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c. The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower.

2. Which of the following statements is CORRECT?

c. To solve for I, one must identify the value of I that causes the PV of the positive CFs to equal the absolute value of the PV of the negative CFs. This is, essentially, a trial and-error procedure that is easy with a computer or financial calculator but quite difficult otherwise.

This statement is correct because since there are so many options available in order to identify I there has to be multiple trial and error processes. It is possible by hand, but will be extremely hard.

3. Riverside Bank offers to lend you $50,000 at a nominal rate of 6.5%, compounded monthly.

The loan (principal plus interest) must be repaid at the end of the year. Midwest Bank also offers to lend you the $50,000, but it will charge an annual rate of 7.0%, with no interest due until the end of the year. How much higher or lower is the effective annual rate charged by

Midwest versus the rate charged by Riverside?

d. 0.30%

Riverside Bank effective annual rate = (1 + (0.065/12))^12 = 1.067

Midwest Bank effective annual rate =(1 + (0.07/1))^1 = 1.07 Midwest Bank is higher by 0.3%

4. Steve and Ed are cousins who were both born on the same day, and both turned 25 today.

Their grandfather began putting $2,500 per year into a trust fund for Steve on his 20th birthday, and he just made a 6th payment into the fund. The grandfather(or his estate's trustee) will make 40 more $2,500 payments until a 46th and final payment is made on

Steve's 65th birthday. The grandfather set things up this way because he wants Steve to work, not be a "trust fund baby,"…...

...fin515 | Homework 4 | Week 4 | | Owner | 11/26/2012 | 7.2 Constant Growth Valuation Boehm Incorporated is expected to pay a $1.50 per share dividend at the end of this year (i.e., D1= $1.50). The dividend is expected to grow at a constant rate of 7% a year. The required rate of return on the stock, rs, is 15%. What is the value per share of Boehm’s stock? D1= $1.50 per share g = 7% rs= 15% P0 = D1 /(rs – g) P0 = 1.50/(0.15-0.07) P0 = $18.75 7.4 Preferred Stock Valuation Nick’s Enchiladas Incorporated has preferred stock outstanding that pays a dividend of $5 at the end of each year. The preferred sells for $50 a share. What is the stock’s required rate of return? Dividend = $5 Preferred = $50 P0 = D/rs rs = D/P0 rs = 5/50 rs = 10% 7.5 Non-constant Growth Valuation A company currently pays a dividend of $2 per share (D0 = $2). It is estimated that the company’s dividend will grow at a rate of 20% per year for the next 2 years, then at a constant rate of 7% thereafter. The company’s stock has a beta of 1.2, the risk-free rate is 7.5%, and the market risk premium is 4%. What is your estimate of the stock’s current price? rs = rRF + (rM - rRF) = 7.5% + (4%) 1.2 = 12.3%. = $2.00D1 = $2.00(1.20) = $2.4 D2 = $2.00(1.20)2 = $2.88 D3 = $2.88(1.07) = $3.08 PV Div = $2.40/ (1.123) + $2.88/ (1.123)2 = $2. 14 + $2.28 = $4.42. P2:= D3/ (rs g) = $3.08/(0.123 0.07) = $58.11. PV = $58.11/ (1.123)2 = $46.08 (9-2) After-Tax......

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...FIN534 Week 8 Discussion and Homework Set 4 FIN534 Week 8 Discussion Click the link above to respond to the discussion. If you need help with completing discussions please click here for more information. "Distributions to Shareholders" Please respond to the following: * * From the e-Activity, contrast the differences between a stock dividend and a stock split. Imagine that you are a stockholder in a company. Determine whether you would prefer to see the company that you researched declare a 100% stock dividend or declare a 2-for-1 split. Provide support for your answer with one (1) real-world example of your preference. * * From the scenario, examine the dividend rate that TFC is paying in order to determine if the company should receive a rate adjustment. Suggest whether TFC’s dividends should either (1) stay the same; (2) be increased; (3) or go down. Provide a rationale for your response. FIN534 Week 8 Homework Set 4 Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. This homework assignment is worth 100 points. Use the following information for Questions 1 through 5: Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows: EXPECTED NET CASH FLOWS: Year Project A Project B 0 −$400 −$650 1 −528......

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...FIN 534 Week 8 Homework Set 4 Use the following information for Questions 1 through 5: Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows: EXPECTED NET CASH FLOWS: Year Project A Project B 0 −$400 −$650 1 −528 210 2 −219 210 3 −150 210 4 1,100 210 5 820 210 6 990 210 7 −325 210 1. Construct NPV profiles for Projects A and B. 2. What is each project’s IRR? 3. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? 4. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.) 5. What is the crossover rate, and what is its significance? The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter’s cost of capital for an average-risk project is 10%. Net After-Tax Cash Flows Year P = 0.2 P = 0.6 P = 0.2 0 −$100,000 −$100,000 −$100,000 1 20,000 30,000 40,000 2 20,000 30,000 40,000 3 20,000 30,000 40,000 4 20,000 30,000 40,000 5 20,000 30,000 40,000 5* 0 20,000 30,000 6. Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected values for the net cash flow in......

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...FIN 534 Week 8 Homework Set 4 Purchase here http://chosecourses.com/FIN%20534/fin-534-week-8-homework-set-4 Product Description EXPECTED NET CASH FLOWS: Year Project A Project B 0 −$400 −$650 1 −528 210 2 −219 210 3 −150 210 4 1,100 210 5 820 210 6 990 210 7 −325 210 1. Construct NPV profiles for Projects A and B. 2. What is each project’s IRR? 3. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? 4. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.) 5. What is the crossover rate, and what is its significance? The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter’s cost of capital for an average-risk project is 10%. Net After-Tax Cash Flows Year P = 0.2 P = 0.6 P = 0.2 0 −$100,000 −$100,000 −$100,000 1 20,000 30,000 40,000 2 20,000 30,000 40,000 3 20,000 30,000 40,000 4 20,000 30,000 40,000 5 20,000 30,000 40,000 5* 0 20,000 30,000 6. Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected values for the net cash flow in each year.) 7. Find the best-case and worst-case NPVs. What is the......

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...FIN 534 Week 8 Homework Set 4 Purchase here http://chosecourses.com/FIN%20534/fin-534-week-8-homework-set-4 Product Description EXPECTED NET CASH FLOWS: Year Project A Project B 0 −$400 −$650 1 −528 210 2 −219 210 3 −150 210 4 1,100 210 5 820 210 6 990 210 7 −325 210 1. Construct NPV profiles for Projects A and B. 2. What is each project’s IRR? 3. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? 4. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.) 5. What is the crossover rate, and what is its significance? The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter’s cost of capital for an average-risk project is 10%. Net After-Tax Cash Flows Year P = 0.2 P = 0.6 P = 0.2 0 −$100,000 −$100,000 −$100,000 1 20,000 30,000 40,000 2 20,000 30,000 40,000 3 20,000 30,000 40,000 4 20,000 30,000 40,000 5 20,000 30,000 40,000 5* 0 20,000 30,000 6. Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected values for the net cash flow in each year.) 7. Find the best-case and worst-case NPVs. What is the......

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...FIN 534 Week 4 Homework Set 2 http://homeworklance.com/downloads/fin-534-week-4-homework-set-2/ FIN 534 Week 4 Homework Set 2 Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial analysis techniques. The first section of the test asks you to address these discounted cash flow analysis problems: 1. What is the present value of the following uneven cash flow stream −$50, $100, $75, and $50 at the end of Years 0 through 3? The appropriate interest rate is 10%, compounded annually. 2. We sometimes need to find out how long it will take a sum of money (or something else, such as earnings, population, or prices) to grow to some specified amount. For example, if a company’s sales are growing at a rate of 20% per year, how long will it take sales to double? 3. Will the future value be larger or smaller if we compound an initial amount more often than annually—for example, every 6 months, or semiannually—holding the stated interest rate constant? Why? 4. What is the effective annual rate (EAR or EFF%) for a nominal rate of 12%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily? 5. Suppose that on January 1 you deposit $100 in an account that pays a nominal (or quoted) interest rate of 11.33463%, with interest added (compounded) daily. How much will you have in your account on October 1, or 9 months......

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...FIN 534 Week 8 Homework Set 4 http://homeworklance.com/downloads/fin-534-week-8-homework-set-4/ FIN 534 Week 8 Homework Set 4 Use the following information for Questions 1 through 5: Assume you are presented with the following mutually exclusive investments whose expected net cash flows are as follows: EXPECTED NET CASH FLOWS: Year Project A Project B 0 −$400 −$650 1 −528 210 2 −219 210 3 −150 210 4 1,100 210 5 820 210 6 990 210 7 −325 210 1. Construct NPV profiles for Projects A and B. 2. What is each project’s IRR? 3. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? 4. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.) 5. What is the crossover rate, and what is its significance? Use the following information for Questions 6 through 8: The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter’s cost of capital for an average-risk project is 10%. Net After-Tax Cash Flows Year 0 −$100,000 −$100,000 −$100,000 1 20,000 30,000 40,000 2 20,000 30,000 40,000 3 20,000 30,000 40,000 4 20,000 30,000 40,000 5 20,000 30,000 40,000 5* 0 20,000......

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...FIN 534 Week 8 Homework Set 4 Purchase here http://homeworkonestop.com/FIN%20534/fin-534-week-8-homework-set-4 Product Description EXPECTED NET CASH FLOWS: Year Project A Project B 0 −$400 −$650 1 −528 210 2 −219 210 3 −150 210 4 1,100 210 5 820 210 6 990 210 7 −325 210 1. Construct NPV profiles for Projects A and B. 2. What is each project’s IRR? 3. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? 4. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.) 5. What is the crossover rate, and what is its significance? The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter’s cost of capital for an average-risk project is 10%. Net After-Tax Cash Flows Year P = 0.2 P = 0.6 P = 0.2 0 −$100,000 −$100,000 −$100,000 1 20,000 30,000 40,000 2 20,000 30,000 40,000 3 20,000 30,000 40,000 4 20,000 30,000 40,000 5 20,000 30,000 40,000 5* 0 20,000 30,000 6. Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected values for the net cash flow in each year.) 7. Find the best-case and worst-case NPVs. What is the......

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...FIN 534 Week 4 Homework Set 2 http://homeworklance.com/downloads/fin-534-week-4-homework-set-2/ FIN 534 Week 4 Homework Set 2 Assume that you are nearing graduation and have applied for a job with a local bank. The bank’s evaluation process requires you to take an examination that covers several financial analysis techniques. The first section of the test asks you to address these discounted cash flow analysis problems: 1. What is the present value of the following uneven cash flow stream −$50, $100, $75, and $50 at the end of Years 0 through 3? The appropriate interest rate is 10%, compounded annually. 2. We sometimes need to find out how long it will take a sum of money (or something else, such as earnings, population, or prices) to grow to some specified amount. For example, if a company’s sales are growing at a rate of 20% per year, how long will it take sales to double? 3. Will the future value be larger or smaller if we compound an initial amount more often than annually—for example, every 6 months, or semiannually—holding the stated interest rate constant? Why? 4. What is the effective annual rate (EAR or EFF%) for a nominal rate of 12%, compounded semiannually? Compounded quarterly? Compounded monthly? Compounded daily? 5. Suppose that on January 1 you deposit $100 in an account that pays a nominal (or quoted) interest rate of 11.33463%, with interest added (compounded) daily. How much will you have in your account on October 1, or 9 months......

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...FIN 534 Week 8 Homework Set 4 Purchase here http://chosecourses.com/FIN%20534/fin-534-week-8-homework-set-4 Product Description EXPECTED NET CASH FLOWS: Year Project A Project B 0 −$400 −$650 1 −528 210 2 −219 210 3 −150 210 4 1,100 210 5 820 210 6 990 210 7 −325 210 1. Construct NPV profiles for Projects A and B. 2. What is each project’s IRR? 3. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? 4. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.) 5. What is the crossover rate, and what is its significance? The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter’s cost of capital for an average-risk project is 10%. Net After-Tax Cash Flows Year P = 0.2 P = 0.6 P = 0.2 0 −$100,000 −$100,000 −$100,000 1 20,000 30,000 40,000 2 20,000 30,000 40,000 3 20,000 30,000 40,000 4 20,000 30,000 40,000 5 20,000 30,000 40,000 5* 0 20,000 30,000 6. Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected values for the net cash flow in each year.) 7. Find the best-case and worst-case NPVs. What is the......

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...FIN 534 Week 8 Homework Set 4 Purchase here http://homeworkonestop.com/FIN%20534/fin-534-week-8-homework-set-4 Product Description EXPECTED NET CASH FLOWS: Year Project A Project B 0 −$400 −$650 1 −528 210 2 −219 210 3 −150 210 4 1,100 210 5 820 210 6 990 210 7 −325 210 1. Construct NPV profiles for Projects A and B. 2. What is each project’s IRR? 3. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? 4. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.) 5. What is the crossover rate, and what is its significance? The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter’s cost of capital for an average-risk project is 10%. Net After-Tax Cash Flows Year P = 0.2 P = 0.6 P = 0.2 0 −$100,000 −$100,000 −$100,000 1 20,000 30,000 40,000 2 20,000 30,000 40,000 3 20,000 30,000 40,000 4 20,000 30,000 40,000 5 20,000 30,000 40,000 5* 0 20,000 30,000 6. Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected values for the net cash flow in each year.) 7. Find the best-case and worst-case NPVs. What is the......

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...FIN 534 Week 8 Homework Set 4 Purchase here http://homeworkonestop.com/FIN%20534/fin-534-week-8-homework-set-4 Product Description EXPECTED NET CASH FLOWS: Year Project A Project B 0 −$400 −$650 1 −528 210 2 −219 210 3 −150 210 4 1,100 210 5 820 210 6 990 210 7 −325 210 1. Construct NPV profiles for Projects A and B. 2. What is each project’s IRR? 3. If each project’s cost of capital were 10%, which project, if either, should be selected? If the cost of capital were 17%, what would be the proper choice? 4. What is each project’s MIRR at the cost of capital of 10%? At 17%? (Hint: Consider Period 7 as the end of Project B’s life.) 5. What is the crossover rate, and what is its significance? The staff of Porter Manufacturing has estimated the following net after-tax cash flows and probabilities for a new manufacturing process: Line 0 gives the cost of the process, Lines 1 through 5 give operating cash flows, and Line 5* contains the estimated salvage values. Porter’s cost of capital for an average-risk project is 10%. Net After-Tax Cash Flows Year P = 0.2 P = 0.6 P = 0.2 0 −$100,000 −$100,000 −$100,000 1 20,000 30,000 40,000 2 20,000 30,000 40,000 3 20,000 30,000 40,000 4 20,000 30,000 40,000 5 20,000 30,000 40,000 5* 0 20,000 30,000 6. Assume that the project has average risk. Find the project’s expected NPV. (Hint: Use expected values for the net cash flow in each year.) 7. Find the best-case and worst-case NPVs. What is the......

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