FIN 325 San Diego State University Annual Rate of Return Earned Worksheet

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znelnaamben

Business Finance

Fin 325

San Diego State University

FIN

Description

I will submit the pdf that the teach provided for us for the assignment. The assignment must be 100% on excel and all. the equations have to be formed using and solved with excel

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Fin 325 Fall2020 Assignment 2 Release date: Sept 23, 2020 Due date: Sept 30, 2020 @ 11:59pm Instructions: Please finish this assignment in groups. The maximum number of students in each group is five. The final submitted copy should contain the group number in Canvas (if any), the name and student ID of each group member. The assignment must be finished and submitted through Canvas in an Excel format. No other format will be accepted. Please organize your answer in an easy-to-read way. 1. What annual rate of return is earned on a $3000 investment when it grows to $100,70 in six years? 2. A loan is offered with monthly payment and a 9% APR. What is the loans' effective rate (EAR)? 3. The following table tracks the main components of working capital over the life of a four-year project. 2019 Accounts receivable Inventory Accounts payable 0 76,000 25,500 2020 152,000 131,000 50,500 2021 227,000 131,000 51,000 2022 192,000 96,000 35,500 2023 0 0 0 Assume the total net working capital at the end of 2018 is zero. Calculate net working capital and the cash inflows and outflows due to investment in working capital. 4. Air conditioning for a college dormitory will cost $3.3 million to install and $110,000 per year to operate at current prices. The system should last 17 years. The real cost of capital is 7%, and the college pays no taxes. What is the equivalent annual cost? 5. Deutsche Transport can lease a truck for four years at a cost of €42,000 annually. It can instead buy a truck at a cost of €92,000, with annual maintenance expenses of €22,000. The truck will be sold at the end of four years for €26,500. Ignore taxes. a) What is the equivalent annual cost of buying and maintaining the truck if the discount rate is 12%? b) Which is the better option: leasing or buying? 6. The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs: Year 0 1 2 3 4 Machine A $47,000 11,400 11,400 11,400 Machine B $57,000 10,800 10,800 10,800 10,800 Assume a 10% discount rate and ignore taxes. a) What is the equivalent annual cost of each machine? b) Which machine should the company buy? 7. Machine B is expected to produce the following real cash flows: Machine B Cash Flows ($ thousands) C0 C1 C2 −121 111 122 C3 134 Machine C was purchased five years ago for $200,000 and produces an annual real cash flow of $75,000. It has no salvage value but is expected to last another five years. The company can replace machine C with machine B either now or at the end of five years. The opportunity cost of capital is 11%. When should the company replace machine C, now or 5 years later? 8. The level of the Syldavian market index is 21,200 at the start of the year and 25,700 at the end. The dividend yield on the index is 4.5%. a) What is the return on the index over the year? b) If the risk-free interest rate is 5%, what is the risk premium over the year? 9. A game of chance offers the following odds and payoffs: Probability 0.2 0.4 0.4 a) b) c) d) Payoff $500 100 0 What is the expected cash payoff? Suppose each play of the game costs $100. What is the expected rate of return? What is the variance of the expected returns? What is the standard deviation of the expected returns? 10. Hyacinth Macaw invests 55% of her funds in stock I and the rest in stock J. The standard deviation of returns on I is 16%, and on J it is 23%. a) Calculate the variance of portfolio returns, assuming the correlation between the returns is 1 b) Calculate the variance of portfolio returns, assuming the correlation is 0.6 c) Calculate the variance of portfolio returns, assuming the correlation is zero. 11. Here are some historical data on the risk characteristics of Ford and Harley Davidson. Harley Ford Davidson 1.36 0.87 Beta Annual Standard Deviation of return (%) 32.4 16.2 a) The correlation coefficient of Ford’s return versus Harley Davidson is 0.41. What is the standard deviation of a portfolio invested half in each share? b) What is the standard deviation of a portfolio invested one-third in Ford, one-third in Harley Davidson, and one-third in risk-free Treasury bills? (Hint: treat the whole portfolio as a portfolio in part a) plus risk-free assets. You need to figure out the new weights.) 12. Epsilon Corp. is evaluating an expansion of its business. The cash-flow forecasts for the project are as follows: Years Cash Flow ($millions) 0 −250 1 2 3 4 5 6 7 8 9 10 53 53 53 53 53 53 53 53 53 53 The firm's existing assets have a beta of 1.2. The risk-free interest rate is 3% and the expected return on the market portfolio is 12%. What is the project's NPV? 13. The total market value of the common stock of the Okefenokee Real Estate Company is $9.5 million, and the total value of its debt is $6.1 million. The treasurer estimates that the beta of the stock is currently 1.6 and that the expected risk premium on the market is 9%. The Treasury bill rate is 5%. Assume for simplicity that Okefenokee debt is risk-free and the company does not pay tax. a) What is the required return on Okefenokee stock? b) Estimate the company cost of capital. 14. You are given the following information for Golden Fleece Financial: Long-term debt outstanding: $ Current yield to maturity (rdebt): 450,000 8% Number of shares of common stock: 17,500 Price per share: $ 50.5 Book value per share: $ 29 Expected rate of return on stock (requity): 15% Calculate Golden Fleece's company cost of capital. Ignore taxes. 15. A company is 42% financed by risk-free debt. The interest rate is 12%, the expected market risk premium is 10%, and the beta of the company’s common stock is 0.52. What is the after-tax WACC, assuming that the company pays tax at a 40% rate? 16. Emperor’s Clothes Fashions can invest $5.38 million in a new plant for producing invisible makeup. The plant has an expected life of five years, and expected sales are 6.38 million jars of makeup a year. Fixed costs are $2.95 million a year, and variable costs are $1.95 per jar. The product will be priced at $2.95 per jar. The plant will be depreciated straight-line over five years to a salvage value of zero. The opportunity cost of capital is 10%, and the tax rate is 40%. a) What is project NPV under these base-case assumptions? b) What is NPV if variable costs turn out to be $2.15 per jar? c) What is NPV if fixed costs turn out to be $2.45 million per year? d) At what price per jar would project NPV equal zero?
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Explanation & Answer

Hi,PFA the solution. Thanks!

Future Value
Present Value
Time

Interest rate

10070
3000
6 years

22.36%

APR

9%

EAR

9.38%

Accounts Receivable
Inventory
Accounts Payable
Net Working Capital
Investment in Working capital

2019
0
76000
25500
$50,500
-$50,500

2020
152000
131000
50500
$232,500
-$182,000

2021
227000
131000
51000
$307,000
-$74,500

2022
192000
96000
35500
$252,500
$54,500

2023
0
0
0
$0
$252,500

Installation cost
Operational cost
No of years
cost of capital
PV of project
EAC

300000
110000
17
7%
$1,373,954.53
$140,727.56

Purchase price
Annual maintenance cost
Salvage price
Life
Discount rate

a)
b)

92000
22000
26500
4
12%

PV
141,980.46
EAC
$46,744.86
EAC of leasing is lower and hence the better option is to lease

Year

Machine A
0
1
2
3
4

i)
ii)

47000
11400
11400
11400

Machine B
57000
10800
10800
10800
10800

PV
75,350.11 91,234.55
EAC
$30,299.40 $28,781.84
As EAC of Machine B is lower, company should buy Machine B

Discount rate

10%

Machine
B

C0

C1
-121

NPV
EAW

$

175,997.582
$72,020.51

EAW of Machine C

$

75,000.00

C2
111

C3
122

...


Anonymous
Just what I was looking for! Super helpful.

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