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1. Find the profitability index (PI) for the following series of future cash flows, assuming the company's cost of capital is 12.73 percent. The initial outlay is $331,933. Year 1: $179,712 Year 2: $192,401 Year 3: $177,672 Year 4: $194,029 Year 5: $167,866 Round the answer to two decimal places. 2. Fresh Fruit, Inc. has a $1,000 par value bond that is currently selling for $1,377. it has an annual coupon rate of 16.09 percent, paid semiannually, and has 14-years remaining until maturity. What would the annual yield to maturity be on the bond if you purchased the bond today and held it until maturity? Round to the nearest two decimals. 3. Deep Waters, Inc is using the internal rate of return (IRR) when evaluating projects. Find the IRR for the company's project. The initial outlay for the project is $335,200. The project will produce the following after-tax cash inflows of Year 1: 121,100 Year 2: 168,200 Year 3: 168,600 Year 4 182,600 Round the answer to two decimal places in percentage form. 4. Cheeseburger and Taco Company purchases 17,079 boxes of cheese each year. It cost $17 to place and ship each order and 7.41 per year for each box held as inventory. The company uses Economic order quantity model in placing the orders. How many orders will be placed each year? Round the answer to the whole number. 5. Marco Chip, INC. just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 29 years and a yield to maturity of 10.13 %, compounded semi- annually. What is the current price of the bond? 1. Find the profitability index (PI) for the following series of future cash flows, assuming the company's cost of capital is 12.73 percent. The initial outlay is $331,933. Year 1: $179,712 Year 2: $192,401 Year 3: $177,672 Year 4: $194,029 Year 5: $167,866 Round the answer to two decimal places. Year Cash flow ($) 1 2 3 4 5 179712 192401 177672 194029 167866 Total Present Value Initial outlay Profitability Index = Total PV/Initial Outlay 1.949774533 Where PVIF = present value interest factor; PV = Present Value PVIF (12.73%) PV 0.887075313 159418.1 0.78690261 151400.8 0.698041879 124022.5 0.619215718 120145.8 0.549290977 92207.28 647194.5 331,933 Rounded off to 1.95 2. Fresh Fruit, Inc. has a $1,000 par value bond that is currently selling for $1,377. It has an annual coupon rate of 16.09 percent, paid semiannually, and has 14-years remaining until maturity. What would the annual yield to maturity be on the bond if you purchased the bond today and held it until maturity? Round to the nearest two decimals. Value of a bond = Present value of the coupon interest + Present value of the face value Monthly coupon interest rate = 8.045% Coupon interest = * 16.09/100 * $1000 = $80.45 Value of the bond = (1-(1+r)-n /r) * $80.45 + (1+r) -n * $1000 Where n = 14years *2 = 28 periods; Value of the bond = $1377; r =? $1377 = (1-(1+r)-28 /r) * $80.45 + (1+r) -28 * $1000 The annual yield to maturity must be lower that the coupon interest rate because the bond is selling at a premium, I.e., above the face value Using excel, go to the task bar and choose formula, under formula select financial and using the drop down arrow select RATE and key the values. The return will 5.4027% which is the semi-annual yield. To get the annual yield, multiply by 2. Annual yield = 10.8054% rounded off to 10.81% 3. Deep Waters, Inc is using the internal rate of return (IRR) when evaluating projects. Find the IRR for the company's project. The initial outlay for the project is $335,200. The project will produce the following after-tax cash inflows of Year 1: 121,100 Year 2: 168,200 Year 3: 168,600 Year 4 182,600 Round the answer to two decimal places in percentage form. Let's try 29% interest rate Year NPV Column1 Column2 Column3 Column4 Column5 Cash flow ($) PVIF (29%) PV PVIF (30%) PV 0 -335,200 1 -335200 1 -335200 0.77519379 0.7692307 1 121100 8 93875.969 7 93153.8462 0.60092542 101075.65 0.5917159 2 168200 5 7 8 99526.6272 0.46583366 78539.555 0.4551661 3 168600 3 6 4 76741.0105 0.36111136 65938.935 4 182600 7 5 0.3501278 63933.3357 4230.1166 1 -1845.1805 IRR is the interest rate that equates NPV to zero IRR is between 29% and 30% IRR = 29% + (4230.117/(4230.117+1845.18) * 1% = 29.696281 rounded off to 29.70% 4. Cheeseburger and Taco Company purchases 17,079 boxes of cheese each year. It cost $17 to place and ship each order and 7.41 per year for each box held as inventory. The company uses Economic order quantity model in placing the orders. How many orders will be placed each year? Round the answer to the whole number. 5. Marco Chip, INC. just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 29 years and a yield to maturity of 10.13 %, compounded semi- annually. What is the current price of the bond? Zero coupon bond value = F/ (1+r) ^t Where F= Face value of bond; r = rate of yield; t = time to maturity Or Value of stock= par value / (1+Interest) years to maturity F = $1000; r = 10.13%/2 = 5.065%; t = 29yrs *2 = 58 periods = $1000/ (1.05065)58 = $1000/17.56174883= $56.94193726 rounded off to $56.94 Current price of the bond = $56.94 Last Year Dividend Growth Rate of Dividends Selling Price of Stock Floatation Costs Stock R $1.29 7.0% $60.65 P1 = D1/Keg; Where P1 is the Current Price of the Stock; D1 is dividend at the end of the Year; g is the constant dividend growth rate; and Ke is the Cost of equity. P1 = $60.65; g = 7% ; Flotation costs = $4.29 ; D0 = $1.29 ; D1 = $1.29(1.07)1 = $1.3803 ; Ke = ? (60.65 - 4.29)= 1.3803/Ke 0.07 (Ke 0.07) = 1.3803/(60.65 4.69) = 0.024665833 Ke = 0.024665833+ 0.07 = 0.094665833 Cost of Common Equity (Ke) = 0.094665833 or 9.47% Kindly note the slight change in this question. I had not factored the flotation cost in the former answer I sent to you. This should be the correct answer. Daniels Corporation is considering the purchase of new equipment costing $30,000. The projected annual afterYear Cashflow ($PVIF PV 0 -30000 1 -30000 1 11200 0.892857 10000 2 11200 0.797194 8928.571 3 11200 0.71178 7971.939 -3099.49 projected annual after-tax net income from the equipment is $1,200, after deducting $10,000 for depreciation. The revenue preciation. The revenue is to be received at the end of each year. The machine has a useful life of 3 years and no salvage v years and no salvage value. Daniels requires a 12% return on its investments. The factors for the present value of an annu resent value of an annuity of 1 for different periods follow: 1. Find the profitability index (PI) for the following series of future cash flows, assuming the company's cost of capital is 12.73 percent. The initial outlay is $331,933. Year 1: $179,712 Year 2: $192,401 Year 3: $177,672 Year 4: $194,029 Year 5: $167,866 Round the answer to two decimal places. Year Cash flow ($) 1 2 3 4 5 179712 192401 177672 194029 167866 Total Present Value Initial outlay Profitability Index = Total PV/Initial Outlay 1.949774533 Where PVIF = present value interest factor; PV = Present Value PVIF (12.73%) PV 0.887075313 159418.1 0.78690261 151400.8 0.698041879 124022.5 0.619215718 120145.8 0.549290977 92207.28 647194.5 331,933 Rounded off to 1.95 2. Fresh Fruit, Inc. has a $1,000 par value bond that is currently selling for $1,377. It has an annual coupon rate of 16.09 percent, paid semiannually, and has 14-years remaining until maturity. What would the annual yield to maturity be on the bond if you purchased the bond today and held it until maturity? Round to the nearest two decimals. Value of a bond = Present value of the coupon interest + Present value of the face value Monthly coupon interest rate = 8.045% Coupon interest = * 16.09/100 * $1000 = $80.45 Value of the bond = (1-(1+r)-n /r) * $80.45 + (1+r) -n * $1000 Where n = 14years *2 = 28 periods; Value of the bond = $1377; r =? $1377 = (1-(1+r)-28 /r) * $80.45 + (1+r) -28 * $1000 The annual yield to maturity must be lower that the coupon interest rate because the bond is selling at a premium, I.e., above the face value Using excel, go to the task bar and choose formula, under formula select financial and using the drop down arrow select RATE and key the values. The return will 5.4027% which is the semi-annual yield. To get the annual yield, multiply by 2. Annual yield = 10.8054% rounded off to 10.81% 3. Deep Waters, Inc is using the internal rate of return (IRR) when evaluating projects. Find the IRR for the company's project. The initial outlay for the project is $335,200. The project will produce the following after-tax cash inflows of Year 1: 121,100 Year 2: 168,200 Year 3: 168,600 Year 4 182,600 Round the answer to two decimal places in percentage form. Let's try 29% interest rate Year NPV Column1 Column2 Column3 Column4 Column5 Cash flow ($) PVIF (29%) PV PVIF (30%) PV 0 -335,200 1 -335200 1 -335200 0.77519379 0.7692307 1 121100 8 93875.969 7 93153.8462 0.60092542 101075.65 0.5917159 2 168200 5 7 8 99526.6272 0.46583366 78539.555 0.4551661 3 168600 3 6 4 76741.0105 0.36111136 65938.935 4 182600 7 5 0.3501278 63933.3357 4230.1166 1 -1845.1805 IRR is the interest rate that equates NPV to zero IRR is between 29% and 30% IRR = 29% + (4230.117/(4230.117+1845.18) * 1% = 29.696281 rounded off to 29.70% 4. Cheeseburger and Taco Company purchases 17,079 boxes of cheese each year. It cost $17 to place and ship each order and 7.41 per year for each box held as inventory. The company uses Economic order quantity model in placing the orders. How many orders will be placed each year? Round the answer to the whole number. Where A = Demand for the year; Cp = Cost to place a single order Ch = Cost to hold one unit inventory for a year A = 17,079 ; Cp = $17 ; Ch = $7.41 (2*17079 * 17)/7.41 = 78365.18219 = 279.9378184 rounded off to 280 units per order 5. Marco Chip, INC. just issued zero-coupon bonds with a par value of $1,000. The bond has a maturity of 29 years and a yield to maturity of 10.13 %, compounded semi- annually. What is the current price of the bond? Zero coupon bond value = F/ (1+r) ^t Where F= Face value of bond; r = rate of yield; t = time to maturity Or Value of stock= par value / (1+Interest) years to maturity F = $1000; r = 10.13%/2 = 5.065%; t = 29yrs *2 = 58 periods = $1000/ (1.05065)58 = $1000/17.56174883= $56.94193726 rounded off to $56.94 Current price of the bond = $56.94 Last Year Dividend Growth Rate of Dividends Selling Price of Stock Floatation Costs Stock R $1.29 7.0% $60.65 P1 = D1/Keg; Where P1 is the Current Price of the Stock; D1 is dividend at the end of the Year; g is the constant dividend growth rate; and Ke is the Cost of equity. P1 = $60.65; g = 7% ; Flotation costs = $4.29 ; D0 = $1.29 ; D1 = $1.29(1.07)1 = $1.3803 ; Ke = ? (60.65 - 4.29)= 1.3803/Ke 0.07 (Ke 0.07) = 1.3803/(60.65 4.69) = 0.024665833 Ke = 0.024665833+ 0.07 = 0.094665833 Cost of Common Equity (Ke) = 0.094665833 or 9.47% Kindly note the slight change in this question. I had not factored the flotation cost in the former answer I sent to you. This should be the correct