Capital Budgeting, Finance Homework, business and finance homework help

Question 1:  (Capital Budgeting)  2 points

Calculate the
IRR of the following project:

  Year  Cash Flow

    0    ($55,000)

    1    $21,000

    2    $23,000

    3    $25,000

Question 2:  (Capital Budgeting)  2 points

Calculate the Modified Internal Rate of Return (MIRR) of the
project in Question 3, assuming your firm’s cost of capital is 7%.

Question 3:  (Capital Structure)  4 points

A consultant has collected the following information
regarding Hobbit Manufacturing:

Operating income (EBIT) $600 million, Debt  $0, Interest expense $0, Tax rate 35%, Cost
of equity 7%, WACC 7% . The company has no growth opportunities (g = 0), so the
company pays out all of its earnings as dividends .  Hobbit can borrow money  at a pre-tax rate of 5%. The consultant
believes that if the company moves to a capital structure consisting of 30%
debt and 70% equity (based on market values), which would require taking on
debt in the amount of $1,779.47 million, that the cost of equity will increase
to 8%  and the pre-tax cost of debt will
remain at 6%, but the value of the firm will rise.  Is the consultant correct? If the company
makes this change, what will be the increase in total market value for the
firm?

Question 4:  (Forecasting) 
8 points

Jolly
Joe’s Novelties, Inc. had the financial data shown below last year.  Jolly Joe’s has just invented a new toy which
they expect will cause sales to double from $100,000 to $180,000, increasing
net income to $12,000.  From experience the company knows that when sales changes,
all current assets plus accounts payable and accrued expenses change at the
same percentage rate, and the company feels they can handle the increase
without adding any fixed assets. a. Will Jolly Joe’s need any new outside
funding if they pay no dividends?

  b. If so,
how much will be needed?

Question 5:  (Working Capital Management)  4 points

Suppose it takes Jolly Joe’s Novelties, Inc. 5 days to build
and sell toys (on average).  Also suppose
it takes the firm’s customers 35 days, on average, to pay for the toys after
they have purchased them on credit. 
Finally, suppose the firm is able to delay paying for the materials it
uses in the manufacturing process for 30 days. 
Given these conditions, how long is Jolly Joe’s cash conversion cycle?

Question 6:  (Working Capital Management)  4 points

If Jolly Joe’s buys $100 worth of supplies on credit with
terms 3/10 n30 and pays the bill on the 28th day after the  purchase:

  a. What is the
approximate, or “nominal,” cost of trade credit as an annual rate?

  b. What is the exact
cost of trade credit as an annual rate?M

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