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Assume that Hogan Surgical Instruments Co. has $2,700,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 15 percent, but with a high-liquidity plan, the return will be 11 percent. If the firm goes with a short-term financing plan, the financing costs on the $2,700,000 will be 7 percent, and with a long-term financing plan, the financing costs on the $2,700,000 will be 9 percent. a. Compute the anticipated return after financing costs with the most aggressive asset-financing mix. Anticipated return $ 160,000 b. Compute the anticipated return after financing costs with the most conservative asset-financing mix. Anticipated return $ 40,000 c. Compute the anticipated return after financing costs with the two moderate approaches to the asset-financing mix. Anticipated Return Low liquidity High liquidity

Assume that Hogan Surgical Instruments Co. has $3,400,000 in assets. If it goes with a low-liquidity plan for the assets, it can earn a return of 17 percent, but with a high-liquidity plan, the return will be 13 percent. If the firm goes with a short-term financing plan, the financing costs on the $3,400,000 will be 9 percent, and with a long-term financing plan, the financing costs on the $3,400,000 will be 11 percent. a. Compute the anticipated return after financing costs with the most aggressive asset-financing mix. Anticipated return b. Compute the anticipated return after financing costs with the most conservative asset-financing mix. Anticipated return c. Compute the anticipated return after financing costs with the two moderate approaches to the asset-financing mix.

Jolly Banker is calculating the loan price for a $500,000 operating loan to Kelly business. If approved, this loan will be funded with 35% equity capital, and the remaining funds will come from the bank's debt capital. You have the following information about your bank’s outlays: Administrative costs 0.45% Cost of debt 7.00% Cost of equity 5.00% Probability of loss 0.55% Fees paid by the borrower 1.00% Calculate the weighted average cost of debt for this funding request. (Enter your answer in percentage. Round your answer to 2 decimal places)

The firm earns 5% on current assets and 15% on fixed assets. The firm's current liabilities cost 7% to maintain and the average annual cost of long-term funds is 20 %. Calculate the firm's initial net working capital. Calculate the firm's initial ratio of current assets to total assets. Critically evaluate THREE (3) advantages of commercial paper that usually used by the largest and most credit-worthy companies.

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Guardian Inc. is trying to develop an asset-financing plan. The firm has $400,000 in temporary current assets and $300,000 in permanent current assets. Guardian also has $500,000 in fixed assets. Assume a tax rate of 40 percent.      a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 75 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 15 percent on long-term funds and 10 percent on short-term financing. Compute the annual interest payments under each plan. b. Given that Guardian’s earnings before interest and taxes are $200,000, calculate earnings after taxes for each of your alternatives. c. What would the annual interest and earnings after taxes for the conservative and aggressive strategies be if the short-term and long-term interest rates were reversed?

es Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 11 percent return and can be financed at 6 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 9 percent return but would cost 15 percent to finance through common equity. Assume debt and common equity each represents 50 percent of the firm's capital structure. a. Compute the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Weighted average cost of capital % b. Which project(s) should be accepted? Piece of equipment New machine

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Speedy Delivery Systems can buy a piece of equipment that is anticipated to provide an 6 percent return and can be financed at 3 percent with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yield a 14 percent return but would cost 16 percent to finance through common equity. Assume debt and common equity each represent 50 percent of the firm's capital structure. a. Compute the weighted average cost of capital. Note: Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places. Weighted average cost of capital b. Which project(s) should be accepted? O New machine. O Piece of equipment. %

Give typing answer with explanation and conclusion SeattleHealth Plans currently uses zero-debt financing. Its operating profit is $1 million, and it pays taxes at a 23 percent rate. It has $8 million in assets and, because it is all-equity financed, $8 million in equity. Suppose the firm is considering replacing 22 percent of its equity financing with debt financing that bears an interest rate of 5 percent.   What impact would the new capital structure have on the firm's profit?

Speckle Delivery Systems can buy a piece of equipment that is anticipated to provide an 8% return and can be financed at 5% with debt.  Later in the year, the company turns down an opportunity to buy a new machine that would yield a 15% return but would cost 17% to finance through common equity.  Assume debt and common equity each represent 50% of the company’s capital structure.   Compute the weighted average cost of capital (WACC). Which product(s) should be accepted in your opinion? Why?

Park Company is considering an investment that requires immediate payment of $27,215 and provides expected cash inflows of $8,400 annnually for four years. Assume Park Company requires a 8% return on it's investments. A. What is the net Present Value of this investment? (PV of $1, FV of $1, PVA of $1 and FVA of $1) B. Based on NPV alone, should Park Company invest?

Turner Video will invest $64,500 in a project. The firm's cost of capital is 6 percent. The investment will provide the following inflows. Use Appendix A for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 Inflow $ 18,000 20,000 24,000 28,000 32,000 The internal rate of return is 10 percent. a. If the reinvestment assumption of the net present value method is used, what will be the total value of the inflows after five years? (Assume the inflows come at the end of each year.) Note: Do not round intermediate calculations and round your answer to 2 decimal places. Total value of inflows b. If the reinvestment assumption of the internal rate of return method is used, what will be the total value of the inflows after five years? Note: Use the given internal rate of return. Do not round intermediate calculations and round your answer to 2 decimal places. Total value of inflows

Guardian Incorporated is trying to develop an asset-financing plan. The firm has $390,000 in temporary current assets and $290,000 in permanent current assets. Guardian also has $490,000 in fixed assets. Assume a tax rate of 40 percent. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 90 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest rate is 12 percent on long-term funds and 8 percent on short-term financing. Compute the annual interest payments under each plan.   Given that Guardian’s earnings before interest and taxes are $270,000, calculate earnings after taxes for each of your alternatives.   What would the annual interest and earnings after taxes for the conservative and aggressive strategies be if the short-term and long-term interest rates were reversed?

Suppose that Seattle Health Plans use zero-debt financing. It's operating profit is $1 million, and it pays taxes at a 40 percent rate. It has $5 million in assets and, because it is all equity financed, $5 million equity. The firm's profit, total dollar return to investors, and return on equity under these conditions are listed below. Suppose that the firm is considering replacing half of its equity financing with debt financing that bears an interest rate of 8 percent  A) What impact would the new capital structure have on the firm's profit, total dollar return to investors, and return on equity? B) Redo the analysis, but now assume that the debt financing would cost 15 percent. C) Repeat the analysis required for question A, but now assume that Seattle Health Plans is a not-for-profit corporation and hence pays no taxes. Balance Sheets        Total Assets  $5,000,000 Debt $0 Common stock (=equity) $5,000,000 Total liabilities & equity  $5,000,000     Income…

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) You are asked to estimate the RAROC of a bank's $100 million loan business, 7.5% of which is the economic capital. The average interest rate is 8%. All the loans have the same default probability of 1.5% with a loss given default of 60%. Operating costs are $15 million, and the funding cost of the business is $30 million. The economic capital is invested and earns 6%.

Kohwe Corporation plans to issue equity to raise $50.7 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10.4 million each year. Kohwe's only asset is this investment opportunity. Suppose the appropriate discount rate for Kohwe's future free cash flows is 7.7%, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of Kohwe's investment? b. What is the value of Kohwe if it finances the investment with equity? a. What is the NPV of Kohwe's investment? The NPV of Kohwe's investment is $ million. (Round to two decimal places.) b. What is the value of Kohwe if it finances the investment with equity? The Kohwe finances stment with equity $ million. (Round decimal places.)

Montclair Company is considering a project that will require a $500,000 loan. It presently has total liabilities of $220,000 and total assets of $620,000. 1. Compute Montclair’s (a) current debt-to-equity ratio and (b) the debt-to-equity ratio assuming it borrows $500,000 to fund the project. 2. If Montclair borrows the funds, does its financing structure become more or less risky?

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Seattle Health Plans currently uses zero-debt financing. Its operating profit is $1 million, and it pays taxes at a 40 percent rate. It has $5 million in assets and, because it is all-equity financed, $5 million in equity. Suppose the firm is considering replacing half of its equity financing with debt financing that bears an interest rate of 8 percent. What impact would the new capital structure have on the firm’s profit, total dollar return to investors, and return on equity? Redo the analysis, but now assume that the debt financing would cost 15 percent. Repeat the analysis required for part a, but now assume that Seattle Health Plans is a not-for-profit corporation and hence pays no taxes. Compare the results with those obtained in part a

A firm has two possible investments with the following cash inflows. Each investment costs $435, and the cost of capital is seven percent. Use Appendix B and Appendix D to answer the questions. Assume that the investments are not mutually exclusive and there are no budget restrictions.     Cash Inflows Year A   B 1 $ 270 $ 170 2   140   170 3   100   170   Based on each investment’s net present value, which investment(s) should the firm make? Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar. Investment A: $   Investment B: $   The firm should make  . Based on each investment’s internal rate of return, which investment(s) should the firm make? Round your answers to the nearest whole number. Investment A:   % Investment B:   % The firm should make  . Is this the same answer you obtained in part b? It  the same answer as obtained in part b. If the cost of capital were to increase to 9 percent, which investment(s) should the firm…