This Problem Counts 6 Points In January 2020 Smash Brothers Compacting purchased and installed a new X1600 Red Super-Smasher used in compacting cars, SUVs, and small trucks into 2 cubic yards of compacted metal.  The X-1600 Red cost $1,034,000 and had a “useful life” of 7 years. Recently the firm’s CEO became aware of a new technology that promised many advantages over the X-1600 Red, including compacting the junk vehicles into 1 cubic yard of compacted metal, instead of 2 cubic yards.  He asked his CPA to do a financial analysis to determine if a new Super-Smasher called the X-2000 Blue could be an economically viable replacement for a Super-Smasher (the X-1600) that was only two years old (assume that the time this decision is near the end of 2021). The CPA determined that the new technology could be purchased for $900,000 today and would have a useful life of 5 years before it would likely become technologically obsolete and be essentially worthless. (The X-2000 Blue runs hotter than the X-1600 Red and has a shorter useful life).  For depreciation purposes the company uses the straight line method.  If the new machine was purchased it could be installed and operational by January 2022. Mario Umplinda, the Smash Brothers Compacting VP of  Scrap Yard Services and the firms’ CPA agreed that the new machine could significantly improve production and create higher revenues for the firm.   With this information the CPA estimated that the new technology will produce EBITDA (earnings before interest, taxes, depreciation and amortization) of $521,000 per year for the next 5 years.  The current machine is expected to produce EBITDA of $356,000 per year. The current machine is being depreciated on a straight line basis over a useful life of 7 years after which it will have a $40,000 salvage value.   All other expenses of the two machines are identical. The market value of the current machine is $525,000. The tax rate is 21% and the cost of capital is 12%. Calculate the NPV of the replacement decision and choose the best answer below. NOTE: DO NOT make any assumptions regarding the sale of, the gain’ loss related to, or the tax treatment for the  gain or loss on the disposal the X-1600 Red.  

Utah Technologies, a mobile technology provider,  just paid a dividend of 1.35 per share. The company plans to increase its dividends by 3% each year for the next 5 years, then reduce the annual increase to 1.5% in perpetuity. If the required rate of return of a Utah Technologies investor is 12%, what will a share of stock sell for today? Please choose the answer from the options below that best matches your answer.   This Problem Counts 3 Points

What are tides?

Finance Problem Counts 3 Points IBM’s dividend payments from 2018 – 2020: Year Dividend Amount 2018 $4.00 2019 $4.20 2020 $4.41 It’s 2021, and IBM has just paid its 2020 dividend.  Using the table above, you want to estimate IBM’s current stock price. Assuming historical dividend growth is a reasonable proxy for the future, you estimate that IBM will continue to grow its dividends, forever, at the same rate it has demonstrated over the past 3 years.  If the required rate of return on this stock is 10 percent, what is the current stock price?  (Round to 2 decimal places)

All Exotic Rental Problems Count 4 Points Each Exotic Rentals has four independent projects under consideration each with a required rate of return of 14%.  The total projects budget is $800,000. A table showing the investments and projected free cash flows follows: NOTE: If using Excel Investments should be entered as negative numbers.   Project/Year Maserati Lamborghini Ferrari BMW i8 Coupe 0 (investment) $150,380 $221,320 $286,550 $175,500 1 $40,000 $85,000 $100,000 $52,000 2 $80,000 $110,000 $125,000 $90,000 3 $60,000 $110,000 $125,000 $90,000 4 $60,000 $92,000 $125,000 $70,000 5 $95,000 $125,000 $150,000 $135,000 No additional cash flows are expected from any of the five projects after year 5. Year 5 cash flow includes rentals and auction of the exotic vehicles into the secondary car market.  Which of the 4 projects has the highest IRR?  The correct answer was determined using an Excel spreadsheet. Take answer to at least two decimal positions.

Compared to Junk Bonds (CCC), Investment Grade Bonds (AAA) typically offer __________  yields because they are __________  risky.

Continuing with Charley & Waldo, what was the total NPV calculated in the problem above for the Catch Air project? NOTE: This should be the NPV you you should have used to make your decision between Zip and Catch Air. Enter your answer in exactly this format: xxx,xxx (example: 174,059)

Possible consequences of climate change include ___________________________.

Lane Robertson, CFO of Carter Electric, was asked by the CEO to do an estimate of the firm’s Free Cash Flow for FY2022. After some analysis Lane developed the following data: the tax loss carry forward into FY2022 will be -$1,280,000; the EBIT is projected to be $2,750,000 (profit); the tax rate will be 21%; and the estimated depreciation and amortization expense for FY2022 will be $622,000. For FY2022 working capital is expected to decrease by $150,000; and the expected capital expenditures for FY2022 will be $566,000. The firm will not be raising any capital nor distributing any earning in FY2022. Using the method explained to him 10 years earlier by his college professor, Dr. Jayaraman, and the data he developed, his projection of Free Cash Flow should be ____________. Round your answer to the nearest $1000.

Problem Counts 5 Points Authentic Products is a maker of authentic metal toys sold in elite Toy Stores and by catalog in the US and Western Europe. Authentic Products  was started in January 2017 and an Equity Capital firm  has expressed an interest acquiring the company. Authentic’s CFO has developed a set of financial projections which are summarized in the table below (all amounts are in $000).   2022     2023     2024     2025     2026 2027 EBIT $500 $400 $400 $1,700 $2,800 $4,200 Capital Expenditures $400 $600 $1000 $1000 $800 $800 Changes in Working Capital $400 $400 $200 $100 $100 ($100) Depreciation $80 $160 $205 $210 $220 $230   Beginning after year 2027 the annual growth in EBIT is expected to be 2.20%, a rate that is projected to be constant over Authentic’s remaining life as an enterprise. Beginning after 2027 Authentic’s capital expenditures and depreciation are expected to offset each other (capex – depreciation = 0) and year to year changes in working capital are expected to be zero (working capital levels remain constant year over year). For discounting purposes consider 2022 as year 1. Assume a tax rate of 21% and a cost of capital of 7.25% Determine the company valuation of Authenic Products using the NPV method and the cash flow information provided above. The answer to this question was determined in Excel. Your answer may deviate slightly (if you are using a calculator) depending upon differences in truncation and rounding.  Answers below are in $000.