Introduction 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).
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Your division is considering two projects. Its WACC is 10 percent, and the projects after-tax cash flows (in million of dollars) would be: TIME 1 2 3 4 5 ------------------------------------------------- Project A: -$30 5 10 15 20 Project B: -$30 20 10 8 6 a. Calc
Question Business XYZ is deciding whether or not to replace an existing asset. The proposed asset has a purchase cost of $40,000 and an installation cost of $6,000. The proposed asset will be depreciated over a six-year span using the straight-line depreciation approach. The new asset is expected to elevate sales by $18,000
Assume you are recently hired by Coke as a business analyst and your first task is to analyze the merits of a new project as follows: the marketing team would like to launch a new sports drink called Zynergy. It is a drink that will target young to middle aged adults. They are anticipating the following: · First year sales ar
ADVENTURES ADVANTAGE INC. Situation: The firm builds thrill rides for amusement and theme parks. The rides are engineered at its headquarters in Tampa, Florida in collaboration with engineers in India and China. Once designed production plans are engineered by a firm in Malaysia. The components parts of the
What is the present value of the following net cash flows if the discount rate is 12%: Year Cash Flow 1-5 $10,000 each year 6-10 $15,000 each year 11-15 $17,000 each year
P12-2B Compute annual rate of return, cash payback, and net present value. Jo Quick is managing director of Tot Lot Day Care Center. Tot Lot is currently set up as a full-time child care facility for children between the ages of 12 months and 6 years. Jo Quick is trying to determine whether the center should expand its facili
Construction projects are often analyzed through capital budgeting. Let's use this example as a guideline to understand the net present value of projects. So, let's assume that the "Project" is a new manufacturing plant. Costs associated with the project are $4 million to build the plant and $1 of costs to run the plant every ye
Genesis Inc. (a U.S. firm) considers a foreign project where it expects to receive 10 million euros at the end of this year. It plans to hedge receivables of 10 million euros with a forward contract. Today, the spot rate of the euro is $1.20, while the one-year forward rate of the euro is presently $1.24, and the expected spot r
Pure Water, Inc. is considering buying a new bottling machine that costs $45,000. They expect to finance 100% of the machine through a bank loan that offers them a 10% interest. The cash flows of the project are: Year 1: $15000 Year 2: $20000 Year 3: $25000 Year 4: $10000 Year 5: $5000 1. What is the net present value
Give three financing alternatives for expanding Toyota's operations into Brazil. 760 words
Ford Motor spends $2,000,000 on a new conveyor system in an old plant. It calculates that the cash flows for the next five years (profit after taxes plus depreciation) are as follows. Assuming that the equipment will be abandoned after the five year period, calculate payback and Net Present Value. The cost of capital is 10%
You are considering an investment in Delight Inc. Other investments of similar risk are offering 12%. Answer the following questions. a. Delight must return at least _____ in order to attract investors. b. If Delight is expected to return 15%, will net present value be positive or negative?
The company's financial manager and account were arguing over how to properly take account of inflation when analyzing capital investment projects. The accountant typically included estimates of price level changes when estimating and projecting future cash flows. For this he took the governments GDP price deflator as
Please help answer the following questions. Provide at least 200 words in your solution. 1. What is the relationship between risk and expected return? 2. How much financial risk are you willing to take? By that I simply mean would you risk money on something with a potential high return when it also meant you might lose
Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?
Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to
1. High Tech Production Inc. purchased a computerized measuring device two years ago for $80,000. This equipment falls into the five-year category for MACRS depreciation. The equipment can currently be sold for $28,400. A new piece of equipment will cost $210,000 that would replace the exisitng equipment. It also falls into the
1. What is the value of $500 paid each 6 months for 5 years at a nominal (annual) rate of 14% compounded semiannually. 2. If a Corporation's 2007 sales were $10 million. If its 2002 sales were $5 million, what is the computed growth rate in sales.
1. When analysts and investors determine the value of a firm's stock, they should consider: a. the size of the expected cash flows associated with owning the stock b. the timing of the cash flows. c. the riskiness of the cash flows. d. all of the above 2. An officer of a firm that is a majority owner in a competing firm
Complete the following exercise, using the Excel template found in your online classroom.. In eight years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be managed in the free time he has available from his regular occupation, and it could be closed easily when he
Kemp Corporation is evaluating whether to lease or purchase equipment. The equipment will cost $500,000 if purchased, and the entire amount will be financed by a bank loan at an annual interest rate of 10 percent. At the end of 4 years, the company expects to sell the equipment for $60,000. The equipment falls in the MACRS 3-
1. A corporate bond has a coupon rate of 12%, a yield to maturity of 10.55%, a face value of $1,000, and a market price of $850. Therefore, the annual interest payment is: Answer is A) 101.75 B) 102 C) 105.50 D) 120.00 2. Johnstown Supply Corporation stock is currently selling for $58.00. It is expected to pay a di
Petrus Company has a unique opportunity to invest in a two-year project in Australia. The project is expected to generate 1,000,000 Australian dollars (A$) in the first year and 2,000,000 Australian dollars in the second. Petrus would have to invest $1,500,000 in the project. Petrus has determined that the cost of capital for si
1. (Computation of Net Income) Presented below are changes in all the account balances of Jackson Furniture Co. during the current year, except for retained earnings. Increase (Decrease) Increase (Decrease) Cash $ 69,000 Accounts Payable $(51,000) Accounts Receivable (net) 45,000 Bonds Payable 82,000 I
Solution uses calculator, not excel ------------------------------------------------- P2-3 Income statement preparation On December 31, 2006, Cathy Chen, a self-employed certified public accountant (CPA), completed her first full year in business. During the year, she billed $360,000 for her accounting services. She had
14.18 Sales, Production, purchases, and cash budgets Rolen, Inc., is in the process of preparing the fourth quarter budget for 2010, and the following data have been assembled: The company sells a single product at a price of $25 per unit. The estimated sales volume for the next six months is as follows: September .......
Please use Excel for this question so that the solution can be displayed in a clear and organized manner. Your company is evaluating new equipment that will cost $1,000,000. The equipment is in the MACRS 3-year class and will be sold after 3 years for $100,000. Use of the equipment will increase net working capital by 100,00
Windschott Air Company (WAC) is a small business. It is deciding whether or not to replace an existing machine in its factory with a newer model machine. It has heard that you are a financial management student and is seeking your advice. WAC has provided the following information for you. The existing machine was purchase
Please provide in an excel file. Your company is evaluating new equipment that will cost $1,000,000. The equipment is in the MACRS 3-year class and will be sold after 3 years for $100,000. Use of the equipment will increae net working capital by 100,000. The equipment will save $450,000 per year in operating costs. The c
The problems relates to different topics which includes calculation of net present value, company's margin, turnover, and return on investment, residual income, elimination of a product, buy & sell decision, acceptance of special order, computation of ratios.
1. Bill Anders retires in 8 years. He has $650,000 to invest and is considering a franchise for a fast-food outlet. He would have to purchase equipment costing $500,000 to equip the outlet and invest an additional $150,000 for inventories and other working capital needs. Other outlets in the fast-food chain have an annual n