Question 1
Delicious Snacks, Inc. is considering adding a new line of candies to its current product line. The company already paid $300K for a marketing research that provided evidence about the convenience of this product at this time. The new line will require an additional investment of $70K in raw materials to produce the candies. The project's life is 7 years and the firm estimates selling 1.5M packages at a price of $1 per unit the first year; but this volume is expected to grow at 17% the next two years, then at 12% for the following two years, and finally at 7% for the last two years of the project. The price per unit is expected to grow at the historical average rate of inflation of 3%. The variable costs will amount 70% of sales and the fixed costs will be $500K. The equipment required to produce the candies will cost $750K, and will require an additional $30K to have it delivered and installed. This equipment has an expected useful life of 7 years and it will be depreciated using the MACRS 5-year class life. After seven years the equipment can be sold at a price of $200K. The firm plans financing the new equipment with 30K semiannual coupon bonds that mature in 30 years, with $1,000 face value, 5% coupon rate, and 12% yield to maturity. The cost of capital is 12% and the firm's marginal tax rate is 40%.

Determine the payback period, discounted payback period, NPV, PI, IRR, and MIRR of the new line of candies. Should the firm accept or reject the project?

Question 2
The Claustrophobic Solution, Inc., a residential window and door manufacturer, has the following historical record of earnings per share (EPS) from 2011 to 2007:

The company's payout ratio has been 60% over the last five years and the last quoted price of the firm's share of stock was $10. Flotation costs for new equity will be 7%. The company has 30,000,000 of common shares of stock outstanding and a debt-equity ratio of 0.5. If dividends are expected to grow at the same arithmetic average growth rate of the last five years, what is the dividend payment in 2012?

Solution Summary

The solution discusses payback period, NPV, PI, IRR and MIRR as it pertains to a company.

Project SS costs $52,125, its expected net cash flows are $12,000 per year for 8 years, its WACC is 12%.
What is the project's NPV?
IRR?
MIRR?
Payback Period?
Discounted Payback Period?
(Show calculations)

(10-1)
NPV
A project has an initial cost of $40,000, expected net cash inflows of $9,000 per year for 7 years, and a cost of capital of 11%. What is the project's NPV (Hint: Begin by constructing a time line.)
(10-2)
IRR
Refer to Problem 10-1. What is the Project's IRR?
(10-3)
MIRR
Refer to Problem 10-1 What is t

Can someone help with the following question?
The following is stream of expect cash flows from a project to replace an old sail boat with a new one. The new boat will cost $15,000 and will be good for 5 years. It will be traded-in for another boat at the end of its useful life. The following cash flows are expected:
Ye

A) Valuation of a constant growth stock - A stock is expected to pay a dividend of $0.50 at the end of the year (that is D1 = 0.50), and it should continue to grow at a constant rate of 7 percent a year. If its required return is 12 percent, what is the stock's expected price 4 years from today?
B) Cost of common

1.Project K has a cost of $52,125, its expected net cash inflows are $12,000 per year for 8 years, and its cost of capital is 12 percent. (Hint: Begin by constructing a time line)
a. what is the projects payback period (to the closest years)?
b. what is the projects discounted payback period?
c. what is the projects npv?

If the intital investment is $6.45 M and the net operating cash flow is 2.45 M for 5 years at a 8% cost of capital what is the:
Payback?
Discounted Payback Rate?
NPV?
Profitability Index?
IRR?
MIRR?

A firm with a 14 percent WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:
0 1 2 3 4 5
Project A -6,000 2,000 2,000 2,000 2,000 2,000
Project B -18,000 5,600 5,6

Your division is considering two investment projects, each of which requires an up-front expenditure of $28 million. You estimate that the cost of capital is 8% and that the investments will produce the following after-tax cash flows (in millions of dollars):
Year Project A Project B
1 5 20