Questions
1. Managers of CVS Pharmacy are considering a new project. This project would be a new...

1. Managers of CVS Pharmacy are considering a new project. This project would be a new store in Odessa, Texas. They estimate the following expected net cash flows if the project is adopted.

  • Year 0: ($1,250,000)
  • Year 1: $200,000
  • Year 2: $500,000
  • Year 3: $400,000
  • Year 4: $300,000
  • Year 5: $200,000

Suppose that the appropriate discount rate for this project is 6.7%, compounded annually.

Calculate the net present value for this proposed project.

Do not round at intermediate steps in your calculation. Round your answer to the nearest dollar. If the NPV is negative, include a minus sign. Do not type the $ symbol.

2. Managers at Terlingua Drilling identify a potential new drilling project. They estimate the following expected net cash flows if the project is adopted.

  • Year 0: ($1,250,000)
  • Year 1: $100,000
  • Year 2: $400,000
  • Year 3: $400,000
  • Year 4: $200,000
  • Year 5: $200,000
  • Year 6: $300,000
  • Year 7: $100,000

Suppose that the appropriate discount rate for this project is 12%, compounded annually.

Calculate the net present value for this proposed project.

Do not round at intermediate steps in your calculation. Round your answer to the nearest dollar. If the NPV is negative, include a minus sign. Do not type the $ symbol.

In: Finance

Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new...

Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $440,000 is estimated to result in $178,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $72,000. The press also requires an initial investment in spare parts inventory of $31,000, along with an additional $3,650 in inventory for each succeeding year of the project. The shop’s tax rate is 21 percent and its discount rate is 12 percent. (MACRS schedule)

Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Should the company buy and install the machine press? No Yes

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Your firm is contemplating the purchase of a new $590,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $590,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $77,000 at the end of that time. You will save $182,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $92,000 (this is a one-time reduction). If the tax rate is 23 percent.

what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

In: Finance

Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new...

Starset Machine Shop is considering a 4-year project to improve its production efficiency. Buying a new machine press for $440,000 is estimated to result in $178,000 in annual pretax cost savings. The press falls in the 5-year MACRS class, and it will have a salvage value at the end of the project of $72,000. The press also requires an initial investment in spare parts inventory of $31,000, along with an additional $3,650 in inventory for each succeeding year of the project. The shop’s tax rate is 21 percent and its discount rate is 12 percent. (MACRS schedule) Calculate the NPV of this project.

(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

In: Finance

Which of the following is not one of the intuitive reasons that a cash flow in...

Which of the following is not one of the intuitive reasons that a cash flow in the future is worth less than a similar cash flow today?

a.

When there is money inflation, the value of currency decreases over time.

b.

A promised cash flow in the future may not be received (there is risk).

c.

People prefer current consumption to future consumption.

d.

Future income may not be the same as income today.

Which of the following is true about the present value of a regular annuity when compared to the present value of an annuity due with the same payments and interest rate?

a.

The present value of the annuity due will always be less than the present value of the regular annuity because the regular annuity has one less period of discounting.

b.

The present value of the annuity due will always be greater than the present value of the regular annuity because the regular annuity has one less period of discounting.

c.

The present value of the annuity due will always be greater than the present value of a regular annuity because the annuity due has one less period of discounting.

d.

The present value of the annuity due will always be less than the present value of a regular annuity because the annuity due has one less period of discounting.

As the frequency of discounting increases...

a.

the present value of an annuity gets larger.

b.

the present value of a single sum in the future gets smaller.

c.

the present value of a single sum in the future get larger.

d.

the future value of a single sum today gets smaller.

When calculating a present value using a higher interest rate in the equation will cause the present value to...

a.

increase.

b.

possibly increase or decrease.

c.

decrease.

d.

not change

What is the PV of $10,000 expected to be received 5 years from now assuming an 8% annual interest rate?

a.

$6,867.49

b.

$6,768.39

c.

$6,805.83

d.

$5,402.69

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Management of Carla Vista Mints, a confectioner, is considering purchasing a new jelly bean-making machine at...

Management of Carla Vista Mints, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $312,500. They project that the cash flows from this investment will be $117,000 for the next seven years. If the appropriate discount rate is 14 percent, what is the NPV for the project?

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Julian was given a gold coin originally purchased for $1 by his great-grandfather 50 years ago....

Julian was given a gold coin originally purchased for $1 by his great-grandfather 50 years ago. Today the coin is worth $450. The rate of return realized on the sale of this coin is approximately equal to

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Why are financial institutions regulated? How are they regulated? What are liabilities of depository institutions? What...

Why are financial institutions regulated? How are they regulated? What are liabilities of depository institutions? What are the assets of depository institutions? How can depository manage the risk associated with each? What are depository institution regulated even more than other financial institutions?

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Suppose you purchase a new car today for $25,000. You pay $2,000 as down payment towards...

Suppose you purchase a new car today for $25,000. You pay $2,000 as down payment towards this purchase, and finance the balance over 5 years at an annual interest rate of 5%, the first payment to be made in one month. Payments are made every month over the next 5 years. Calculate the monthly payment using both formula and function method. (Hint: need to multiply time by 12 to find the number of months and need to divide interest rate by 12 to find monthly interest rate. You can use the present value of annuity formula for this.) b. Show that the present value of all monthly payments is equal to the loan amount using the timeline method.

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Once the Consumer Product Safety Commission (CPSC) prohibits the sale of a particular product in the...

Once the Consumer Product Safety Commission (CPSC) prohibits the sale of a particular product in the United States, a manufacturer can no longer sell the product to U.S. wholesalers or retailers. However, the product can be sold in other countries that have not prohibited its sale. The same is true of other countries' sales to the United States. For example, Great Britain outlawed the sale of the prescription sleeping pill, Halcion, but sales of the drug continue in the U.S. The British medical community reached conclusions regarding the pill's safety that differed from the conclusions reached by the medical community and the Food and Drug Administration in the U.S. Some researchers who conducted studies on the drug in the U.S. simply concluded that stronger warning labels were needed.

The CPSC outlawed the sale of three-wheeled all-terrain cycles in the U.S. in 1988. While some manufacturers had already turned to four-wheel models, other manufacturers still had inventories of three-wheel cycles. Testimony on the cycles ranged from contentions that the vehicles themselves were inherently dangerous, to arguments that the vehicles

were safe but drivers were too young, too inexperienced, and more inclined to take risks. Still, the three-wheeled vehicle can be sold outside the U.S. For many companies, chaos follows a product recall because inventory of the recalled product may be high. Often, firms must decide whether to "dump" the product in other countries or take a write-off that could

damage earnings, stock prices, and employment stability. If you were a manufacturer holding substantial inventory of a product that has been outlawed in the U.S., what ethical concerns would you have about selling the product in countries that do not [yet] prohibit its sale? Please discuss those concerns and the arguments for and against taking action based on those concerns. To what extent will your decision be affected by the level of the write-down in income you must take?

In: Finance

What is an interest rate? Explain how interest rates may be unrelated to money or financial...

What is an interest rate? Explain how interest rates may be unrelated to money or financial assets? How are interest rates are determined? Why do we observe a number of interest rates in the economy rather than a single interest rate? What are some of the reasons interest rates vary?

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How merger and acquisition enhance the value of company. please provide 6 idea and explain the...

How merger and acquisition enhance the value of company. please provide 6 idea and explain the idea that you provide (25m)

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Why would the amount of debt/EBITDA be an important ratio when examining the problem of high...

Why would the amount of debt/EBITDA be an important ratio when examining the problem of high debt, particularly with respect to the leveraged loans?

In: Finance

Question 1- Discuss briefly the single-person decision theory under the conditions of uncertainty. Question 2- Discuss...

Question 1- Discuss briefly the single-person decision theory under the conditions of uncertainty.

Question 2- Discuss the role of net income in firm valuation under the ideal conditions VS. its role under the presence of uncertainty. Does the net income have information content in these two conditions? What basic assumption needs to be changed to make the net income to have information content?

Question 3- Discuss the CAPM model: its content/formula, assumptions and limitations?

Question 4- What does the efficient market mean? How is it achieved?

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Mention three pros and cons for each of the following derivatives 1. futures 2. forwards 3....

Mention three pros and cons for each of the following derivatives

1. futures

2. forwards

3. options

In: Finance