for your business. The cost of the machine is $25,000.  Cash saving, including labour, raw materials, and tax saving because of depreciation, are $3,500 per year for ten years.  The present value of cash saving is $21,506 at a 10% discount rate.  Must you buy the machine?  Why or why not?

problem 3

You own shares in a company whose stock price today is $36.34.  Management expects dividends to grow at a steady rate of six percent for the foreseeable future.  The last dividend was $3.25.  Your needed rate of return for stocks is 16%.  Should you sell the shares you have or add to your holdings?  Support your answer.

problem 4

Mr. Hugh Warner is an extremely cautious businessman. His supplier offers trade credit terms of 3/10, net 80. Mr. Warner never takes the discount offered, but he pays his suppliers in 70 days rather than the 80 days allowed so he is certain the payments are never late. What is Mr. Warner's cost of not taking the cash discount?  (Make sure to show your work.)

problem 5

The ABC Corporation has a $1,000 par value bond outstanding with 20 years to maturity.  The bond carries a yearly interest payment of $95 and is currently selling for $920 per bond.  The ABC Corporation is in the 25% tax bracket.  What would the after-tax cost of a new bond issue be?  The yield to maturity on new issue will be the same as yield to maturity on the old issue since the risk and maturity date will be similar.

problem 6

a). In the management of cash and marketable securities, why must the primary concern be for maximization of profit?

b). Why would a financial manager want to raise disbursements?

c). Why may investors demand a higher rate of return for an investment in Microsoft than in United Airlines?

d). Elucidate: ‘If inflationary expectations reduce, the yield to maturity will decline, which means a higher bond price’.

problem 7

a). Adjust the annual formula for a future value of a single amount at 12 percent for 10 years to a half yearly compounding formula. What are the interest factors (FVIF) before and after? Why are they different?

b). Why is the remaining time to maturity a significant factor in evaluating the impact of a change in yield to maturity on the bond prices?

c). Why is a change in needed yield for preferred stock likely to have a greater impact on price than a change in required yield for bonds?

problem 8

What factors may affect a firm's price-earnings ratio, and why?

problem 9

Global Services is considering a promotional campaign that will raise annual credit sales by $400,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows:

Accounts receivable        4x
Inventory                      8x
Plant and equipment        2x

All $400,000 of the sales will be collectible. But, collection costs will be 4 percent of sales, and production and selling costs will be 76 percent of sales. The cost to carry inventory will be 8 percent of inventory. Depreciation expense on the plant and equipment will be 5 percent of plant and equipment. The tax rate is 30 percent.

a). find out investments in accounts receivable, inventory, and plant and equipment based on turnover ratios. Add the three together.

b). find out accounts receivable collection costs and production and selling costs and add the two figures together.

c). find out costs of carrying inventory.

d). find out depreciation expense on the new plant and equipment.

e). Add together all the costs in parts b, c, and d.

f). Subtract the answer from part e from the sales figure of $400,000 to arrive at income before taxes. Subtract taxes at a rate of 30 percent to arrive at income after taxes.

problem 10

a). Discuss the relative volatility of short and long-term interest rates

b). What is the importance to working capital management of matching sales and production?

c). A firm that uses short-term financing techniques for a portion of permanent current assets is assuming more risk but expects higher returns than a firm with a normal financing plan. Elucidate.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91538

Have any Question? 


Related Questions in Basic Finance

1 what is the advantage of using multiple measures for a

1. What is the advantage of using multiple measures for a single variable? What is the disadvantage? 2. Briefly explain how a ceiling effect (or floor effect) can affect the outcome of a research study.

1 what factors should an investor consider when trying to

1. What factors should an investor consider when trying to decide whether to dispose of a property that he has owned for several years? 2. What causes the marginal rate of return to change over time? How can the marginal ...

Anne has been researching investments and bought a stock

Anne has been researching investments and bought a stock today for $21 per share. Anne's research tells her that she will be able to sell the stock in 5 years for $61 per share. In this case, what interest rate, in perce ...

The last decade has witnessed an unprecedented number of

The last decade has witnessed an unprecedented number of mega-mergers in the banking industry: Bank of America's acquisitions of Fleet Bank, MBNA, and U.S. Trust; Bank of New York's acquisition of Mellon Financial; and W ...

1 compare and contrast reactive and proactive consolidation

1. Compare and contrast reactive and proactive consolidation. Provide an example of each. 2. Four aspects of transportation operations management were identified as: (1) equipment scheduling, (2) load planning, (3) routi ...

1 what are the general requirements regarding income

1. What are the general requirements regarding income, investments, and dividends with which a REIT must comply to maintain its tax-exempt status? 2. What are the three principal types of REITs? 3. What is a mortgage REI ...

1 when and why would nonprobability sampling methods be

1. When and why would nonprobability sampling methods be used? 2. Under what conditions is sampling bias likely to occur, what are its effects on generalization, and how can it be avoided? 3. Indicate the similarities an ...

Assignment capital investments in emerging marketsuse the

Assignment: Capital Investments in Emerging Markets Use the Internet and/or Strayer Learning Resource Center to research a global manufacturing company of your choice. Review the current plans that your selected company ...

Assume the following year zero capital investment 6m and

Assume the following: Year Zero: Capital Investment = $6M and Increase in NWC = $.5M; Years 1-4: OCF = $4M; Year 4: Recovery of Earlier Increase in NWC and Cash Flow from Salvage = $2.5M. What are the incremental cash fl ...

1 what makes managing employee health and safety programs

1. What makes managing employee health and safety programs around the world so difficult? 2. Why have family-friendly and work-life balance programs become so important? 3. Describe the kinds of health, safety, and secur ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro