Finance Answers

The plant investment, expected to amount to $200 million, has been planned for 2017; however, it is delayed due to the economic downturn in construction. When the plant is completed and operating at full capacity, based upon the projected needs and cost per metric ton, it is possible that the plant could generate as much as $50,000,000 annually in revenue.

All analysis will use a planning horizon of 5 years commencing when the plant begins operation.

Delays beyond the anticipated implementation year of 2017 will require additional money to construct the factory. Assuming that the cost of money is 10% per year, compound interest, draw the cash flow diagram and determine the following:

a) The equivalent investment needed if the plant is built in 2020.

b) The equivalent investment needed had the plant been constructed in the year 2013.

c) Will the initial investment be recovered over the 5-year horizon with the time value of money considered?

An irrigation canal contractor wants to determine whether he should purchase a new Caterpillar mini excavator or a used one. The initial cost of the new excavator is $26,500 and has a lifetime of 10 years. Fixed costs for insurance are expected to be $8,000 per year. The excavator will require one operator at $15 per hour and maintenance at $1 per hour. In 1 hour, 0.16 mile of ditch can be prepared.


Alternatively, the contractor can purchase the used one and hire 2 workers at $11 per hour each. The used excavator costs $1000 and has a useful life of 5 years with no salvage value. Its operating cost is expected to be $1.20 per hour, and with the tiller, the two workers can prepare 0.04 mile of ditch in 1 hour.


Determine the number of miles of ditch per year the contractor would have to service for the two options to break even.

Alyssa Clark is evaluating her debt safety ratio. Her monthly take- home pay is $3,320. Each month, she pays $380 for an auto loan, $120 on a personal line of credit, $60 on a department store charge card, and $85 on her bank credit card. Complete Worksheet 6.1 by listing Alyssa’s outstanding debts, and then calculate her debt safety ratio. Given her current take-home pay, what is the maximum amount of monthly debt payments that Alyssa can have if she wants her debt safety ratio to be 12.5 percent? Given her current monthly debt payment load, what would Alyssa’s take-home pay have to be if she wanted a 12.5 percent debt safety ratio?

Suppose you observe the following situation:



Security

Beta

Expected Return

Pete Corp.



1.30





.140



Repete Co.



.99





.113






a.

Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b.

What is the risk-free rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

A stock has an expected return of 12.2 percent, the risk-free rate is 6 percent, and the market risk premium is 10 percent. What must the beta of this stock be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.50 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

What is the value today of $3,100 per year, at a discount rate of 9 percent, if the first payment is received 5 years from today and the last payment is received 15 years from today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

“An increase in domestic relative to foreign nominal interest rates will lead to a domestic currency appreciation in some, but not all, of the following three models: (i) the flexible price monetary model (ii) the open-economy IS-LM model and (iii) the Dornbusch overshooting model”.

1. A privately owned summer camp for youngsters hasthe followingdata for a 12-weeksession:

Charge per camper $120 per week

Fixed costs $48,000 per session

Variable cost per camper $80 per week

Capacity 200 campers


(a) Develop the mathematical relationships for totalcost and total revenue.

(b) What is the total number of campers that willallow the camp to just break even?

(c) What is the profit or loss for the 12-week sessionif the camp operates at 80% capacity?

Storico Co. just paid a dividend of $2.10 per share. The company will increase its dividend by 20 percent next year and then reduce its dividend growth rate by 5 percentage points per year until it reaches the industry average of 5 percent dividend growth, after which the company will keep a constant growth rate forever. If the required return on the company's stock is 11 percent, what will a share of stock sell for today? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)