We are evaluating a project that costs $836,559, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 62,175 units per year. Price per unit is $35, variable cost per unit is $19, and fixed costs are $418,916 per year. The tax rate is 35%, and we require a return of 22% on this project.

In percentage terms, what is the sensitivity of OCF to changes in the variable cost per unit projection? (Round answer to 2 decimal places. Do not round intermediate calculations)

Topic: Sensitivity Analysis

1. Discuss the pros and cons of using the various measures of profitability to examine a company’s performance.

What is corporation and three types of corporations?

Portfolio Required Return

Suppose you manage a $6 million fund that consists of four stocks with the following investments:

If the market's required rate of return is 17% and the risk-free rate is 7%, what is the fund's required rate of return? Do not round intermediate calculations.

Bluegrass Mint Company has a debt-equity ratio of .35. The required return on the company’s unlevered equity is 12.7 percent and the pretax cost of the firm’s debt is 6.5 percent. Sales revenue for the company is expected to remain stable indefinitely at last year’s level of $19,600,000. Variable costs amount to 65 percent of sales. The tax rate is 25 percent and the company distributes all its earnings as dividends at the end of each year.

c-1. Use the weighted average cost of capital method to calculate the value of the company. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

c-2. What is the value of the company’s equity? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

c-3. What is the value of the company’s debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

d. Use the flow to equity method to calculate the value of the company’s equity. (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89)

What is the firm's cash flow from financing?

What is the firm's cash flow from operations?

You are in search of a new vehicle. However, you are not sure if you want a fully electric vehicle or a hybrid vehicle compared to a conventional gas-powered vehicle. Since you are learning about Engineering Management, NPV, etc., you want to determine which vehicle investment will have the greatest ROI, so you can make your decision.

In order to simplify the problem, you are considering the gas-powered vehicle as a baseline and comparing both a hybrid and a fully electric vehicle to it. Additionally, you expect to keep the vehicle for six years. Below is some information about each vehicle to help you calculate the incremental ROI. Your response to this question should include incremental ROI for both investing in a hybrid and a fully electric vehicle. Thereafter, based on the calculations you should determine which vehicle would you purchase.

Note: Use only the information provided in this problem and do not include any external information. You are only considering purchasing and not leasing.

Assume following costs for gas-powered vehicle: Purchase price $38,000; Annual gasoline expenses $2,000 for each of 5 years; Annual insurance expenses $1200 for each of 5 years; Annual maintenance $750 for each of 5 years. No other costs will be incurred.

Assume the following for hybrid vehicle: Purchase price $40,000; Annual gasoline expenses $1,200 for each of 5 years; Annual insurance $1400 for each of 5 years; Annual maintenance $600 for each of 5 years.

Assume the following for electric vehicle: Purchase price $48,000; No annual gasoline expenses, but you expect to incur $800 in electric expenses for each of 5 years; Annual insurance expenses $1500 for each of 5 years; Annual maintenance $200 for each of 5 years.

Hint: The question is about incremental ROI. Also, assume you are in a market for and need a vehicle.

You are a Logistics Manager at an e-Commerce retail company. Your company currently uses third-party delivery services to deliver products ordered through your website. While third-party services are reliable, they have limitations that are preventing your company from differentiating from other e-Commerce retailers. Therefore, you are contemplating that your company should start its own delivery service for delivering the most commonly ordered products. You have done all the analyses and are left with calculating the payback period of the investment before you present it to management. Typically, management has funded investments with a payback period between 3 – 4 years.

What is the payback period of this investment based on the information provided below? Will management invest in this project?

Note: Please show all calculations and use only the information provided in this problem. Do not include any external information.

The required investment for the service is $800,000. You are expecting an increase in monthly revenue of $30,000 for the next 5 years that is directly attributable to this service. You are also expecting incremental costs of $175,000 per year for the next five years.

A firm recently paid a dividend of $1.25. It expects to have a dividend growth rate of 15% for the first 3 years followed by a constant rate of 6% thereafter. The firm’s required return is 10%. What is the firm’s stock value TODAY? Please show work in calculator, not Excel.

A Mining firm has to consider investing amongst any of the three mutually exclusive coal mines. Depending on the expected quality of coal extracted every year, the selling price and initial equipment investment per metric ton is shown in the table below. MARR is 10 percent/year.

a) What is the annual worth of each alternative?

b) Determine which alternative should be recommended using incremental analyses?

(Please don't use NPV function)

I want excel soution

Upon graduation, you receive two very different – job offers that will result in two different career trajectories. To keep things simple, let’s assume your salaries are paid once a year at the end of each year.

A. Option A (company A) is a job related to your background. It starts with a decent salary $75,000 per year, and increases by 3% per year after that.

B. Option B (company B) requires some initial learning, so the first 3 years has a low salary that starts at $42,000 and increases by 2% per year. At the end of year 3 (beginning of year 4), the salary increases by a factor of 2 (it doubles), and then it will increase by 6% per year every year after that.

Assume your TVOM is 5%. We want to compare these two options in short term and long term. Assume you quit both jobs after 3 years.

1. What are the present worth of each job?

2. Which offer (A or B) should you choose, if you are going to work for 10 years? 20 years? 30 years?

3. What is the minimum number of years that you become indifferent between the two job offers?

4. Generate a plot that shows the difference in the present worth of the two options (PW(A)-PW(B)) as a function of the number of years you are planning to work [from 3 years to 30 years)].

Now, we want to look into the impact of your time value of money. Suppose you will be working for 20 years.

5. What will be the level of TVOM that makes you indifferent between the two job offers?

Annual Worth Equivalent: 6. Suppose again that your TVOM is 4%, and that you are going to work for 20 years for company B. Company B can pay you using a different payment plan from what was described earlier, in which they pay you equal monthly payments for the duration of your (in this case it will be 240 equal monthly payments). What should be the size of those payments to make you indifferent between the two payment plans? (Note that the original payment plan is still based on annual payments)

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this causal surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,900 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $63,000 in net working capital to start. Total fixed costs are $152,000 per year, variable production costs are $20 per unit, and the units are priced at $63 each. The equipment needed to begin production will cost $620,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 24 percent and the required rate of return is 16 percent. What is the NPV of this project?

Quantitative Problem 1: Assume today is December 31, 2013. Barrington Industries expects that its 2014 after-tax operating income [EBIT(1 – T)] will be $430 million and its 2014 depreciation expense will be $60 million. Barrington's 2014 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2014 will be $20 million. The firm's free cash flow is expected to grow at a constant rate of 4.5% annually. Assume that its free cash flow occurs at the end of each year. The firm's weighted average cost of capital is 8.4%; the market value of the company's debt is $2.3 billion; and the company has 180 million shares of common stock outstanding. The firm has no preferred stock on its balance sheet and has no plans to use it for future capital budgeting projects. Using the corporate valuation model, what should be the company's stock price today (December 31, 2013)? Round your answer to the nearest cent. Do not round intermediate calculations.
$ per share

Quantitative Problem 2: Hadley Inc. forecasts the year-end free cash flows (in millions) shown below.

The weighted average cost of capital is 12%, and the FCFs are expected to continue growing at a 4% rate after Year 5. The firm has $24 million of market-value debt, but it has no preferred stock or any other outstanding claims. There are 20 million shares outstanding. What is the value of the stock price today (Year 0)? Round your answer to the nearest cent. Do not round intermediate calculations.
$ per share?