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What is the break-even rate in case

What is the break-even rate in case

What is the break-even rate in case

Financial Management

Acme has branched out to rentals of office furniture to start-up companies.
Consider a $4,600 desk. Desks last for six years and can be depreciated on a
five-year MACRS schedule. Assume administrative costs drop to $360 per year.
The cost of capital is 9% and the tax rate is 35%. Lease payments are made in
advance, that is, at the start of each year. The inflation rate is zero.
Suppose a blue-chip company requests a six-year financial lease for a $4,600
desk. The company has just issued five-year notes at an interest rate of 6%
per year. What is the break-even rate in this case?

Prepare a revised budget for the stratton township park

Prepare a revised budget for the stratton township park

 

Prepare a revised budget for the stratton township park

Financial Management

 

The Stratton Township Park” on pages 308-311 in your course textbook. Complete
questions 1-5 listed below and found on pages 310-311 using the information
found in the case study and any of the required reading. Compile your answers
in a Word document, and upload it in Blackboard.

Question 1:

Prepare an annual program budget for the Stratton Township Park including golf
operations; the pool; concerts; other park activities including tours, nature
visitors, and general concessions; and administrative costs. Show the line-
item details for each function by natural account and summarize the budget for
the park as a whole.

Because of the current fiscal situation, the Stratton Township needs to reduce
its operating costs. As usual, the park is on the list of targeted operations.
As the finance director for the township, you have been asked to work with the
park’s manager to explore possible options.

Question 2:

Based on the information in the budget, find the break-even green fees for the
golf course and the break-even admissions charges for the pool. You may assume
that the volume of users will not change with increases in pricing. You may
also assume that the course will operate for a full 130 days.

a) Do both break even analyses based on the cost of delivering services with
and without the allocated management salaries.

b) Do you think the park can realistically charge these fees to park users?
What might the consequences of raising fees be economically, politically, and
in a public relations sense?

Question 3:

The park manager wants to know whether it makes sense to shut down one or more
of the operations at the Stratton Township Park. Determine the impact of
shutting down the golf course, the pool, the concert series, and the tours,
and show the overall marginal impact of making each of these changes. Be sure
to include all marginal revenues and all marginal expenses in your
calculations.

Question 4:

After completing these analyses, the manager has decided to recommend three
changes to the Park’s budget.

First, he plans to increase green fees for golf to $5 above the break-even
price excluding allocated management costs and rounded to the next highest
multiple of $.50. Since competitive private clubs in the region cost $100 or
more for a round of golf, he does not believe that an increase in price will
result in a decline in the number of golfers using the course.

Second, he wants to raise pool admission charges to $4.50. Given the
demographics of those who use the pool, he believes that raising prices by
$1.00 will result in a 5% drop in attendance.

Third, he wants to eliminate three of the concerts the township had planned
for the next year.

Prepare a revised budget for the Stratton Township Park reflecting these
changes. Will these budget modifications meet the township’s goal of reducing
the subsidy it would have given to the park in the next fiscal year by 20%?

Question 5:

After receiving your analysis of the impact of eliminating the concerts and
raising green fees and pool admission charges, the park manager has asked you
to come up with some additional proposals for meeting the township’s subsidy
reduction goal. What would you recommend?

Assignment 2

Question 1

Donations in cash are easy to measure. What is the treatment that not-for-
profit organizations use for donated goods and services?

Question 2

How does the accounting industry define a not-for-profit organization and a
voluntary health and welfare organization (VHWO)?

Question 3

Distinguish between the way investor owned and not-for-profit healthcare
organizations treat investments.

Question 4

To what extent do not-for-profit organizations have the ability to choose
among the following:

a. using depreciation,
b. ignoring depreciation,
c. maintaining building and equipment on the balance sheet at their original
cost,
d. showing such assets at their market value,or
e. completely charging such assets such as expenses in the year acquired?

 

Express the log returns in percentages

Express the log returns in percentages

 

Express the log returns in percentages

Financial Management

Answer the same questions as Exercise 1.1 but using monthly stock returns for
IBM, CRSP value-weighted index (VW), CRSP equal-weighted index (EW), and S&P
composite index from January 1975 to December 2003. The returns of the indexes
include dividend distributions. Data file is m-ibm3dx7503.txt.

Exercise 1.1
Consider the daily stock returns of American Express (axp), Caterpillar (cat),
and Starbucks (sbux) from January 1994 to December 2003. The data are simple
returns given in the file d-3stock.txt (date, axp, cat, sbux).

(a) Express the simple returns in percentages. Compute the sample mean,
standard deviation, skewness, excess kurtosis, minimum, and maximum of the
percentage simple returns.

(b) Transform the simple returns to log returns.

(c) Express the log returns in percentages. Compute the sample mean, standard
deviation, skewness, excess kurtosis, minimum, and maximum of the percentage
log returns.

(d) Test the null hypothesis that the mean of the log returns of each stock is
zero. (Perform three separate tests.) Use 5% significance level to draw your
conclusion.

 

49

Method used in valuing common stock

Method used in valuing common stock

Method used in valuing common stock

Financial Management

1. Which of the following is not a method used in valuing common stock?

Dividend Growth Model

Free cash Flow Valuation Model

Market Multiples

Residual Dividend Model

2. If the risk-free rate is 4%, the market risk premium is 6%, what is the
required rate of return on a stock with a beta of 1.5?

2%

10%

13%

11.5%

 

What would be the bonds current yield

What would be the bonds current yield

 

What would be the bonds current yield

Financial Management

1- Suppose that you read in The Wall Street Journal that a bond has a coupon
rate of 9 percent, a price of 71.375% (of face value) , and pays interest
annually. Rounded to the nearest whole percent, what would be the bond’s
“current� yield?

a. 11%

b. 13%

c. 15%

d. 17%

e. 20%

2- A 12-year bond has a 9 percent annual coupon, a yield to maturity of 8
percent, and a face value of $1,000. What is the price of the bond?

a. $1,469

b. $1,000

c. $ 928

d. $1,075

e. $1,957

3. Tuttle Enterprises is considering a project that has the following cash
flow and WACC data. What is the project’s NPV? Note that if a project’s
projected NPV is negative, it should be rejected.

WACC: 12.00%

Year 0 1 2
3 4

Cash flows -$1,000 $350 $350 $350 $350

a. $77.49

b. $81.56

c. $63.05

d. $90.15

e. $94.66

 

Determine cost of debt

Determine cost of debt

Determine its cost of debt

Financial Management

Advance, Inc., is trying to determine its cost of debt. The firm has a debt
issue outstanding with 20 years to maturity that is quoted at 109 percent of
face value. The issue makes semiannual payments and has a coupon rate of 6
percent annually

What is the rear of the least expensive type of credit

What is the rear of the least expensive type of credit

What is the rear of the least expensive type of credit

The Proctor Company must arrange $235,000 financing for its working capital
requirements for the coming year. Proctor can (a) borrow from its bank on a
simple interest basis (interest payable at the end of the loan) for one year
at 7.8 percent simple rate, (b) borrow on a three-month, renewable loan at a
7.6 percent simple interest rate, or (c) borrow on an instalment loan basis at
6.0 percent add-on rate with 12 end-of-month payments. What is the rEAR of the
least expensive type of credit?

Manufacturer of ball bearings-cost of equity capital

Manufacturer of ball bearings-cost of equity capital

Manufacturer of ball bearings-cost of equity capital

Financial Management

The following data pertains to Zolar Corp., a manufacturer of ball bearings
(dollar amounts in millions). Total Assets $6,840 Interest-Bearing Debt $3,562
Average Pre-tax borrowing cost 11.5% Common Equity: Book Value $2,560 Market
Value $12,850 Income Tax Rate 35% Market Equity Beta 1.24 Assuming that
riskless rate is 4.2% and the market premium is 6.2%, calculate Zolar’s cost
of equity capital (i.e. the required rate of return on equity):

What is the price of call option with the same strike price

What is the price of call option with the same strike price

What is the price of call option with the same strike price

Financial Management

A put option is currently selling for $5.7. It has a strike price of $50 and
seven months to maturity. The current stock price is $57. The risk-free rate
is 4.6 percent, and the stock will pay a $2.7 dividend in two months. What is
the price of a call option with the same strike price?