Corporate finance problems for Lager Brewing Corporation

Ross: Chapter 7 - Problems: 7.3
The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated below. Cash flows are in $ thousands, and the corporate tax rate is 34 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year.
a. Compute the incremental net income of the investment for each year.
b. Compute the incremental cash flows of the investment for each year.
c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?

Chapter 8 - Problems: 8.13
8.13 The Cornchopper Company is considering the purchase of a new harvester. Cornchopper has hired you to determine the break-even purchase price (in terms of present value) of the harvester. This break-even purchase price is the price at which the project's NPV is zero. Base your analysis on the following facts:
• The new harvester is not expected to affect revenues, but pretax operating expenses will be reduced by $10,000 per year for 10 years.
• The old harvester is now 5 years old, with 10 years of its scheduled life remaining. It was originally purchased for $45,000 and has been depreciated by the straight-line method.
• The old harvester can be sold for $20,000 today.
• The new harvester will be depreciated by the straight-line method over its 10-year life.
• The corporate tax rate is 34 percent.
• The firm's required rate of return is 15 percent.
• The initial investment, the proceeds from selling the old harvester, and any resulting tax effects occur immediately. Capital gains and losses are taxed at the corporate rate of 34 percent when they are realized.
• All other cash flows occur at year-end.
• The market value of each harvester at the end of its economic life is zero.

Chapter 12 - Problems: 12.3
12.13 Calculate the weighted average cost of capital for the Luxury Porcelain Company. The book value of Luxury's outstanding debt is $60 million. Currently, the debt is trading at 120 percent of book value and is priced to yield 12 percent. The 5 million outstanding shares of
Luxury stock are trading at $20 per share. The required return on Luxury stock is 18 percent.
The tax rate is 25 percent.

Chapter 29 - Problems: 29.1
29.1 The Lager Brewing Corporation has acquired the Philadelphia Pretzel Company in a vertical merger. Lager Brewing has issued $300,000 in new long-term debt to pay for its purchase. ($300,000 is the purchase price.) Construct the balance sheet for the new corporation if the merger is treated as a purchase for accounting purposes. The balance sheets shown here represent the assets of both firms at their true market values. Assume these market values are also the book values.

References
Ross, S.A., Westerfield, R.W., Jaffe, J. (2005). Corporate Finance, 7e. New York. The McGraw-Hill Companies. Retrieved August 19, 2008 from University of Phoenix, rEsource.