E1-3) You have been treasurer for a day at AIMCO, Inc. AIMCO develops technology for video conferencing. A manager of the satellite division has...

E1-3) You have been treasurer for a day at AIMCO, Inc. AIMCO develops technology for video conferencing. A manager of the satellite division has asked you to authorize a capital expenditure in the amount of $10.000. The manager states that this expenditure is necessary to continue a long-running project designed to use satellites to allow video conferencing anywhere on the planet. The manager admits that the satellite concept has been surpassed by recent technological advances in telephony, but he feels that AIMCO should continue the project. His reasoning is based on the fact that $2.5 million has already been spent over the past 15, but he feels that AIMCO should continue the project. His reasoning is based on the fact that $2.5 million has already been spent over the past 15 years on this project. Although the project has little chance to be viable, the manager believes it would be a shame to waste the money and time already spent.

Use marginal cost-benefit analysis to make your decision regarding whether you should authorize the $10,000 expenditure to continue the project.

E2-3) For what kinds of needs do you think a firm would issue securities in the money market versus the capital market?

E3-4) Bluestone Metals, Inc., is a metal fabrication firm that manufactures prefabricated metal parts for customers in a variety of industries. The firm’s motto is “If you need it, we can make it.” The CEO of Bluestone recently held a board meeting during which he extolled the virtues of the corporation. The company, he stated confidently, had the capability to build any product and could do using a lean manufacturing model. The firm would soon be profitable, claimed the CEO, because the company used state-of-the –art technology to build a variety of products while keeping inventory levels low. As a business press reporter, you have calculated some ratios to analyze the financial health of the firm. Bluestone’s current rations and quick ratios for the past 6 years are shown in the table below:

2007 2008 2009 2010 2011 2012

Current ratio: 1.2 1.4 1.3 1.6 1.8 2.2

Quick ratio: 1.1 1.3 1.2 0.8 0.6 0.4

What do you think of the CEO’s claim that the firm is lean and soon to be profitable? (Hint: Is there a possible warning sign in the relationship between the two ratios?

E4-3) Determine the operating cash flow (OCF) for Kleczka, Inc., based on the following data. ( All values are in thousands of dollars.) During the year the firm had sales of $2,500, cost of goods sold totaled $1,800, operating expenses totaled $300, and depreciation expenses were $200. The firm is in the 35% tax bracket.

E5-1) Assume a firm makes a $2,500 deposit into its money market account. If this account is currently is currently paying 0.7% (yes, that’s right, less than 1%!), what will the account balance be after 1 year?

E6-1) The risk free rate on T-bills recently was 1.23%. If the real rate of interest is estimated to be 0.80%, what was the expected level of inflation?

E7-1) A balance sheet balances assets with their sources of debt and equity financing. If a corporation has assets equal to $5.2 million and a debt ratio of 75.0%, how much debt does the corporation have on its books?

E8-1) An analyst predicated last year that the stock of Logistics, Inc., would offer a total return of at least 10% in the coming year. At the beginning of the year, the firm had a stock market value of $10 million. At the end of the year, it had a market value of $12 million even though it experienced a loss, or negative net income, of $2.5 million. Did the analyst’s predication prove correct? Explain using the values for total annual return.

E9-1) A firm raises capital be selling $20,000 worth of debt with flotation costs equal to 2% of its par value. If the debt matures in 10 years and has a coupon interest rate of 8%, what is the bond’s YTM?