1 firm valuationa obtain the cost of equity capital and the

Assignment Help Corporate Finance

Reference no: EM13381952

1. Firm Valuation

a. Obtain the cost of equity capital and the perpetuity growth rate from the two stage dividend discount model for Boeing. Modify the spin button to show two decimals. Keep all other information from the April 3 exercise and obtain the value of the firms through the five methods with and without horizon.

2. Loan Amortization.

a. To purchase a house, you take out a 30 year mortgage. The PV of the mortgage is $217,832 with an interest rate of 9.27%. What is the annual payment required by this mortgage? How much of each year's payment goes to paying interest and how much reducing the principal balance?

b. In purchasing the house, you need to obtain a mortgage with a PV of $175,000. You have a choice of (A): a 30 year mortgage at an interest rate/year of 9.74% or(B) a 15 year mortgage at an interest rate/ year of 9.46%. What is the annual payment required by the two alternative mortgages? How much of each year's payment goes to paying interest and how much reducing the principal balance by the two alternative mortgages? Which mortgage would you prefer?

c. Consider a 30 year mortgage for $442,264 as in the previous section. What would happen if the interest rate dropped from 9.21% to 7.95%. How much of each year's payment goes to paying interest vs. how much goes to reducing the principal under the two interest rates?

3. Cost-Reduction

a. Suppose a firm is considering a labor-saving investment. In year 0, the project requires a $11,700 investment in equipment (all figures are in thousands of dollars). This investment is depreciated using the straight-line method over five years and there is salvage value in year 5 of $4,500. With or without the cost-reducing investment, all cash flows start in year 1 and end in year 5. The inflation rate is 2.6% in year 2 and declines to 1.4% in year 5. The real growth rate is 21.3% in year 2 and declines to 9.5% in year 5. The tax rate is 41% in all years. The real cost of capital is 8.7% in year 1 and declines to 7.5% in year 5. Without the cost-reducing investment, the firm's existing investments will generate year 1 labor costs, other cash expenses, and depreciation of $15,200, $4,100, $5,300, and $3,300 respectively. Whit is the cost-reducing investment, the firm's year 1 labor costs will be $1,600 and revenues and other cash expenses will remain the same. What is the cost-reducing project's NPV?

b. For the same cost-reducing project as problem 1, analyze the sensitivity of the Project NPV to the assumed With Investment Labor Costs.

4. Option Buttons

b. On the same work sheet show three option buttons modifying one cell and two different option buttons modifying a different cell.

5. Scenario Analysis

a. Use the following information and all other information from the March 20^th file to construct a data validation dropdown, combo dropdown, and data table (What if Analysis) with the following three cases. Please create each method on a different worksheet.

Reference no: EM13381952

Questions Cloud

Problem 1suppose the us dollar and euro interest rate for : problem 1suppose the us dollar and euro interest rate for the next one year are 1.5 and 2 respectively. both are

Problem a stock currently sells for 50 in six months it : problem a stock currently sells for 50. in six months it will either rise to 55 or decline to 45. the risk-free

Problemthe following information is given about options on : problemthe following information is given about options on the stock of a certain companys0 20 x 20 r 5 c.c. t 0.5

Firm a has 20000 in assets entirely financed with : firm a has 20000 in assets entirely financed with equity.firm b also has 20000 in assets financed by 10000 in debt with

1 firm valuationa obtain the cost of equity capital and the : 1. firm valuationa. obtain the cost of equity capital and the perpetuity growth rate from the two stage dividend

Central city construction ccc needs 1 million of assets to : central city construction ccc needs 1 million of assets to get started and it expects to have a basis earning power

On the evening of february 20 2012 private institutional : on the evening of february 20 2012 private institutional investors representatives of the imf ecb and european

1q the budget has been called the hospitals financial : 1q. the budget has been called the hospitals financial blueprint. what value does the budgeting process provide to

Suppose you manage the local scoopys ice cream parlor in : suppose you manage the local scoopys ice cream parlor. in addition to selling ice-cream cones you make large batches of

User Account

All Pages