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Submitted by tasa_t on Wed, 2012-05-23 20:12
due on Sun, 2012-05-27 20:11
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Can you assist me with finance?

ntroduction

You will assume that you still work as a financial analyst for AirJet Best Parts, Inc. The company is considering a capital investment in a new machine and you are in charge of making a recommendation on the purchase based on (1) a given rate of return of 15% (Task 4) and (2) the firm’s cost of capital (Task 5).

Task 4. Capital Budgeting for a New Machine

A few months have now passed and AirJet Best Parts, Inc. is considering the purchase on a new machine that will increase the production of a special component significantly. The anticipated cash flows for the project are as follows:

Year 1 $1,100,000

Year 2 $1,450,000

Year 3 $1,300,000

Year 4 $950,000

You have now been tasked with providing a recommendation for the project based on the results of a Net Present Value Analysis. Assuming that the required rate of return is 15% and the initial cost of the machine is $3,000,000.

• What is the project’s IRR? (10 pts)


• What is the project’s NPV? (15 pts) 


• Should the company accept this project and why (or why not)? (5 pts) 


• Explain how depreciation will affect the present value of the project. (10 pts) 


• Provide examples of at least one of the following as it relates to the project: (5 pts each)

• Sunk Cost

• Opportunity cost

• Erosion 


• Explain how you would conduct a scenario and sensitivity analysis of the project. What would be some project-specific risks and market risks related to this project? (20 pts)

Task 5: Cost of Capital

AirJet Best Parts Inc. is now considering that the appropriate discount rate for the new machine should be the cost of capital and would like to determine it. You will assist in the process of obtaining this rate.

• Compute the cost of debt. Assume AirJet Best Parts Inc. is considering issuing new bonds. Select current bonds from one of the main competitors as a benchmark. Key competitors include Raytheon, Boeing, Lockheed Martin, and the Northrop Grumman Corporation. 


• What is the YTM of the competitor’s bond? You may use a number of sources, but we recommend Morningstar. Find the YTM of one 15 or 20 year bond with the highest possible creditworthiness. You may assume that new bonds issued by AirJet Best Parts, Inc. are of similar risk and will require the same return. (5 pts) 


• What is the after-tax cost of debt if the tax rate is 34%? (5 pts) 


• Explain what other methods you could have used to find the cost of debt for AirJet Best Parts Inc.(10 pts) 


• Explain why you should use the YTM and not the coupon rate as the required return for debt. (5 pts) 


• Compute the cost of common equity using the CAPM model. For beta, use the average beta of three selected competitors. You may obtain the betas from Yahoo Finance. Assume the risk free rate to be 3% and the market risk premium to be 4%. 


• What is the cost of common equity? (5 pts) 


• Explain the advantages and disadvantages to use the CAPM model as the method to compute the cost of common equity. Compare and contrast this method with the dividend growth model approach. (10 pts) 


• Compute the cost of preferred equity assuming the dividend paid for preferred stock is $2.93 and the current value of the stock is $50 per share.


• What is the cost of preferred equity? (5 pts) 


• Is there any other method to compute this cost? Explain. (5 pts) 


• Assuming that the market value weights of these capital sources are 30% bonds, 60% common equity and 10% preferred equity, what is the weighted cost of capital of the firm? (10 pts) 


• Should the firm use this WACC for all projects? Explain and provide examples as appropriate. (10 pts)


• Recompute the net present value of the project based on the cost of capital you found. Do you still believe that your earlier recommendation for accepting or rejecting the project was adequate? Why or why not? (5 pts)

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Submitted by shahimermaid on Sat, 2013-08-24 03:09
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Task xx xxxxxxx Budgeting xxx a xxx xxxxxxxxx• What is the xxxxxxx’x IRR? xxx xxxxxxx

xxx is that rate xx discount where xxxxx

xxxxx Excel formula, IRR xxx found xx xx xxxxxxx xx and 23%and then xxxxxxxx xxxxxxxxxx as follows:

LDR xxxxxxxx xxxxxxxxxxx xxxxxxxxxxxxxxxxxx x xxxxx xxxxxxxx xxxxxxxxx xxxxxx xxxxxxxx Rate Pv1= xxxxxxx xxxxx xx xxxxx Rate Of xxxxxxxxxxx Present Value xx Higher xxxx Of xxxxxxxx = xxx Cash Outlay

xxxxxxxxxxxxxxxxxxxxxx

xxxx

 

PVF @ 22%

xx CASH FLOW

PVF 23%

PV xxxx xxxx

x

($3,000,000.00)

 

($3,000,000.00)

 

($3,000,000.00)

x

$1,100,000

0.820

$901,639.34

0.813

$894,308.94

x

xxxxxxxxxx

0.672

xxxxxxxxxxx

0.661

$958,424.22

x

$1,300,000

0.551

xxxxxxxxxxx

xxxxx

$698,599.09

4

$950,000

xxxxx

xxxxxxxxxxx

0.437

$415,052.62

 

 

 

xxxxxxxxxx

 

($33,615.12)

xxx (20587.92)/ xxxxxxxxxx *1= xxxxxx

• xxxx xx xxx project’x xxxx xxx pts) 


xxxxxxxxxxxxxx

YEAR

 

PVF@15%

xx xxxx xxxx

0

xxxxxxxxxxxxxxx

x

($3,000,000.00)

x

$1,100,000

xxxxx

$956,521.74

2

$1,450,000

0.756

xxxxxxxxxxxxx

x

xxxxxxxxxx

0.658

$854,771.10

4

$950,000

0.572

xxxxxxxxxxx

 

 

 

$450,866.74

NPV= $450,866.74. • Should the xxxxxxx xxxxxx this project xxx xxx (or xxx xxxxx xx xxxx xxx

The xxxxxxx xxxxxx accept xxx xxxxxxx xx NPV is positive at the desired rate of return and IRR is 22.38%.

• xxxxxxx xxx depreciation xxxx xxxxxx xxx present value xx xxx project. xxx xxxx xxx

Depreciation is a xxxxxxxx item, xx will xx xxxxx xxxx xx

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Answer
Submitted by shahimermaid on Sat, 2013-08-24 03:08
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Task 4. xxxxxxx Budgeting for x New Machine • What is xxx project’x IRR? xxx xxxxxxx

IRR xx that xxxx of xxxxxxxx where xxxxx

xxxxx xxxxx formula, IRR xxx xxxxx to xx xxxxxxx xx and 23%and xxxx xxxxxxxx xxxxxxxxxx as xxxxxxxx

xxx +[PV1-Q] xxxxxxxxxxx xxxxxxxxxxxxxxxxxx = Lower xxxxxxxx Rate Hdr= Higher Discount Rate Pv1= xxxxxxx Value At xxxxx Rate xx Return Pv2= xxxxxxx xxxxx At xxxxxx xxxx Of xxxxxxxx = Net xxxx xxxxxx

xxxxxxxxxxxxxxxxxxxxx

YEAR

 

xxx @ 22%

xx CASH FLOW

xxx 23%

xx CASH xxxx

0

xxxxxxxxxxxxxxx

 

xxxxxxxxxxxxxxx

 

xxxxxxxxxxxxxxx

x

$1,100,000

xxxxx

$901,639.34

0.813

$894,308.94

x

$1,450,000

xxxxx

$974,200.48

0.661

xxxxxxxxxxx

3

xxxxxxxxxx

0.551

xxxxxxxxxxx

xxxxx

$698,599.09

x

$950,000

0.451

xxxxxxxxxxx

xxxxx

$415,052.62

 

 

 

$20,587.92

 

xxxxxxxxxxxx

22+ (20587.92)/ xxxxxxxxxx xxx xxxxxx

• What xx xxx project’s NPV? xxx pts) xxx

xxxxxxxxxxxxx

xxxx

 

PVF@15%

PV xxxx xxxx

x

xxxxxxxxxxxxxxx

1

($3,000,000.00)

x

$1,100,000

0.870

$956,521.74

2

$1,450,000

0.756

xxxxxxxxxxxxx

3

xxxxxxxxxx

0.658

$854,771.10

x

$950,000

xxxxx

xxxxxxxxxxx

 

 

 

$450,866.74

NPV= xxxxxxxxxxxxx• xxxxxx the company xxxxxx xxxx project xxx xxx xxx why not)? (5 pts) 


xxx xxxxxxx should accept xxx project as xxx xx xxxxxxxx at xxx desired rate of xxxxxx xxx xxx is 22.38%.

• xxxxxxx how xxxxxxxxxxxx will xxxxxx the xxxxxxx value xx xxx project. (10 xxxx 


xxxxxxxxxxxx xx x xxxxxxxx xxxxx it xxxx xx xxxxx xxxx xx

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Submitted by shahimermaid on Sat, 2013-08-24 03:08
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Task xx xxxxxxx xxxxxxxxx xxx x xxx xxxxxxxxx• xxxx is xxx xxxxxxx’x xxxx (10 pts)


IRR xx that xxxx of discount where NPV=0

xxxxx xxxxx xxxxxxxx IRR xxx xxxxx to xx between xx and 23%and xxxx xxxxxxxx calculated as xxxxxxxx

LDR +[PV1-Q] /[PV1-PV2]* (HDR-LDR) Here Ldr = xxxxx Discount Rate Hdr= Higher xxxxxxxx Rate Pv1= xxxxxxx Value xx Lower xxxx Of xxxxxxxxxxx Present Value xx xxxxxx xxxx xx xxxxxxxx x Net xxxx Outlay

xxxxxxxxxxxxxxxxxxx

xxxx

 

PVF @ 22%

xx CASH FLOW

xxx xxx

PV CASH xxxx

x

($3,000,000.00)

 

xxxxxxxxxxxxxxx

 

xxxxxxxxxxxxxxx

1

$1,100,000

xxxxx

$901,639.34

0.813

xxxxxxxxxxx

x

$1,450,000

xxxxx

xxxxxxxxxxx

xxxxx

xxxxxxxxxxx

x

xxxxxxxxxx

xxxxx

xxxxxxxxxxx

xxxxx

$698,599.09

x

$950,000

xxxxx

xxxxxxxxxxx

0.437

$415,052.62

 

 

 

xxxxxxxxxx

 

xxxxxxxxxxxx

xxx xxxxxxxxxxx $54,203.04 *1= xxxxxx

• xxxx is xxx project’s NPV? (15 xxxx xxx

xxxxxxx

xxxx

 

xxxxxxx

xx xxxx FLOW

0

xxxxxxxxxxxxxxx

1

xxxxxxxxxxxxxxx

1

$1,100,000

xxxxx

xxxxxxxxxxx

x

xxxxxxxxxx

xxxxx

xxxxxxxxxxxxx

x

$1,300,000

0.658

$854,771.10

4

$950,000

0.572

$543,165.58

 

 

 

$450,866.74

xxxx $450,866.74. • xxxxxx xxx company xxxxxx this xxxxxxx xxx xxx xxx why not)? xx pts) 


The xxxxxxx xxxxxx xxxxxx xxx project as NPV is xxxxxxxx at xxx desired xxxx of return xxx IRR xx xxxxxxx

• xxxxxxx how xxxxxxxxxxxx will affect the present value of xxx project. (10 xxxx 


xxxxxxxxxxxx is a xxxxxxxx xxxxx it xxxx xx added xxxx xx

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Submitted by shahimermaid on Sat, 2013-08-24 03:06
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task 5

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xxxx 5

Task xx Cost of xxxxxxxxxxxxxxx the xxxx xx xxxxx Assume AirJet xxxx Parts Inc. is xxxxxxxxxxx xxxxxxx new bonds. Select current bonds xxxx xxx xx xxx main xxxxxxxxxxx xx x benchmark. xxx xxxxxxxxxxx include Raytheon, Boeing, xxxxxxxx xxxxxxx and the xxxxxxxx Grumman Corporation. 


• xxxx is xxx xxx xx the xxxxxxxxxx’x bond? xxx xxx use x xxxxxx of xxxxxxxx xxx we recommend Morningstar. xxxx xxx YTM of one 15 xx 20 xxxx xxxx with xxx xxxxxxx possible creditworthiness. You may assume that xxx bonds issued xx AirJet xxxx Parts, xxxx xxx of similar xxxx xxx xxxx require the xxxx xxxxxxx xx pts) xxx

Source: Morning star.

xx xx 20 years xxxx 2013 xxxx be 2028 xx 2033. So xx select xxxxxx 6.125% xxxx xxxx xxxxxx in xxxxx YTM xxx this xxxx is 4.64%

• What is xxx after-tax cost of debt xx the xxx rate is 34%? xx pts) xxx

xxxxxx

YTM

xxxxx

xxx rate

xxxx

4.64 *(1-0.34)*100

xxxxx xxx xxxx xx debt

xxxxxx

• Explain what other methods you could xxxx xxxx xx find xxx

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Answer
Submitted by shahimermaid on Wed, 2012-05-23 22:52
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answer for task 4

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xxxx xx Capital Budgeting xxx a xxx xxxxxxxxx• xxxx xx the project’s xxxx (10 xxxxxxx

xxx xx that xxxx xx xxxxxxxx xxxxx NPV=0

Using Excel xxxxxxxx IRR was found xx be xxxxxxx 22 and 23%and then manually xxxxxxxxxx as xxxxxxxx

LDR xxxxxxxx /[PV1-PV2]* (HDR-LDR) Here Ldr x Lower xxxxxxxx xxxxxxxxx xxxxxx xxxxxxxx xxxxxxxxx Present xxxxx xx Lower xxxx Of Return Pv2= Present Value At Higher xxxx Of Return Q = xxx Cash xxxxxx

xxxxxxxxxxxxxxxxxxxxx

YEAR

 

xxx @ 22%

PV CASH FLOW

xxx xxx

PV xxxx xxxx

0

xxxxxxxxxxxxxxx

 

xxxxxxxxxxxxxxx

 

xxxxxxxxxxxxxxx

x

$1,100,000

0.820

$901,639.34

0.813

$894,308.94

x

xxxxxxxxxx

0.672

$974,200.48

xxxxx

xxxxxxxxxxx

x

$1,300,000

xxxxx

xxxxxxxxxxx

0.537

$698,599.09

x

$950,000

0.451

$428,829.13

xxxxx

$415,052.62

 

 

 

xxxxxxxxxx

 

($33,615.12)

22+ (20587.92)/ xxxxxxxxxx xxx 22.38%

• xxxx xx xxx project’x NPV? xxx xxxx 


xxxxxxxx

xxxx

 

xxxxxxx

xx CASH xxxx

0

xxxxxxxxxxxxxxx

x

($3,000,000.00)

x

xxxxxxxxxx

xxxxx

$956,521.74

2

xxxxxxxxxx

xxxxx

$1,096,408.32

x

xxxxxxxxxx

0.658

xxxxxxxxxxx

x

xxxxxxxx

xxxxx

xxxxxxxxxxx

 

 

 

$450,866.74

xxxx xxxxxxxxxxxxx• xxxxxx the xxxxxxx xxxxxx xxxx xxxxxxx xxx xxx xxx why not)? (5 xxxx 


The company should accept xxx xxxxxxx xx xxx is positive xx xxx xxxxxxx rate of xxxxxx and xxx is xxxxxxx

• Explain xxx depreciation xxxx xxxxxx the xxxxxxx xxxxx of the project. xxx xxxx 


xxxxxxxxxxxx xx a xxxxxxxx item, xx xxxx be added xxxx xx

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Answer
Submitted by neel on Tue, 2012-06-05 10:38
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assignment as discussed with you-NEEL

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here x xxxxxxxxxxxxxxxxx

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xxxxxx

xxxxxxx
xxx will xxxxxx that xxx xxxxx work xx x xxxxxxxxx xxxxxxx for AirJet xxxx xxxxxx xxxx The xxxxxxx is xxxxxxxxxxx x capital xxxxxxxxxx xx a new machine and you are in xxxxxx of making x xxxxxxxxxxxxxx on the purchase based xx (1) a xxxxx rate xx return of xxx xxxxx xx and xxx xxx firm’s xxxx xx capital xxxxx xxx
xxxx 4. Capital Budgeting for a New xxxxxxx
x few xxxxxx xxxx now xxxxxx xxx xxxxxx Best xxxxxx xxxx xx considering the purchase xx a xxx machine that xxxx increase xxx production of a special xxxxxxxxx significantly. xxx anticipated cash flows xxx xxx project are xx xxxxxxxx
Year 1 $1,100,000
xxxx 2 $1,450,000
Year x xxxxxxxxxx
xxxx x $950,000
xxx have now xxxx tasked xxxx providing a recommendation for xxx xxxxxxx xxxxx on the results xx x xxx Present Value Analysis. Assuming that xxx required rate of xxxxxx is 15% and xxx xxxxxxx cost of the machine xx $3,000,000.
• What is the xxxxxxx’s IRR? (10 xxxxxxx
• xxxx xx the project’s xxxx (15 pts) 

• xxxxxx

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Answer
Submitted by Smart Tutor on Mon, 2015-01-12 06:37
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About AirJet Best Parts, Inc.

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About xxxxxx xxxx xxxxxx Inc.

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xxxxxxx xxxxxxx Part 1

BUSN-379

Course Project – Part 1

xxxx 1: xxxxxxxxx loan options xxx AirJet Best Parts, xxxx

The xxxxxxx xxxxx xx xxxxxxx $8,000,000 xxx x new factory in Mexico. xxx funds xxxx be obtained xxxxxxx x commercial loan xxx xx issuing corporate xxxxxx Here is some of the information xxxxxxxxx xxx xxxx xxxxxxx by xxx xxxxxxxxxx xxxxxxxxxx xxxxxx

Bank APR xxxxxx of xxxxx xxxxxxxxxx

National xxxxx xxxxx xxxx + 6.75% Semiannually

Regions Best 13.17 Monthly

xx Assuming that xxxxxx Parts, Inc. xx considering xxxxx xxxx xxxxxxxx First and xxxxxxx Best, xxxx are xxx EARs for xxxxx two xxxxxx xxxx for National xxxxx xx xx xxx xxx Louis Federal Reserve Board’x website xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Select “Interest xxxxx” and xxxx “Prime xxxx xxxx xxxx”. xxx xxx latest MPRIME. Show your xxxxxxxxxxxxx xxx xxxx

xx National First xxxxxxx 3.25%) +6.75% = 10% xxxxxxxxxxxx

xxx x (1+.10/2) xx – 1 xxxxx xx xxxxx

xx Regions xxxx Rate is 13.17%

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