Consider the following mutually exclusive investments T=0, 1, 2 Investment A: -200, 40, 210 Investment B: -200, 170, 70

a. Find IRRs for both projects

b. “Draw” a graph of NPV schedules using Excel, in which you will show the NPV of each project as a function of its discount rate (i.e NPV on the vertical axis and r on the horizontal axis). Both NPV schedules should be on the same graph.

c. Solve for the crossover rate

d. Please describe as fully as possible which project is the best and under which circumstances.

Your task is to analyse a cost cutting project, where a new and more efficient machinery is installed. You have the following data:

• Cost of a new machinery: $250,000
• Decrease in the working capital requirement: $25,000 (reversed at the end of project)
• Annual (before tax and depreciation) cash savings from the improved efficiency: $60,000
• Lifespan of a new machine: 5 years
• Corporate marginal tax rate: 35%
• Depreciation: straight-line to zero book value in 5 years.
• Market value of the machinery in 5 years: 20,000
• Cost of capital: 10%

Compute the NPV of this cost cutting project and argue if the company should accept this project or not?

Your task is to find the cost of capital (WACC) for a company. The company has three sources of capital available. The marginal tax rate for the company is 35%.

Common stock: 100 000 shares outstanding with the book value of $20 but currently trading at P/B=2.0. One may apply CAPM to estimate the cost of equity. Inputs for estimations are: risk free rate 2.8%, market risk premium 10.0% and the stock beta is 1.20.

Debt: 2 000 discount bonds with $1 000 par value, with 4 year to maturity. Bonds currently offer 6% yield to bondholders.

Preferred stock: 14 000 shares outstanding with $90 market price and 7% yield.

Find the cost of each financing source, capital structure weights for each source and the WACC.

Linda Jones is deciding between two investment projects.

Choice 1 Linda can invest into a young biotech firm. She expects that she will need to pay this firm $35,000 at the end of each year for the next two years. After that, she expects to receive back from the firm $90,000 at the end of each year for 18 years.

Choice 2 Linda can invest $200,000 today into an AI firm. She expects to be paid $42,000 at the end of the year, and expects cash flows from the AI firm to increase by 5% every year, paid at the end of each year in perpetuity

a. “Draw” timelines (tables), showing cash flows of each investment.

b. Suppose Linda’s discount rate is 12%. Which project should she choose?

c. At which discount rate would Linda be indifferent between her two choices?

You must evaluate a proposal to buy a new milling machine. The purchase price of the milling machine, including shipping and installation costs, is $200,000, and the equipment will be fully depreciated at the time of purchase. The machine would be sold after 3 years for $86,000. The machine would require a $4,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $54,000 per year. The marginal tax rate is 25%, and the WACC is 12%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine.

1. How should the $4,500 spent last year be handled?
   1. Only the tax effect of the research expenses should be included in the analysis.
   2. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
   3. Last year's expenditure is considered an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   4. Last year's expenditure is considered a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   5. The cost of research is an incremental cash flow and should be included in the analysis.
   
   
   
2. What is the initial investment outlay for the machine for capital budgeting purposes after the 100% bonus depreciation is considered, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.
   $ _______
   
3. What are the project's annual cash flows during Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
   Year 1: $ ______
   Year 2: $ ______
   Year 3: $ ______
   
4. Should the machine be purchased?
   YES/NO

You must evaluate the purchase of a proposed spectrometer for the R&D department. The purchase price of the spectrometer including modifications is $180,000, and the equipment will be fully depreciated at the time of purchase. The equipment would be sold after 3 years for $59,000. The equipment would require a $14,000 increase in net operating working capital (spare parts inventory). The project would have no effect on revenues, but it should save the firm $56,000 per year in before-tax labor costs. The firm's marginal federal-plus-state tax rate is 25%.

1. What is the initial investment outlay for the spectrometer, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest dollar.
   $ _______
2. 
   
3. What are the project's annual cash flows in Years 1, 2, and 3? Do not round intermediate calculations. Round your answers to the nearest dollar.
   Year 1: $ _____
   Year 2: $ _____
   Year 3: $ _____
4. 
   
5. If the WACC is 14%, should the spectrometer be purchased?
   _______ YES/NO

What will a beta book compute as the “adjusted beta” of this stock?What would be your predicted beta for next year?

A stock recently has been estimated to have a beta of 1.40:

a. What will a beta book compute as the “adjusted beta” of this stock? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Suppose that you estimate the following regression describing the evolution of beta over time:

β_t = 0.4 + 0.6β_t–1

What would be your predicted beta for next year? (Do not round intermediate calculations. Round your answer to 3 decimal places.)

In the Australian Standard ISO 31000:2018 what are the 8 principles of Risk Management? please outline the 2018 version.

show EQUATIONS IN EXCEL not just answers

"A highway contractor is considering buying a new trench excavator that costs $342,000 and can dig a 3-foot-wide trench at the rate of 22 feet per hour. The annual number of feet to dig each year is 6,200. The machine's production rate will remain constant for the first 4 years of the operation and then decrease by 2 feet per hour for each additional year. The maintenance and operating costs will be $61 per hour. The contractor will depreciate the equipment with a five-year MACRS. At the end of 5 years, the excavator can be sold for $63,000. The contractor will earn an additional annual revenue of $107,000 with this new machine. Assuming the contractor's tax rate is 30% per year, determine the net present worth of the cash flow from this machine. The company's MARR is 14%."

What is the covariance between each stock and the market index?

Suppose that the index model for stocks A and B is estimated from excess returns with the following results:

R_A = 3.0% + 1.05R_M + e_A

R_B = -1.2% + 1.2R_M + e_B

σ_M = 29%; R-square_A = 0.29; R-square_B = 0.14

What is the covariance between each stock and the market index? (Calculate using numbers in decimal form, not percentages. Do not round your intermediate calculations. Round your answers to 3 decimal places.)

Problem 11-28 Portfolio Standard Deviation

Project L requires an initial outlay at t = 0 of $35,000, its expected cash inflows are $13,000 per year for 9 years, and its WACC is 13%. What is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

$  

2. ABC Construction must replace a number of its concrete mixer trucks with new trucks. It has received two bids and has evaluated closely the performance characteristics of the various trucks. The truck A, which costs $84.000, is top-of-the-line equipment. The truck has a life of eight years, assuming that the engine is rebuilt in the fifth year. Maintenance costs of $2,500 a year are expected in the first four years, followed by total maintenance and rebuilding costs of $12,000 in the fifth year. During the last three years, maintenance costs are expected to be $4,000 a year. At the end of eight years, the truck will have an estimated scrap value of $10,000.

The trucks B cost $51,000 a truck. Maintenance costs for the truck will be higher. In the first year, they are expected to be S4,000, and this amount is expected to increase by $1,500 a year through the eighth year. In the fourth year, the engine will need to be rebuilt, and this will cost the company $18,000 in addition to maintenance costs in that year. At the end of eight years, the truck will have an estimated scrap value of $7,000.

a) Using MACRS (5-year property), estimate the after-tax cash flows related to the trucks? (Use Tax rate of 35%)

b) If ABC Construction's opportunity cost of funds is 10%, which truck should it accept?

c) If its opportunity cost were 15%, would your answer change?

d) At what opportunity cost will truck A and B be equal?

If the future cash flows from an investment are uncertain, then the investment is risky. As a result, if the cash flows are uncertain then there's also higher risk involved.

This means there is uncertainty about the future cash flows or that the future cash flows could be different from expected cash flows. The degree of uncertainty varies from investment to investment. This is all the essence of risk.

Discuss the impact of risk on both the stock and bond markets focusing on beta, the time value of money and ratings from the credit rating agencies.