Finance Answers

Calculate the future value at the end of year 3 of an investment fund earning 12 percent annual interest and funded with the following end-of-year deposits: £750 in at the end of year 1, £850 and at the end of year 2 and £950 at the end of year 3.

The Chadmark Corporation's budgeted monthly sales are $3,000. In the first month, 40% of its customers pay and take the 2% discount.
The remaining 60% pay in the month following the sale and don't receive a discount.
Chadmark's bad debts are very small and are excluded from this analysis. Purchases for next month's sales are constant each month at $1,500.
Other payments for wages, rent, and taxes are constant at $700 per month. Construct a single month's cash budget with the information given.

Which is the average cash gain or (loss) during a typical month for the Chadmark Corporation?

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A small company has developed a new product for the electronics industry. The company believes that an advertising campaign costing R2000 would give the product a 70% chance of success. It estimates that a product with this advertising support would provide a return of R11000 if successful and return of R2000 if it not successful. Past experience suggests that without advertising support a new product of this kind would have a 50% chance of success giving a return of R10000 if successful and a return of R1500 if not successful. Construct a decision tree and write a report advising the company on its best course of action.

A project generates net (after-tax) cash flows of $20 million every year for 4 years. The investment is $48 million. The tax rate is 40%. The firm has a target debt ratio (debt ratio = debt/value) of 45%.

The firm’s current bonds have 5 years left to maturity, a coupon rate of 7% with annual coupons, a face value of $1000 and currently trade for $960. The (before-tax) cost on any new debt will be the same as the yield to maturity on the current bonds.

For the equity, they will use $6,000,000 in preferred stock and the rest will be from retained earnings. The preferred stock has a dividend of $4 with a price of $42. Issue costs on preferred stock are $2.

To estimate the cost of retained earnings, the firm expects to pay a dividend of $2.5 per share next year. The retention rate is 40% and the return on equity is 25%. The current stock price is $50.

Use the weighted average cost of capital (WACC) to find the net present value (NPV) of the project.

Kdua Products is considering a new project that requires an investment of $24 million in machinery. This is expected to produce sales of $65 million per year for 3 years. Operating expenses are 70% of sales. The machinery will be fully depreciated to a zero book value over 3 years using straight-line depreciation. There is no salvage value. There is an initial investment of $3 million in net working capital. At the end of year 3, the firm gets $2 million back in net working capital. The tax rate is 40%. You estimate that Whoopee will have a residual value of $12 million at the end of the 3 years. The unlevered return on assets is 11%.
a) Calculate the base-case NPV (net present value).
b) Kdua plans to use $8,000,000 in debt at 6% to fund the project. Use Adjusted Present Value (APV) to find the value of the project. The debt has a three-year life.

Texas Wildcatters Inc. (TWI) is in the business of finding and developing oil properties, and then selling the successful ones to major oil refining companies. TWI is now considering a new potential field, and its geologists have developed the following data, in thousands of dollars.
t = 0. A $400 feasibility study would be conducted at t = 0. The results of this study would determine if the company should commence drilling operations or make no further investment and abandon the project.t = 1. If the feasibility study indicates good potential, the firm would spend $1,000 at t = 1 to drill exploratory wells. The best estimate is that there is an 80% probability that the exploratory wells would indicate good potential and thus that further work would be done, and a 20% probability that the outlook would look bad and the project would be abandoned.t = 2. If the exploratory wells test positive, TWI would go ahead and spend $10,000 to obtain an accurate estimate of the amount of oil in the field at at t

What is Rolling Budget? How does it differ from flexible Budget? What purpose do these budgets serve?

What do you understand by Budgetary Control? How is it exercised? What steps should be taken for installing Budgetary Control System in an organization? Discuss.

What is the traditional payback period (PB) of a project that costs $450,000 if it is expected to generate $120,000 per year for five years? If the firm’s required rate of return is 11 percent, what is the project’s discount payback period ( DPB)