Consider a project with a 4-year life. The initial cost to set up the project is $100,000. This amount is to be linearly depreciated to zero over the life of the project and there is no salvage value. The required return is 13% and the tax rate is 34%.

You've collected the following estimates:

   Attempt 2/5 for 10 pts.

Part 1

What is the annual free cash flow in the base case?

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   Attempt 1/5 for 10 pts.

Part 2

What is the NPV in the base case?

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   Attempt 1/5 for 10 pts.

Part 3

What is the NPV in the pessimistic case?

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   Attempt 1/5 for 10 pts.

Part 4

What is the NPV in the optimistic case?

Nieman Company purchased merchandise on account from Springhill Company for $12,400, terms 1/10, n/30. Nieman returned merchandise with an invoice amount of $2,000 and received full credit.

a. If Nieman Company pays the invoice within the discount period, what is the amount of cash required for the payment? If required, round the answer to the nearest dollar.
$

b. What account is debited by Nieman Company to record the return?

You have just been offered a contract worth $ 1.07 million per year for 7 years.​ However, to take the​ contract, you will need to purchase some new equipment. Your discount rate for this project is 12.3 %. You are still negotiating the purchase price of the equipment. What is the most you can pay for the equipment and still have a positive NPV​? The most you can pay for the equipment and achieve the 12.3 % annual return is ​_ million.

For this question start fresh, do not carry over data from earlier questions. You are analyzing the prospects of installing cost saving machinery. You have the following information:

• The machine costs $84,000. Depreciation is calculated straight line (equal amounts) over 4 years.

• Every year the machine increases cash flows by an amount 40,000. (Taxes, Opportunity Cost etc. have all been accounted for in this number. There is no Net Working Capital.)

• After 3 years (when the machine has only been depreciated for 3 years and therefore the book value is not zero) the machine is sold for $30,000. This, therefore, is a 3-year project.

• The rate of discount is 8%.

• The tax rate is 36%.

• (Hint: Here you have to consider the income due to the salvage sale of the machinery and the taxes on this sale.)

What is the NPV of installing the machinery?

Laura Drake wishes to estimate the value of an asset expected to provide cash inflows of $1,800 for each of the next 4 years and $8,356 in 5 years. Her research indicates that she must earn 4% on low-risk assets, 8% on average-risk assets, and 13% on high-risk assets.

1. Determine what is the most Laura should pay for the asset if it is classified as (1) low-risk (2) average-risk (3) high-risk.
2. Suppose Laura is unable to assess the risk of the asset and wants to be certain she’s making a good deal. On the basis of your findings in part a, what is the most she would pay? Why?
3. All else being the same, what effect does increasing risk have on the value of the asset? Explain in light of your findings in part a.

1. Consider a US company that imports German goods. What effect will a sudden depreciation of the dollar relative to the euro have on the P/E ratio of the U.S. company? Discuss the effect both the possibilities—the company being able to completely pass through the dollar depreciation to its customers and the company being unable to completely pass through the dollar depreciation to its customers. (5 points)

You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 8 percent and 13 percent, respectively. The standard deviations of the assets are 30 percent and 38 percent, respectively. The correlation between the two assets is 0.43 and the risk-free rate is 5.6 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 5 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your Sharpe ratio answer to 4 decimal places and the z-score value to 3 decimal places when calculating your answer. Enter your smallest expected loss as a percent rounded to 2 decimal places.)

Sales Increase

Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,400,000. Also, at year-end 2015, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000 of accruals. Looking ahead to 2016, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 6%, and its payout ratio will be 45%. How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate? Do not round intermediate steps. Round your answers to the nearest whole.

Sales can increase by $

Sales Increase

Maggie's Muffins, Inc., generated $2,000,000 in sales during 2015, and its year-end total assets were $1,400,000. Also, at year-end 2015, current liabilities were $1,000,000, consisting of $300,000 of notes payable, $500,000 of accounts payable, and $200,000 of accruals. Looking ahead to 2016, the company estimates that its assets must increase at the same rate as sales, its spontaneous liabilities will increase at the same rate as sales, its profit margin will be 6%, and its payout ratio will be 45%. How large a sales increase can the company achieve without having to raise funds externally; that is, what is its self-supporting growth rate? Do not round intermediate steps. Round your answers to the nearest whole.

Sales can increase by $ __________ , that is by __________ %.

Brandtly Industries invests a large sum of money in R&D; as a result, it retains and reinvests all of its earnings. In other words, Brandtly does not pay any dividends, and it has no plans to pay dividends in the near future. A major pension fund is interested in purchasing Brandtly's stock. The pension fund manager has estimated Brandtly's free cash flows for the next 4 years as follows: $4 million, $6 million, $8 million, and $13 million. After the fourth year, free cash flow is projected to grow at a constant 6%. Brandtly's WACC is 13%, the market value of its debt and preferred stock totals $52 million, the firm has $16 million in non-operating assets, and it has 21 million shares of common stock outstanding.

1. What is the present value of the free cash flows projected during the next 4 years? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.
   $   
2. 
   
3. What is the firm's horizon, or continuing, value? Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.
   $   
4. 
   
5. What is the market value of the company's operations? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.
   $    
   
   What is the firm's total market value today? Do not round intermediate calculations. Round your answer to the nearest dollar. Write out your answers completely. For example, 13 million should be entered as 13,000,000.
   $   
6. 
   
7. What is an estimate of Brandtly's price per share? Do not round intermediate calculations. Round your answer to the nearest cent.
   $   

RELO Manufacturing has a machine replacement decision. RELO will buy one of two machines, which will be replaced at the end of its life. Both machines cost $1,800. Machine A has a 4-year life, a salvage value of $800, and expenses of $525 per year and will be depreciated down to $800. Machine B has a 5-year life, a salvage value of $300, and expenses of $500 per year. Machine B will be depreciated down to a book value of $300. Assume conditions of straight-line depreciation to the salvage value, a tax rate of 35%, and a discount rate of 18%. Which machine should RELO choose and why?

A. Machine A because it has a lower present value of total costs

B. Machine B because it has a lower present value of total costs

C. Machine A because it has a lower EAC

D. Machine B because it has a lower EAC

Topperton Company has developed a new industrial product. An outlay of $8 million is required for equipment to produce the new product, and additional net working capital of $400,000 is required to support production and marketing. In addition, a one-time $400,000 (before-tax) expense will be incurred the year that the equipment is placed into service. The equipment will be depreciated on a straight-line basis to a zero book value over 6 years. Although the depreciable life is 6 years, the project is expected to have a productive life of 8 years, and it is estimated that the equipment can be sold for $1 million at that time. Revenues minus expenses are expected to be $3 million per year. The cost of capital for this project is 14%, and the relevant tax rate is 30%. What is the NPV of the new product?

You are thinking of buying a machine that has a 4-year useful life, and would require an initial outlay of $240,000. The machine would be depreciated to a zero book value over 4 years on a straight-line basis, so depreciation would be $60,000 per year. The machine would generate an incremental increase in operating income of $100,000 per year in real terms before taxes, and the relevant tax rate is 40%. Inflation (i) is expected to be 8% per year, and the project's required return in real terms would be r_r = 10%. What is the net present value of this machine?

-$17,505

$13,762

-$22,944

$26,269

RELO Manufacturing has a machine replacement decision. RELO will buy one of two machines, which will be replaced at the end of its life. Both machines cost $1,800. Machine A has a 4-year life, a salvage value of $800, and expenses of $525 per year and will be depreciated down to $800. Machine B has a 5-year life, a salvage value of $300, and expenses of $500 per year. Machine B will be depreciated down to a book value of $300. Assume conditions of straight-line depreciation to the salvage value, a tax rate of 35%, and a discount rate of 18%. Which machine should RELO choose and why?

Machine A because it has a lower present value of total costs

Machine B because it has a lower present value of total costs

Machine A because it has a lower EAC

Machine B because it has a lower EAC