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Answered) MBA6081-14I-6 CORPORATE FINANCE UNIT II ASSESSMENT 1. You can earn $48 in interest on a $1,000 deposit for 8 months. If the EAR is the same...

You have decided to refinance your mortgage. You plan to borrow whatever is outstanding on your current mortgage. The current monthly payment is $2,813 and you have made every payment on time. The original term of the mortgage was 30Ã¢Â years, and the mortgage is exactly four years and eight months old. You have just made your monthly payment. The mortgage interest rate is 6.102% (APR).

How much do you owe on the mortgageÃ¢Â today?

The amount you owe today is $______. (Round to the nearestÃ¢Â dollar.)

* See Attached File

MBA6081-14I-6 CORPORATE FINANCE UNIT II ASSESSMENT 1. You can earn $48 in interest on a $1,000 deposit for 8 months. If the EAR is the same regardless of the

length of the investment, how much interest will you earn on a $1,000 deposit for:

a. 2 months.

For a 2-month, $1,000 deposit you will earn $_____(Round to the nearest cent).

b. 1 year.

For a 1-month, $1,000 deposit you will earn $_____(Round to the nearest cent).

c. 1.1 years.

For a 1.1-month, $1,000 deposit you will earn $_____(Round to the nearest cent).

2. You have decided to refinance your mortgage. You plan to borrow whatever is outstanding on your

current mortgage. The current monthly payment is $2,813 and you have made every payment on time.

The original term of the mortgage was 30 years, and the mortgage is exactly four years and eight months

old. You have just made your monthly payment. The mortgage interest rate is 6.102% (APR).

How much do you owe on the mortgage today?

The amount you owe today is $______. (Round to the nearest dollar.)

3. Consider a project that requires an initial investment of $100,000 and will produce a single cash flow of

$150,000 in 5 years.

a. What is the NPV of this project if the 5-year interest rate is 5.0% (EAR)?

The NPV in this case (EAR=5.0%) is $______. (Round to the nearest dollar.)

b. What is the NPV of this project if the 5-year interest rate is 10.0% (EAR)?

The NPV in this case (EAR=10.0%) is $______. (Round to the nearest dollar.)

c. What is the highest 5-year interest rate such that this project is still profitable?

The highest EAR such that this project is still profitable is $______. (Round to the nearest dollar.)

4. In the summer of 2008, at Heathrow airport in London, Bestofthebest (BB), a private company, offered

a lottery to win a Ferrari or 116,000 British pounds, equivalent at the time to about $232,000.

Both the Ferrari and the money, in 100 pound notes, were on display. If the U.K. interest rate was 5%

per year, and the dollar interest rate was 2% per year (EARs), how much did it cost the company in

dollars each month to keep the cash on display? That is, what was the opportunity cost of keeping it on

display rather than in a bank account? (Ignore taxes.)â€ƒâ€ƒâ€ƒ

Hint: Make sure to round all intermediate calculations to at least five decimal places.

The opportunity cost of keeping it on display rather than in a bank account is Â£______.

(Round to two decimal places). per month. 5. A 30-year bond with a face value of $1,000 has a coupon rate of 5.50%, with semiannual payments.â€ƒ

a. What is the coupon payment for this bond?

The coupon payment for this bond is $______. (Round to the nearest dollar.)

b. Enter the cash flows for the bond on a timeline.

Cash Flow

Amount (Round to the nearest cent.)

6. Your brother wants to borrow $9,750 from you. He has offered to pay you back $12,500 in a year. If the

cost of capital of this investment opportunity is 9%, what is its NPV? Should you undertake the MBA6081-14I-6 CORPORATE FINANCE UNIT II ASSESSMENT investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable in

the cost of capital estimate to leave the decision unchanged.

If the cost of capital of this investment opportunity is 9%, what is its NPV?

The NPV of the investment is $______. (Round to the nearest cent.)

Should you undertake the investment opportunity?

Since the NPV is (positive/negative), you should (take/not take) the deal?

Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate

to leave the decision unchanged.

The RR is _____%. (Round to two decimal places.)

The maximum deviation allowable in the cost of capital is _____% (Round to two decimal places.)

7. You are considering an investment in a clothes distributer. The company needs $106,000 today and

expects to repay you $129,000 in a year from now. What is the IRR of this investment opportunity? Given

the riskiness of the investment opportunity, your cost of capital is 13%.

What does the IRR rule say about whether you should invest?

The IRR of this investment opportunity is _____% (Round to one decimal place.)

Given the riskiness of the investment opportunity, your cost of capital is 13%.

What does the IRR rule say about whether you should invest?

The IRR rule says that you (should be indifferent/ should not invest/ should invest).

8. You are considering making a movie. The movie is expected to cost $10.4 million upfront and take a

year to make. After that, it is expected to make $4.7 million in the first year it is released (end of year 2)

and $1.8 million for the following four years (end of years 3 through 6) . What is the payback period of this

investment? If you require a payback period of two years, will you make the movie? What is the NPV of

the movie if the cost of capital is 10.5%?

According to the NPV rule, should you make this movie?

What is the payback period of this investment?

The payback period is ______years. (Round up to nearest integer.)

Based on the payback period requirement, would you make this movie? (Yes/ No)

What is the NPV of the movie if the cost of capital is 10.5%?

The NPV is $_____ million. (Round to three decimal places.)

According to the NPV rule, should you make this movie?

According to the NPV rule you should (make/ not make) the movie.

9. Kokomochi is considering the launch of an advertising campaign for its latest dessert product, the Mini

Mochi Munch. Kokomochi plans to spend $3.85 million on TV, radio, and print advertising this year for the

campaign. The ads are expected to boost sales of the Mini Mochi Munch by $10.99 million this year and

$8.99 million next year. In addition, the company expects that new consumers who try the Mini Mochi

Munch will be more likely to try Kokomochi's other products. As a result, sales of other products are

expected to rise by $2.54 million each year.

Kokomochi's gross profit margin for the Mini Mochi Munch is 35%, and its gross profit margin averages

24% for all other products. The company's marginal corporate tax rate is 35% both this year and next

year. What are the incremental earnings associated with the advertising campaign?

Note: Assume that the company has adequate positive income to take advantage of the tax benefits

provided by any net losses associated with this campaign. MBA6081-14I-6 CORPORATE FINANCE UNIT II ASSESSMENT Calculate the incremental earnings for year 1 below:â€ƒâ€ƒ(Round to three decimal places.)

Year 1

Incremental Earnings Forecast ($ million)

Sales of Mini Mochi Munch

Other Sales

Cost of Goods Sold

Gross Profit

Selling, General, and Administrative

Depreciation

EBIT

Income Tax at 35%

Incremental Earnings $______

$______

$______

$______

$______

$______

$______

$______

$______

Year 2 Incremental Earnings Forecast ($ million)

Sales of Mini Mochi Munch

Other Sales

Cost of Goods Sold

Gross Profit

Selling, General, and Administrative

Depreciation

EBIT

Income Tax at 35%

Incremental Earnings $______

$______

$______

$______

$______

$______

$______

$______

$______ 10. Cellular Access Inc., is a cellular telephone service provider that reported net operating profit after

tax (NOPAT) of $250 million for the most recent fiscal year. The firm had depreciation expenses of $100

million, capital expenditures of $200 million, and no interest expenses. Working capital increased by

$10 million. Calculate the free cash flow for Cellular Access for the most recent fiscal year.

The free cash flow is $_____ million. (Round to the nearest integer.)

11. You are evaluating the HomeNet project under the following assumptions: Sales of 50,000 units in

year 1 increasing by 47,000 units per year over the life of the project, a year 1 sales price of $260/unit,

decreasing by 10% annually and a year 1 cost of $120/unit decreasing by 20% annually. In addition, new

tax laws allow you to depreciate the equipment, costing $7.5 million, over three years using straight-line

depreciation. Research and development expenditures total $15 million in year 0 and selling, general, and

administrative expenses are $2.8 million per year (assuming there is no cannibalization).

Also assume HomeNet will have no incremental cash or inventory requirements (products will be shipped

directly from the contract manufacturer to customers). However, receivables related to HomeNet are

expected to account for 15% of annual sales, and payables are expected to be 15% of the annual cost of

goods sold. Under these assumptions the unlevered net income, net working capital requirements and

free cash flow are shown in the Table .Using the FCF projections given: MBA6081-14I-6 CORPORATE FINANCE UNIT II ASSESSMENT a. Calculate the NPV of the HomeNet project assuming a cost of capital of 10%, 12% and 14%

The NPV of the FCF's of the HomeNet project assuming a cost of capital of 10% is $______. (Round to

the nearest thousand dollars.)

The NPV of the FCF's of the HomeNet project assuming a cost of capital of 12% is $______. (Round to

the nearest thousand dollars.)

The NPV of the FCF's of the HomeNet project assuming a cost of capital of 14% is $______. (Round to

the nearest thousand dollars.)

b. What is the IRR of the project in this case? The IRR is ______%. (Round to one decimal place.)

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