EBK FINANCIAL MARKETS AND INSTITUTIONS
7th Edition
ISBN: 9781260166101
Author: SAUNDERS
Publisher: YUZU
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Chapter 4, Problem 4Q
Summary Introduction
To discuss: Primary responsibilities of Federal Reserve Board.
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A food processing company is considering replacing essential
machinery. Cost and relevant cash flow details are provided in
the table at the right. The company requires an 11% return on
its capital.
a) What is the present value of the yearly cash flows? Use a
Time Value of Money function for full credit. (round to nearest
dollar)
b) What is the net present value of the project? (round to
nearest dollar)
c) What is the internal rate of return of the project? Use a
Time Value of Money function for full credit. (round to two
decimal places)
Chapter 4 Solutions
EBK FINANCIAL MARKETS AND INSTITUTIONS
Ch. 4 - Prob. 1DYUCh. 4 - Prob. 2DYUCh. 4 - Prob. 3DYUCh. 4 - Prob. 4DYUCh. 4 - Prob. 5DYUCh. 4 - Prob. 6DYUCh. 4 - Prob. 7DYUCh. 4 - Prob. 8DYUCh. 4 - Prob. 9DYUCh. 4 - Prob. 10DYU
Ch. 4 - Prob. 11DYUCh. 4 - Prob. 1QCh. 4 - Prob. 2QCh. 4 - Prob. 4QCh. 4 - Prob. 5QCh. 4 - Prob. 6QCh. 4 - Prob. 7QCh. 4 - Prob. 8QCh. 4 - Prob. 9QCh. 4 - Prob. 10QCh. 4 - Prob. 11QCh. 4 - Prob. 12QCh. 4 - Prob. 13QCh. 4 - Prob. 14QCh. 4 - Prob. 15QCh. 4 - Prob. 16QCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7PCh. 4 - Prob. 8P
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- what is the firms' weighted average cost of capital? please show me weight calculation for each capital source.arrow_forwardA small manufacturer is considering an equipment replacement project. The new equipment would have an installed cost of $125,000 and would replace existing equipment that was purchased 3 years ago at an installed cost of $80,000. If the company moves forward with the replacement, it could sell the old equipment for $25,000. Purchasing the new equipment would result in the company's current assets increasing by $12,000 and current liabilities increasing by $9,000. The company uses the 5-year MACRS table for depreciation, and is taxed at 21%. a) What is the accumulated depreciation of the old equipment? b) What is the current book value of the old equipment? c) What is the amount of depreciation recapture/recovery? d) What is the tax on the sale of the old equipment? e) What are the after-tax proceeds from the sale of the old equipment? f) What is the change in Net Working Capital? g) What is the initial investment for the project?arrow_forwardLast year Lewis Bank paid an annual dividend of $7 per share. The bank expects the growth of its dividends to be stable at 2% per year going forward. a) If investors require an 8% return, what is the current value of Lewis Bank's stock? (round to nearest cent) b) If the stock currently trades at $124.55 per share, what is the dividend growth rate investors expect? (round to nearest percent)arrow_forward
- A food processing company is considering replacing essential machinery. Cost and relevant cash flow details are provided in the table at the right. The company requires an 11% return on its capital. a) What is the present value of the yearly cash flows? Use a Time Value of Money function for full credit. (round to nearest dollar) b) What is the net present value of the project? (round to nearest dollar) c) What is the internal rate of return of the project? Use a Time Value of Money function for full credit. (round to two decimal places)arrow_forwardBarnsa is planning to raise a total of $5,000,000 with a bond issue. Each of the bonds has a face (par) value of $1,000 and coupon rate of 4%. The company's applicable tax rate is 21%. a) What is the annual coupon payment, per bond, that investors expect to receive? b) What is the total after-tax annual interest expense to Barnsa?arrow_forwardA team of analysts is using a two-stage variable growth model to estimate the value of GNC's common stock. The most recent annual dividend paid by GNC was $4 per share. The analysts expect dividends to increase 7% per year for the next 3 years and then drop to 3% starting in year 4 and remain at that rate for the foreseable future. The required rate of return used for the analysis is 8%. a) What are the expected dividends for the next 4 years? b) What is the value of the stock attributable to the first 3 years of dividends? (use NPV function) c) What is the value of the stock at the end of year 3? (use constant-growth model) Use a cell reference in the numerator to get an unrounded, more precise, answer figure. d) What is the value of the stock attributable to years 4 and beyond? (use pv function, where answer to part C is the fv) e) What is the total value of GNC stock?arrow_forward
- An investor is buying a bond that pays semi-annual interest. The par value is $900 and the coupon rate is 6%. The investor plans to hold the bond to its maturity, which is 5 years from now. If her typical required rate of return is 7%, what is the most the investor should pay for the bond? Use a Time Value of Money function for full credit. (round to nearest cent)arrow_forwardIRR: Mutually exclusive projects Nile Inc. wants to choose the better of two mutually exclusive projects that expand warehouse capacity. The projects' cash flows are shown in the following table: The cost of capital is 18%. a. Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs. b. Which project is preferred? a. The internal rate of return (IRR) of project X is %. (Round to two decimal places.) Is project X acceptable on the basis of IRR? (Select the best answer below.) Yes No The internal rate of return (IRR) of project Y is %. (Round to two decimal places.) Is project Y acceptable on the basis of IRR? (Select the best answer below.) ○ Yes Ο No b. Which project is preferred? (Select the best answer below.) A. Project X B. Project Y C. Neitherarrow_forwardA preferred stock has a par value of $105 and pays an annual dividend of 3% of par. If similar investments have an annual rate of return of 5%, what is the current value of this preferred stock. (round to nearest cent)arrow_forward
- Common stock value-Variable growth Lawrence Industries' most recent annual dividend was $1.82 per share (Do = $1.82), and the firm's required return is 15%. Find the market value of Lawrence's shares when dividends are expected to grow at 30% annually for 3 years, followed by a 6% constant annual growth rate in years 4 to infinity. The market value of Lawrence's shares is $ (Round to the nearest cent.)arrow_forwardDepreciation A firm is evaluating the acquisition of an asset that costs $68,400 and requires $3,990 in installation costs. If the firm depreciates the asset under MACRS, using a five-year recovery period (see table |), determine the depreciation charge for each year. The annual depreciation expense for year 1 will be $ The annual depreciation expense for year 2 will be $ The annual depreciation expense for year 3 will be $ The annual depreciation expense for year 4 will be $ The annual depreciation expense for year 5 will be $ The annual depreciation expense for year 6 will be $ (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.) (Round to the nearest dollar.)arrow_forwardIntegrative Risk and valuation Giant Enterprises' stock has a required return of 15.9%. The company, which plans to pay a dividend of $2.22 per share in the coming year, anticipates that its future dividends will increase at an annual rate consistent with that experienced over 2016-2022 period, when the following dividends were paid: a. If the risk-free rate is 6%, what is the risk premium on Giant's stock? b. Using the constant-growth model, estimate the value of Giant's stock. (Hint: Round the computed dividend growth rate to the nearest whole percent.) c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock. a. If the risk-free rate is 6%, the risk premium on Giant's stock is %. (Round to one decimal place.) (Round to the nearest cent.) b. Using the constant-growth model, the value of Giant's stock is $ c. Explain what effect, if any, a decrease in the risk premium would have on the value of Giant's stock. (Select from the drop-down…arrow_forward
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