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What is the NPV that makes you indifferent between the two options?

Price:
$18.99
SKU:
701543


Product Description

1) You are thinking of buying a miniature golf course to operate. It is expected to generate cash flows of

$45,000 per year in years one through three and $55,000 per year in years four through eight. If the

appropriate discount rate is 12%, what is the most you would pay for this golf course?

2) Your team is evaluating two mutually exclusive projects. The initial cost of each investment is $50,000.

The probability of the cash flows is shown below. If the project will have a 5 year life and the appropriate

cost of capital is 9% calculate the following:

Probabilit

y CF(A) CF(B) 10% (

34,000) (13,500) 25% (8,500) 2,125 30% 17,000 19,000 25% 42,500 31,875 10% 68,000 46,750 a)

b)

c)

d)

e) Expected value

NPV

Standard deviation

IRR

MIRR Use the information below for the next problem

Depreciation

EBIT

Investment in Operating Assets

Tax Rate

Find the free cash flow 34,000

179,000

69,000

34% 3. Calculate the free cash flow

Use the following information for the next problem

The Security Market Line

Beta

Expected Return

If the risk free rate is

Find the expected return on security X Security X

0.76

?

2.80% Market

1

12% 4. What is the expected return for Security X?

Use the following information for the next three problems, Year Cash

Flow 1 $12,500 2 $14,000 3 $10,000 4 $11,000 5 $16,000 5. What is the NPV of above project if the initial investment was $35,000?

6. Calculate the IRR assuming a cost of capital of 11%.

7. Calculate the MIRR of the project assuming a cost of capital of 11%.

___________

8. Suppose that you are approached with an offer to purchase an investment that will provide cash flows of

$1,600 per year for 18 years. The cost of purchasing this investment is $9,200. You have an alternative

investment opportunity, of equal risk, that will yield 9% per year. What is the NPV that makes you

indifferent between the two options?

______

9. The Claustrophobic Solution, Inc., a residential window and door manufacturer, has the following

historical record of earnings per share (EPS) from 2015 to 2007: 2015 2014 2013 2012 2011 2010 2009 2008 2007 The company’s payout ratio

EP $1.28 $1.22 $1.18 $1.13 $1.10 $1.05 $1.00 $0.95 $0.90 has been 57% over the last

nine years and the last quoted

S

price of the firm’s share of

stock was $15. Flotation costs for new equity will be 7%. The company has 34,000,000 of common shares of

stock outstanding and a debt-equity ratio of 0.45. If dividends are expected to grow at the same arithmetic average growth rate of the last nine years, what is the

dividend payment per share in 2016?

___________Use the following data for the next 3 questions

The following are the company sales from 2000-2015

Year

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015 Xylophone

$230

$573

$994

$1,683

$3,192

$6,140

$8,892

$13,586

$18,376

$29,476

$33,598

$44,208

$58,473

$96,368

$149,306

$209,397 10. Fit an exponential trend curve to the data- show the equation

11. Calculate the projected sales in 2016

12. What is the CAGR over the 2000-2015 period?

__________Use the following data for the next 3 problems

Roxie’s Surf Shop is expanding their product line, adding a high end surf board to their existing basic product.

Their fixed costs for the equipment needed for the new boards is $5700 per month.

The new board will cost $278 per board and they can be sold for $450.

13. How many new boards per month will they need to sell to breakeven quantity per month?

14. If the fixed costs are reduced to $4800 per month what is the new breakeven quantity?

15. If the fixed costs stay at $5300 and they want to have at least $1000 per month in profit how many

boards should they sell?

Use the information below for the next 4 answers

Debt 5,000 bonds par $1,000 with a maturity 20 years; semi annual compounding. Coupon rate 8%.

Price $1,310.

Preferred 50,000 shares of 3% par

value $100 stock. Current price $63.00. Common stock 72,000 shares currently selling for $87.00. The beta of the firm is 1.17, the risk free

rate is 2.78%, Market return (Rm) =8.6%.

16. Cost of debt

17. Cost of preferred

18. Cost of equity

19. WACC Use the following data for the remaining problems.

Capstone Quarry is analyzing whether a new contract proposal will be a good idea. The relevant data is shown

below. The net working capital will

 be paid in the same time period as the cost of the equipment and will be

recovered at the end of the project.

Remember to calculate the after-tax gain or loss of salvage as part of your

terminal cash flow.

Capstone Quarry Company Contract Analysis

23,000 Tons

Amount of Rock Salt per Year

$

145

Revenue per Ton

$ 2,750,000

Cost of Equipment

5

Life(years)

5

MACRS Class

$ 475,000

Fixed Cost per year

$

85

Var Cost/Ton

$ 105,000

Actual Salvage

$

85,000

Change in NWC

12%

Required Return

34%

Tax Rate

20. Find the cash flows for each year

21. Net present value

22. Payback period

23. Discounted payback

24. IRR

25. MIRR

Hint:

Annual Cash Flows for Capstone Quarry

Year 0

Initial Outlay

Unit Sales

Sales

Variable Costs

Fixed Costs

Depreciation

Taxable Cash Flows

Taxes Year 1 Year 2 Year 3 Year 4 Year 5 Add: Depreciation

Annual After-Tax Cash Flow

Terminal Cash Flow

Total Annual Cash Flows


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