Keiper, Inc., is considering a new three-year expansion project that requires an initial
fixed asset investment of $2.55 million. The fixed asset will be depreciated straight-line
to zero over its three-year tax life, after which time it will be worthless
Professor Vasudevan
Finance 650
Capital Budgeting Problems
i
.
The Seattle Corporation has been presented with an investment
opportunity which will yield cash flows of $30,000 per year in
Years 1 through 4, $35,000 per year in Years 5 through 9, and
$40,0
Professor Vasudevan
Fin 650
MAKING CAPITAL INVESTMENT DECISIONS.
i
.
MacDonald Publishing is considering entering a new line of
business.
In analyzing the potential business, their financial
staff has accumulated the following information:
The new busine
SOLVING STOCK VALUATION PROBLEMS ON CONNECT
The JacksonTimberlake Wardrobe Co. just paid a dividend of $1.60 per share on its stock. The
dividends are expected to grow at a constant rate of 6 percent per year indefinitely. Investors
require a return of 10
New project NPV
i
.
Answer: b
MacDonald Publishing is considering entering a new line of business. In
analyzing the potential business, their financial staff has accumulated
the following information:
The new business will require a capital expenditure of
Professor Gopala Vasudevan
Finance 650
STOCK VALUATION
1)
a.
b.
c.
d.
e.
2)
a.
b.
c.
d.
e.
3)
a.
b.
c.
d.
e.
4).
Angelinas made two announcements concerning their common stock today. First, the
company announced that their next annual dividend has been se
G.Vasudevan
CAPITAL BUDGETING QUESTIONS
1. The internal rate of return is that discount rate which equates the present value of the cash outflows (or costs)
with the present value of the cash inflows.
a. True
b. False
2. Other things held constant, an inc
Income statement
Other expenses
Net sales
Cost of goods sold
Depreciation
Total
Earnings before
interest and tax
Interest paid
Total
Taxable income
Taxes
0.30
NET INCOME
Dividends
Addition to retained earnings
874.00
15,936.00
4,807.00
1,836.00
8,419.00
8
Derivatives Soluion: Application for
Financial Futures
Case Solution for 'Peoples Federal Savings Bank'
1. Should Peoples Federal Savings have hedged its September 1 savings
certificate rollover?
Yes. The reasons are explained as below:
Peoples had accumu
Professor Vasudevan
Finance 485
SWAP QUESTIONS
1)DESIGNING INTEREST RATE SWAPS
Companies A and B have been offered the following rates per annum on a $20 million
five year loan:
Fixed Rate
12%
13.4%
Company A
Company B
Floating Rate
Libor +0.1
Libor +0.6
Swaps
Chapter 7
Fundamentals of Futures and Options Markets, 5th Edition, Copyright John C. Hull 2004
7.1
Nature of Swaps
A swap is an agreement to
exchange cash flows at specified
future times according to certain
specified rules
Fundamentals of Futures
Mechanics of Futures
Markets
Chapter 2
Fundamentals of Futures and Options Markets, 5th Edition, Copyright John C. Hull 2004
2.1
Futures Contracts
Available
on a wide range of underlyings
Exchange traded
Specifications need to be defined:
What can be d
Professor Vasudevan
Finance 485
Spring 2009
SWAP PROBLEM SET
1. Given the following interest-rate swap:
Fixed-rate payer pays half of the YTM on a T-note of 6.5%.
Floating-rate payer pays the LIBOR
Notional principal is $10M
Effective dates are 3/23 a
1) oSuppose a stock currently pays a dividend of $1.10, which is expected to grow at 40% per year for the next five y
oWhat will the dividend be in five years?
Here:
PV
N
I
FV
-1.1
5
0.4
$5.92
o2) How much would an investor have to set aside today in orde
Professor Vasudevan
Fin 650
i
.
Today, Bruce and Brenda each have $150,000 in an investment account. No other
contributions will be made to their investment accounts. Both have the same
goal: They each want their account to reach $1 million, at which time
Hedging Strategies Using
Futures
Chapter 3
Fundamentals of Futures and Options Markets, 5th Edition, Copyright John C. Hull 2004
3.1
Long & Short Hedges
A
long futures hedge is appropriate when
you know you will purchase an asset in
the future and want to
UNIVERSITY OF MASSACHUSETTS DARTMOUTH
Charlton College of Business
Department of Accounting and Finance
Fall 2016
Instructor: Gopala Vasudevan
Email:[email protected]
Office:
317 Charlton Building
(508) 999-8426 (office)
Course: FIN 650 Financial Deci
MIDLAND ENERGY RESOURCES,
INC.: COST OF CAPITAL
SYED SAJJAD ALI SHAH
CHAUDHRY TAIMUR
HASNAIN NAWAZ
OVERVIEW
Global Energy
Operations (Oil and Gas exploration and production, Refining and Marketing and Petro Chemicals)
Operating revenue 248.5 billion, a
PV
N
I
FV
3078
8
6%
4905.864
4,905.86
FV
N
I
PV
25000
6
9.00%
14906.68
25000
4
9%
-14,906.68
PV
FV
N
I
3200
3950
3
0.07271
7.27%
PV
FV
I
N
1
4
5.50%
25.89231
25.8923142245
-17,710.63 2,803.95
PV
FV
N
I
1071.06
1100
10
0.00267
3.96%
PV
N
I
FV
1135.9
20
4%
D1
g
r
P0
3.4
4.50%
11%
52.31
D
r
N
PV
8.5
12%
11
-50.47
D
P0
R
4.75
93
5.11%
D4
g
R
P4
2.5
5%
12%
37.5
D1
R
N
PV
12
12%
1
-10.71
PV total
-47.50
D2
R
N
PV
8
12%
2
-6.38
D3
R
N
PV
7
12%
3
-4.98
D4
R
N
PV
2.5
12%
4
-1.59
P4
R
N
PV
37.5
12%
4
-23.83
Bench m
E
PS
Debt
60%
5%
35%
Re
Rps
Rd
T
12%
5%
7%
35%
WACC
9.04%
After Tax Rd
4.55%
D/E
D
E
Re
Rd
T
WACC
0.45
31.03%
68.97%
13%
6%
35%
10.18%
Bonds
Price of Bond
coupon rate
135000
1140
7.50%
Market value
153900000
Total Market Value
465650000
Common Stock
Price
EAR
m
APR
Period rate = APR /
number of periods per
year
14.30%
12
13.44%
1.12%
m
APR
EAR 1
1
m
1
APR m (1 EAR) m - 1
m=infinite
EAR=e^(APR)-1
APR=ln(EAR+1)
APR
monthly
9.60%
0.80%
APR
monthly
5.60%
0.47%
c
r
t
FV
760
0.80%
300
942249.5
c
r
t
FV
360
0