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.   

Fethe’s Funny Hats is considering selling trademarked, orange-haired curly wigs for University of Tennessee football games. The purchase cost for a 2-year franchise to sell the wigs is $20,000. If demand is good (40% probability), then the net cash flows will be $25,000 per year for 2 years. If demand is bad (60% probability), then the net cash flows will be $5,000 per year for 2 years. Fethe’s cost of capital is 10%. Explain your work. a. What is the expected NPV of the project? b. If Fethe makes the investment today, then it will have the option to renew the franchise fee for 2 more years at the end of Year 2 for an additional payment of $20,000. In this case, the cash flows that occurred in Years 1 and 2 will be repeated (so if demand was good in Years 1 and 2, it will continue to be good in Years 3 and 4). Write out the decision tree and use decision-tree analysis to calculate the expected NPV of this project, including the option to continue for an additional 2 years. Note: The franchise fee payment at the end of Year 2 is known, so it should be discounted at the risk-free rate, which is 6%.

Dorothy Koehl recently leased space in the Southside Mall and opened a new business, Koehl’s Doll Shop. Business has been good, but Koehl frequently runs out of cash. This has necessitated late payment on certain orders, which is beginning to cause a problem with suppliers. Koehl plans to borrow from the bank to have cash ready as needed, but first she needs a forecast of how much she should borrow. Accordingly, she has asked you to prepare a cash budget for the critical period around Christmas, when needs will be especially high.

Sales are made on a cash basis only. Koehl’s purchases must be paid for during the following month. Koehl pays herself a salary of $4,800 per month, and the rent is $2,000 per month. In addition, she must make a tax payment of $12,000 in December. The current cash on hand (on December 1) is $400, but Koehl has agreed to maintain an average bank balance of $6,000—this is her target cash balance. (Disregard the amount in the cash register, which is insignificant because Koehl keeps only a small amount on hand in order to lessen the chances of robbery.)

The estimated sales and purchases for December, January, and February are $16,000, $40,000, and $60,000 respectively. Purchases during November amounted to $140,000.

1. What would be the cash position in the end of December, January, and February, respecively. Explan which month has suplus or needs a bank loan.

2. Suppose that Koehl starts selling on a credit basis on December 1, giving customers 30 days to pay. All customers accept these terms, and all other facts in the problem are unchanged. Discuss what would the company’s loan requirements be at the end of December in this case? (Hint: The calculations required to answer this part are minimal.)

This is all the information that is provided.

Mystic Beverage Company is considering purchasing a new bottling machine. The new machine costs $230,000, plus installation fees of $10,000 and will generate earning before interest and taxes of $60,000 per year over its 6-year life. The machine will be depreciated on a straight-line basis over its 6-year life to an estimated salvage value of 0. Mystic's marginal tax rate is 40%. Mystic will require $50,000 in NWC if the machine is purchased.

(a) determine the initial outlay
(b) determine the annual cash flows in years 1-6
(c) assume the discount rate is 7%, what is the NPV of this project?
(d) What is the IRR of this project
€ should the project be accepted or rejected?

Discuss whether or not the tax rates applicable to private equity firms should be changed?