FIN 415 Winter 2024 Quiz 3 20240429_2134
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FIN 415 CORPORATE INVESTMENT DECISIONS QUIZ 3 WINTER 2024 Instructions Time and submission information You have 120 minutes. There are 6 questions. There are 2 non-quantitative questions (each worth 10% of the points for this quiz for a total of 20%) and there are 4 quantitative questions (each worth 20% of the points for this quiz for a total of 80%). The questions have multiple parts and within a question each part carries equal weight. For example, two parts = 50% weight for each part, three parts = 1/3 weight for each part. You will need to use Excel to complete the quiz. Retain all decimal places in your calculations. If you round inputs then some of your calculations will be incorrect. For a question with a numerical answer, to score a point there must be a calculation in your spread sheet that leads to your answer.
For example, if your valuation of a stock is $125.25 there must be a calculation in your spread sheet that leads to the valuation of $125.25. You cannot work out the answer on a piece of paper and type $125.25 into the spread sheet. The exam is open book. You can use any resources at all to complete the quiz, but you cannot collaborate with a person. There can be instances in which an exam question has an error, or is subject to an alternative, but reasonable interpretation. If this happens I will refer to your spread sheet in deciding whether to award a point. When you submit your quiz, make sure you give me the following information. □
For questions 1 and 2 just type your letter answers. □
For questions 3-6 you should provide a numerical solution with a cell reference to your computations in your spread sheet in the first work sheet. This is NOT A HYPERLINK. It’s just a reference to a cell on another worksheet like we have in many spread sheets used in class and which you can see on past exam solutions. Question summary There are 2 non-computation questions and 4 computation questions. The non-computation questions will take you less time than the computation questions. So make sure you answer the non-computation questions. Question Type Topic 1 Non-quantitative Asset pricing models 2 Non-quantitative Valuation discounts 3 Quantitative Valuation: Booking 4 Quantitative Valuation: Itron 5 Quantitative Acquisition: Ulta acquisition of Sally 6 Quantitative Cost of equity
FIN 415 Corporate Investment Decisions Quiz 3 Winter 2024 2 Questions Question 1: Asset pricing models 1.
Part A: What was the catalyst to the development of the Fama-French 3-factor model, published in 1993? (a)
The observation that non-beta stock characteristics seem to predict stock returns. (b)
The observation that taxes exist, a violation of perfect capital markets. (c)
The observation that active portfolio managers consistently earn above-benchmark returns. Part B: What was the catalyst to the development of the Black Capital Asset Pricing Model, published in 1972? (a)
The Black CAPM adopted the more realistic assumption that investors borrow at a rate above the risk-free rate. (b)
The Black CAPM adopted the more realistic assumption that investors would prefer to hold an asset with zero beta at a higher return than government bonds. (c)
The Black CAPM adopted the more realistic assumption that investors are unable to easily diversify. Question 2: Valuation discounts 2.
The liquidity discount is underpinned by two areas of research – restricted stock transactions and acquisitions of private companies. Both areas of research have flaws but as practitioners we do our best to incorporate liquidity adjustments. Part A: What is the flaw in the restricted stock transactions analysis? (a)
The time restriction on sale is relatively short compared to actual illiquid holdings being valued. (b)
Founders don’t care about sale restrictions because they are in for the long haul. (c)
Executives are compensated for sale restrictions with higher salaries. Part B: What is the flaw in the private companies’ analysis? (a)
There is actually a robust market for the trading of private company shares. (b)
The high leverage of private companies compared to publicly-traded companies negatively affects their valuation multiples. (c)
Companies are not randomly assigned to be private or publicly-traded and the choice to stay private or go public means that comparing valuation multiples captures non-liquidity characteristics.
FIN 415 Corporate Investment Decisions Quiz 3 Winter 2024 3 Question 3: Booking 3.
Your task is to estimate equity value per share for Booking Holdings Inc. (Booking), a travel company. Use multiples to estimate equity value per share using three different measures of earnings: Earnings before interest, tax, depreciation and amortization (EBITDA), earnings before interest and tax (EBIT) and earnings per share (EPS). For each earnings measure you have three years of forecast earnings. To reach a conclusion on valuation derived from each earnings measure, take an average of your valuations derived from earnings from forecast years one, two and three. Booking has debt of $14,252 million and 34 million shares on issue. Earnings forecasts for Booking and comparable firms are presented in the table below. Firm Price ($) Shares (m) Debt ($m) EBITDA ($m) EBIT ($m) EPS 1 2 3 1 2 3 1 2 3 Comparable firms Norwegian Cruise Line
$18.54 426 14,059 2,231 2,487 2,833 1,285 1,485 1,764 $1.08 $1.53 $1.95 Expedia $131.59 137 6,253 3,022 3,371 3,590 1,727 2,053 2,294 $9.31 $11.90 $14.06 Airbnb $156.61 647 1,991 4,036 4,640 5,318 2,713 3,213 3,949 $4.35 $4.99 $5.83 Carnival $14.28 1264 30,572 5,674 6,275 6,602 3,114 3,561 3,805 $0.91 $1.40 $1.71 Royal Caribbean $131.99 256 21,452 5,576 6,082 6,541 3,855 4,248 4,647 $10.19 $11.98 $13.74 Tripadvisor $25.56 138 896 399 459 528 219 255 361 $0.87 $1.32 $1.61 Sabre Corp $2.66 380 4,834 535 712 754 435 614 647 -$0.52 $0.03 $0.14 Booking 34 14,252 7,930 8,890 9,895 7,492 8,408 9,421 $168.74 $198.26 $235.09 Part A: What is the estimate of equity value per share based upon EBITDA, taking an average of three valuations derived from EBITDA? Part B: What is the estimate of equity value per share based upon EBIT, taking an average of three valuations derived from EBIT? Part C: What is the estimate of equity value per share based upon EPS, taking an average of three valuations derived from EPS?
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A. Messi wishes to find the present
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ICE (Week 12, Lesson 123 Winter 2024 HRMNTO1-4 Launa Vaughan A. MODERNIZATION CASE
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would like to get a 20% internal rate of return. Should they go ahead with the decision? The
economic life of the project is estimated at 10 years. The savings (or cash inflows) are estimated at
$300,000 per year. The cost of capital is 14%. Required:Calculate the Net Present Value of the
project? (2 marks) What is the approximate IRR of the project? (2 marks) What is the payback of the
project? (1 mark)Should management go ahead with the project? Why or why not? (2 marks) What
factors, if they changed, would impact your decision? (3 marks)
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Sculls and Shells Corporation (S&S Corp.) is about to launch a new rowing boat. Depending
on the success of the new product, S&S Corp. will have a value next year of $100M, $85M,
or $50M. These outcomes are equally likely, and this risk is diversifiable. Suppose the risk-
free rate is 5% and that, in the event of a default, 25% of the value of S&S assets will be lost
to bankruptcy costs. If S&S's only obligation is a zero-coupon bond due next year, with a
$90M face value next year, what is the market value of the bond today?
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Engineering Economy
What amount should I invest today, Jan. 18, 2023 so that after 3 years the face value of my investment will be at ₱250,000. Assume that the market interest is 6.5%. Show your full solution. Please don't use excel in answering.
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tudent question
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00:09:18
Seeking for accounting rate of return for Option 1, 2, & 3 (info below).
The senior VP in charge has asked that you make a recommendation for the purchase of new equipment.Ideally, the company wants to limit its capital investment to $500,000. However, if an asset meritsspending more, an investment exceeding this limit may be considered. You assemble a team to helpyou. Your goal is to determine which option will result in the best investment for the company. Toencourage capital investments, the government has exempted taxes on profits from new investments.This legislation is to be in effect for the foreseeable future.The average reported operating income for the company is $1,740,000.The company uses a 10% discount rate in evaluating capital investments.The team is considering the following optionsOption 1:The asset cost is $300,000.The asset is expected to have an 8-year useful life with no salvage value.Straight-line…
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PROJECT 8 QR Spring 2020 Finances - Word
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5. Suppose you want to have $900,000 forretirement in 30 years. Your account earns 8% interest.
a) How much would you needto deposit in the account each month
b) How much interest will you earn?
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you choose the 0% financing option, what is the effective interest rate that the auto dealership is earning on your loan? (Hint: Discount the payments back to
current dollars, and use Goal Seek to find the discount rate that makes the net present value of the payments $25,995.)
Enter your answer as a percentage. If required, round your answer to one decimal digit.
=
1.8
%
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X 1. Sarah now has $2,000. How much would she have after 2 years if she
leaves it invested at 2% with annual compounding?*
O a) $2,081
Ob) $2,800
O c) $2,900
O d) $245
e) None of the above
Correct answer
O a) $2,081
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subject-Accounting
You are considering an investment that will pay $24668 in 20 years. If the interest rate is 13.79%, what is the most you should be willing to invest today? (Round to 2 decimal places.)
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3. Problem 17.03 (AFN Equation)
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Carlsbad Corporation's sales are expected to increase from $5 million in 2021 to $6 million in 2022, or by 20%. Its assets totaled $2 million at the end of 2021. Carlsbad is at full
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$
a. Assume that the company pays no dividends. Use the AFN equation to forecast the additional funds Carlsbad will need for the coming year. Write out your answer
completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar.
b. Why is this AFN different from the one when the company pays dividends?
I. Under this scenario the company would have a higher level of retained earnings, which would reduce the…
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Problem 2
ABM Enterprise would like to evaluate/analyze an investment proposal.Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for thesucceeding yearsDiscount rate - 14%
a. NPV for the perio 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.
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Principle of Finance Workshop 1 Questions
NPV Calculations
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because of start-up expenses. If the economic life of the machine is five years and the
relevant discount rate is 10%, should you buy the machine?
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Question a
Suppose you deposit $1,117.00 into an account today that earns 12.00%. It will take _ _ years for the account to be worth $2,819.00.
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Dyanne Godoy
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Next Activity
Target due: 11/16/20
O 2016
All changes saved
O 2026
LI O 3. Choose the correct answer.
Bill plans to deposit $1,500 quarterly for 30 years at 5.5% Interest, compounded monthly. How much will he have in
the account in 30 years?
O $468,780.80
O $189,900
O $180,000
O $3,744,000
O $477,000
A 4. Choose the correct answer.
You sell 600 shares of AVG Technologies (AVG). You purchased the stock at $2.99 per share and sold it at $0.88 per
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eneral Mathematics SHSModule 41What I Can DoYou wanted to join a booth fair, and you are aiming to get a profit that is twice as your capital. Your starting capital is ₱15,000.00. Make a financial plan for the booth that you will set up and the product that you will sell. You may use the sample planbelow:FINANCIAL PLANProduct: _________________________Description of product: ________________________Goal: _____________________________________Capital: ₱15,000.00Fixed Cost (Labor, Machineries, Expenses for the booth etc): _______Variable Cost (Materials, Ingredients, etc): ____________Profit function: ___________________Prove that profit function will yield an amount that is twice the capital______________________________________________________________________________________
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Assignment 1.
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B ch01 (Fall 2021
w https://education.wiley.
B Present Value Tables (1.
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- Final Exam (Fall 2020)
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Question 24 of 50
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Sheridan Manufacturing Company expects the following sales in January, February, and March:
Cash
Credit
Sales
Sales
$50900
$250500
January
February
$45900
$240500
March
$85000
$325000
The controller has determined that the company collects credit sales as follows: 60% in the month of sale, 30% in the first month
after sale, 5% in the second month after sale, and 5% is expected to be uncollectible. How much cash will be collected from
customers in March?
O $352150
O $364675
O $410000
O $279675
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9-EZ Way has a market value equal to its book value. Currently, the firm has excess cash of
$9000, other assets of $30,000 and equity of $15,000. The firm has 1,200 shares outstanding
and net income of $1000.EZ Way has decided to spend one-third of its excess cash on a share
repurchase program. How many shares of stock will be outstanding after the stock repurchase
is completed?
10-What is the approximate yield to maturity for the following bonds? Assume these are bonds
issued in the United States.
a.5 years to maturity, 6 percent coupon rate, current price is $950.
b.10 years to maturity, 0 percent coupon rate, current price is $339.
c. 15 years to maturity, 8 percent coupon rate, current price is $1030.
11- A firm has only $10,000 to invest and must choose between two projects. Project A returns
$12,400…
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PROBLEM 1
The School of Management and Accountancy is planning to begin an online MSA (Master of Science in
Accountancy) program. The initial start-up costs for computing equipment, facilities, course
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Required: PROVIDE A DETAILED EXCEL SOLUTION
a. How many students does the school need to enroll in the first year to break even?
b. If the school can enroll 75 students the first year, how much profit will it make?
c. The school believes it can increase tuition to P24,000, but doing so would reduce enrollment
to 35. Should the school consider doing this?
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HRM ASSIGNMENT- MBA II SEM
POF Entrepreneurship_MBA II Sem.pd x
PDE Financial Management - MBA II X
O File | C:/Users/ANIKET%20PATWA/Downloads/Financial%20Management%20-%20MBA%2011%20Sem%20.pdf
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Profit
Rs.10,000
Variable Cost
70%
4.
The comparative statement of two companies, namely Radha Co. Ltd and Mohan
Co. Ltd. given below:
Particulars
Radha Co.
Mohan Co.
Sales
400000
400000
Variable Cost
200000
200000
Contribution
Calculate?
Calculate?
Fixed Cost
100000
EBIT
Calculate?
Calculate?
Interest
1000
EBT
Calculate?
Calculate?
You are required to calculate different leverages, and comment which company is
better in financial terms, assuming the rate of taxes is 30% and number of shares
is 6000.
5.
N O
15:58
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a 4)) ENG
25
03-05-2021
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Please solve subpart A,B max 30-45 minutes thank u
AmN companies will get capital from several options where the total funds must be obtained of 1.1 billion rupiah. The following is currently available market information:1. Debt interest rate is 12% per year2. State Bonds with minimal risk (risk free) of 5%3. JCI has a market return of 8%4. The company tax applied is 25%5. The company's performance is good so it has a stock Beta of 1.12The available options relate to the source of AmN's company capital, namely from Debt (direct tobank) and Equity (through ordinary shares) with the following explanation:1. Fully capital obtained from debt2. Fully capital obtained from equity3. The DER policy applied is 1/3 (or DER = 0.3333)
Based on the narrative above you are asked to:A. Calculate WACC from the three available optionsB. Decide on the best choice with the reasons.
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Problem 2
ABM Enterprise would like to evaluate/analyze an investment proposal.
Given the following:
Investment amount 450,000 (2022)
Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for the
succeeding years
Discount rate - 14%
a. NPV for the perio 2023 through 2029;
b. Total NPV using manual computation;
c. Total NPV using the Excel function; and
d. IRR rate.
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Video
Excel Online Structured Activity: Capital budgeting criteria
A company has a 13% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows:
0
1
2
3
4
5
6
7
+
Project A
-$300 -$387
Project B -$405 $133
-$193 -$100
$133 $133
$600
$133
$600
$133
$850
-$180
$133
$0
The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.
X
Open spreadsheet
a. What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.
Project A: $
162.48
Project B: $
b. What is each project's IRR? Round your answer to two decimal places.
Project A:
18.10
%
Project B:
%
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Assignment Exercise A1)
Salalah company management is considering two competing investment Projects A and B.
Project A
1000
Project B
1000
Year
Initial Investment
1
275
300
275
300
275
300
4
275
300
300
5
275
DISCOUNT RATE 3.15%
Q1) Use the information below and help the management in choosing the most desirable Project using all
the following technique:
استخدم المعلومات الواردة أدناه وساعد الإدارة في اختيار المشروع الأكثر رواجا باستخدام جميع الأساليب التالية
1) Payback Period Technique.
2) Discounted Payback Period Technique.
3) Net Present Value Technique
4) Profitability Index Technique.
Q2) Based on your solution or answer to question 1, comment as to which proposal is better and why?
بناءً على حلك أو إجابتك على السؤال 1 ، قم بالتعليق على أي اقتراح أفضل ولماذا؟
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Question 3
You are starting a new project.This project would last 4years. The following is the input information that you have collected:
Buildinf cost(1.3% in the first year and 2.6% every year)....................................$12,000,000
Equipment cost (MACRS 5 years)........................................................................$8,000,000
Net operating working capital requirement(% of sales)...........................................10%
First year sales(in units)............................................................................................20,000
Growth rate in units sold.............................................................................................0%
Sales price per unit......................................................................................................$3,000
Variable cost per unit.....................................................................................................$2,100
Fixed…
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- Assignment Question: A. Messi wishes to find the present value of $ 3,500 that will be received 12 years from now. Messi opportunity cost is 8%. ? b. Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. Briefly explain the Popular Sources of Risk Affecting Financial Managers and Shareholders? 1:06 PM Aarrow_forwardICE (Week 12, Lesson 123 Winter 2024 HRMNTO1-4 Launa Vaughan A. MODERNIZATION CASE (10 Marks) Management is contemplating investing $1.5 million to modernize a plant and they would like to get a 20% internal rate of return. Should they go ahead with the decision? The economic life of the project is estimated at 10 years. The savings (or cash inflows) are estimated at $300,000 per year. The cost of capital is 14%. Required:Calculate the Net Present Value of the project? (2 marks) What is the approximate IRR of the project? (2 marks) What is the payback of the project? (1 mark)Should management go ahead with the project? Why or why not? (2 marks) What factors, if they changed, would impact your decision? (3 marks)arrow_forwardpany has 15M st x pm/qa/wait/40630247/ Find lero Find study resources Browse Q Study Resources ✓ Textbook Solutions ashboard Earn your first $20 for withdrawal $2.00 Question: Sculls and Shells Corporation (S&S Corp.) is about to launch a new rowing boat. Depending on the success of the new product, S&S Corp. will have a value next year of $100M, $85M, or $50M. These outcomes are equally likely, and this risk is diversifiable. Suppose the risk- free rate is 5% and that, in the event of a default, 25% of the value of S&S assets will be lost to bankruptcy costs. If S&S's only obligation is a zero-coupon bond due next year, with a $90M face value next year, what is the market value of the bond today? Download Attachments image.png Accept Skip Do you want to answer this question? 8m 56s + Expert Tutors 10:20 PMarrow_forward
- Engineering Economy What amount should I invest today, Jan. 18, 2023 so that after 3 years the face value of my investment will be at ₱250,000. Assume that the market interest is 6.5%. Show your full solution. Please don't use excel in answering.arrow_forwardtudent question Time to preview question: 00:09:18 Seeking for accounting rate of return for Option 1, 2, & 3 (info below). The senior VP in charge has asked that you make a recommendation for the purchase of new equipment.Ideally, the company wants to limit its capital investment to $500,000. However, if an asset meritsspending more, an investment exceeding this limit may be considered. You assemble a team to helpyou. Your goal is to determine which option will result in the best investment for the company. Toencourage capital investments, the government has exempted taxes on profits from new investments.This legislation is to be in effect for the foreseeable future.The average reported operating income for the company is $1,740,000.The company uses a 10% discount rate in evaluating capital investments.The team is considering the following optionsOption 1:The asset cost is $300,000.The asset is expected to have an 8-year useful life with no salvage value.Straight-line…arrow_forwardPROJECT 8 QR Spring 2020 Finances - Word A jrush416 erences Mailings Review View Help Tell me what you want to do A Aa - 三 T AaBbCcDc AaBbCcDc AaBbC AAB6CCE TNormal T No Spac. Heading 1 Heading 2 Paragraph Styles 5. Suppose you want to have $900,000 forretirement in 30 years. Your account earns 8% interest. a) How much would you needto deposit in the account each month b) How much interest will you earn?arrow_forward
- ons Problem 12-26 Algo (Some Useful Excel Functions for Modeling) Question 6 of 6 Hint(s) Check My Work An auto dealership is advertising that a new car with a sticker price of $34,128 is on sale for $25,995 if payment is made in full, or it can be financed at 0% interest for 72 months with a monthly payment of $474. Note that 72 payments x $474 per payment $34,128, which is the sticker price of the car. By allowing you to pay for the car in a series of payments (starting one month from now) rather than $25,995 now, the dealer is effectively loaning you $25,995. If you choose the 0% financing option, what is the effective interest rate that the auto dealership is earning on your loan? (Hint: Discount the payments back to current dollars, and use Goal Seek to find the discount rate that makes the net present value of the payments $25,995.) Enter your answer as a percentage. If required, round your answer to one decimal digit. = 1.8 % Hide Feedback Incorrectarrow_forwardScore released: REIN300 Assess x E BFIN300 Assessment 2 m/forms/d/e/1FAlpQLSc5SjbreWzC0 VZPB352KWagrUU-yugkfRTKBEPK laptive Math | Ad. O New Tab X 1. Sarah now has $2,000. How much would she have after 2 years if she leaves it invested at 2% with annual compounding?* O a) $2,081 Ob) $2,800 O c) $2,900 O d) $245 e) None of the above Correct answer O a) $2,081arrow_forwardsd subject-Accounting You are considering an investment that will pay $24668 in 20 years. If the interest rate is 13.79%, what is the most you should be willing to invest today? (Round to 2 decimal places.)arrow_forward
- Back to Assignment Attempts 3. Problem 17.03 (AFN Equation) EG eBook Keep the Highest / 10 Carlsbad Corporation's sales are expected to increase from $5 million in 2021 to $6 million in 2022, or by 20%. Its assets totaled $2 million at the end of 2021. Carlsbad is at full capacity, so its asset must grow in proportion to projected sales. At the end of 2021, current liabilities are $1 million, consisting of $250,000 of accounts payable, $500,000 of notes payable, and $250,000 of accrued liabilities. Its profit margin is forecasted to be 3%. $ a. Assume that the company pays no dividends. Use the AFN equation to forecast the additional funds Carlsbad will need for the coming year. Write out your answer completely. For example, 5 million should be entered as 5,000,000. Round your answer to the nearest dollar. b. Why is this AFN different from the one when the company pays dividends? I. Under this scenario the company would have a higher level of retained earnings, which would reduce the…arrow_forwardProblem 2 ABM Enterprise would like to evaluate/analyze an investment proposal.Given the following:Investment amount - 450,000 (2022)Dividends / Revenue stream - 100,000 for the first year and an interval of 5,000 for thesucceeding yearsDiscount rate - 14% a. NPV for the perio 2023 through 2029;b. Total NPV using manual computation;c. Total NPV using the Excel function; andd. IRR rate.arrow_forwardPrinciple of Finance Workshop 1 Questions NPV Calculations 1. You have the opportunity to invest in a machine that costs $340,000. The machine generates revenues of $100,000 at the end of each year and requires maintenance costs of $10,000 at the beginning of each year. The machine incurs a maintenance cost today because of start-up expenses. If the economic life of the machine is five years and the relevant discount rate is 10%, should you buy the machine? What if the relevant discount rate is 9%?arrow_forward
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