After paying $3 million for a feasibility study, Stanley wrote a proposal with the following cash flow estimates for a 25-year capital project.

Equipment cost: $34 million, Shipping costs: $1 million, Installation: $19 million, Salvage: $4, Working capital investment: $2 million, Revenues are expected to increase by $20 million per year and cash operating expenses by $9 million per year.

The firm’s marginal tax rate is 40 percent, its weighted average cost of capital is 9%, and the firm requires a 3 year payback. Assume straight-line depreciation.

Evaluate the project using NPV, IRR, PI, and PB.

Answers:

IO = $56 million

Δ D = $2 million

NCF1-25 = $7.4 million

NCF25 = $6 million

NPV = $17.38 million > 0, so Accept

IRR = 12.60% > 9%, so Accept

PI = 1.31 > 1, so Accept

PB = 7.57 years > 3 so Reject

ACCEPT the project

Please show work and formula while avoiding Excel/spreadsheet programs. Thank you

NOK Plastics is considering the acquisition of a new plastic injection-molding machine to make a line of plastic fittings. The cost of the machine and dies is $125,000. Shipping and installation is another $8,000. NOK estimates it will need a $10,000 investment in net working capital initially, which will be recovered at the end of the life of the equipment. Sales of the new plastic fittings are expected to be $350,000 annually. Cost of goods sold are expected to be 50% of sales. Additional operating expenses are projected to be $115,000 per year over the machine’s expected 5-year useful life. The machine will depreciated using a 5-year MACRS class life. The equipment will be sold at the end of its useful life (5 years) for $35,000. The tax rate is 25% and the relevant discount rate is 15%. Calculate the net present value (NPV), internal rate of return (IRR), payback period (PB), and profitability index (PI) and state whether the project should be accepted.

Please explain how you get After-tax Salvage Value

Caspian Sea Drinks is considering the production of a diet drink. The expansion of the plant and the purchase of the equipment necessary to produce the diet drink will cost $25.00 million. The plant and equipment will be depreciated over 10 years to a book value of $2.00 million, and sold for that amount in year 10. Net working capital will increase by $1.27 million at the beginning of the project and will be recovered at the end. The new diet drink will produce revenues of $8.61 million per year and cost $1.50 million per year over the 10-year life of the project. Marketing estimates 16.00% of the buyers of the diet drink will be people who will switch from the regular drink. The marginal tax rate is 27.00%. The WACC is 13.00%. Find the IRR (internal rate of return).

Thanks!

An investment project requires a net investment of $200 million. The project is expected to generate annual net cash flows of $25 million for the next 15 years with a one-time end of project cash flow of $3 million. The firm's cost of capital is 14 percent and marginal tax rate is 40 percent.

a) Evaluate the project using the NPV method and state whether or not the project should be accepted.

b) Evaluate the project using the IRR method and state whether or not the project should be accepted.

c) Evaluate the project using the PI method and state whether or not the project should be accepted.

Answers: NPV = -$46 million < 0 so Reject; IRR = 9.20 < 14% so Reject; PI = 0.77 < 1 so Reject

Please show the step by step formula included process for each part of the question! Thank you.

Excel Online Structured Activity: WACC and optimal capital budget

Adamson Corporation is considering four average-risk projects with the following costs and rates of return:

The company estimates that it can issue debt at a rate of r_d = 11%, and its tax rate is 35%. It can issue preferred stock that pays a constant dividend of $6 per year at $47 per share. Also, its common stock currently sells for $37 per share; the next expected dividend, D₁, is $3.75; and the dividend is expected to grow at a constant rate of 6% per year. The target capital structure consists of 75% common stock, 15% debt, and 10% preferred stock. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

1. What is the cost of each of the capital components? Round your answers to two decimal places. Do not round your intermediate calculations.

   Cost of debt %

   Cost of preferred stock %

   Cost of retained earnings %

2. What is Adamson's WACC? Round your answer to two decimal places. Do not round your intermediate calculations.

   %

3. Only projects with expected returns that exceed WACC will be accepted. Which projects should Adamson accept?

   Project 1	_______acceptreject
   Project 2	_______acceptreject
   Project 3	_______acceptreject
   Project 4	_______acceptreject

Excel Online Structured Activity: Foreign capital budgeting

Sandrine Machinery is a Swiss multinational manufacturing company. Currently, Sandrine's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2000 and a cash inflow the following year of $2400. Sandrine estimates that its risk-adjusted cost of capital is 12%. Currently, 1 U.S. dollar will buy 0.82 Swiss franc. In addition, 1-year risk-free securities in the United States are yielding 6.75%, while similar securities in Switzerland are yielding 3.5%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below. Do not round intermediate calculations.

Open spreadsheet

1. If this project was instead undertaken by a similar U.S.-based company with the same risk-adjusted cost of capital, what would be the net present value and rate of return generated by this project? Round your answers to two decimal places.

   NPV = $  

   Rate of return = %

2. What is the expected forward exchange rate 1 year from now? Round your answer to two decimal places.

   SF per U.S. $

3. If Sandrine undertakes the project, what is the net present value and rate of return of the project for Sandrine? Do not round intermediate calculations. Round your answers to two decimal places.

   NPV =  Swiss Francs

   Rate of return = %

Stock X has a 10.0% expected return, a beta coefficient of 0.9, and a 40% standard deviation of expected returns. Stock Y has a 12.5% expected return, a beta coefficient of 1.2, and a 20.0% standard deviation. The risk-free rate is 6%, and the market risk premium is 5%. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

1. Calculate each stock's coefficient of variation. Round your answers to two decimal places. Do not round intermediate calculations.

   CV_x =

   CV_y =

2. Which stock is riskier for a diversified investor?

   1. For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the lower standard deviation of expected returns is more risky. Stock Y has the lower standard deviation so it is more risky than Stock X.
   2. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is less risky. Stock Y has the higher beta so it is less risky than Stock X.
   3. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the higher beta is more risky. Stock Y has the higher beta so it is more risky than Stock X.
   4. For diversified investors the relevant risk is measured by standard deviation of expected returns. Therefore, the stock with the higher standard deviation of expected returns is more risky. Stock X has the higher standard deviation so it is more risky than Stock Y.
   5. For diversified investors the relevant risk is measured by beta. Therefore, the stock with the lower beta is more risky. Stock X has the lower beta so it is more risky than Stock Y.
   
   _____IIIIIIIVV

3. Calculate each stock's required rate of return. Round your answers to two decimal places.

   r_x = %

   r_y = %

4. On the basis of the two stocks' expected and required returns, which stock would be more attractive to a diversified investor?

   _________Stock XStock Y

5. Calculate the required return of a portfolio that has $7,000 invested in Stock X and $4,000 invested in Stock Y. Do not round intermediate calculations. Round your answer to two decimal places.

   r_p = %

6. If the market risk premium increased to 6%, which of the two stocks would have the larger increase in its required return?

   _________Stock XStock Y

1. Over the last couple of decades the Euro has been as low as $0.85 and as high as $1.51. It is currently at $1.10. How do currency movements affect Porsche's profitability? Give a detailed example using a single, new Porsche 911. You are welcome to come up with your own estimates of selling price. Use realistic currency fluctuations and time periods for manufacturing and selling a car.

2 . Hedging vs Speculating

a. What is a speculator in the context of futures markets?

b. Are speculators bad for the futures markets or our economy?

c. At what point does Porsche move from being a hedger and become a speculator?  

d. As a stockholder, how would you react to Porsche speculation?

The Warren Watch Company sells watches for $23, fixed costs are $140,000, and variable costs are $10 per watch.

1. What is the firm's gain or loss at sales of 9,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent.
   $
   
   What is the firm's gain or loss at sales of 18,000 watches? Enter loss (if any) as negative value. Round your answer to the nearest cent.
   $
2. 
   
3. What is the break-even point (unit sales)? Round your answer to the nearest whole number.
   units
4. 
   
5. What would happen to the break-even point if the selling price was raised to $34?
   -Select-The result is that the break-even point is lower.The result is that the break-even point is higher.The result is that the break-even point remains unchanged.
6. 
   
7. What would happen to the break-even point if the selling price was raised to $34 but variable costs rose to $23 a unit? Round your answer to the nearest whole number.
   -Select-The result is that the break-even point increases.The result is that the break-even point decreases.The result is that the break-even point remains unchanged.

Firms HL and LL are identical except for their financial leverage ratios and the interest rates they pay on debt. Each has $16 million in invested capital, has $3.2 million of EBIT, and is in the 40% federal-plus-state tax bracket. Firm HL, however, has a debt-to-capital ratio of 55% and pays 12% interest on its debt, whereas LL has a 20% debt-to-capital ratio and pays only 8% interest on its debt. Neither firm uses preferred stock in its capital structure.

1. Calculate the return on invested capital (ROIC) for each firm. Round your answers to two decimal places.
   
   ROIC for firm LL is   %
   ROIC for firm HL is   %
2. 
   
3. Calculate the rate of return on equity (ROE) for each firm. Round your answers to two decimal places.
   
   ROE for firm LL is    %
   ROE for firm HL is    %
4. 
   
5. Observing that HL has a higher ROE, LL's treasurer is thinking of raising the debt-to-capital ratio from 20% to 60% even though that would increase LL's interest rate on all debt to 15%. Calculate the new ROE for LL. Round your answer to two decimal places.
   
   %

Baker Industries’ net income is $21,000, its interest expense is $6,000, and its tax rate is 25%. Its notes payable equals $23,000, long-term debt equals $80,000, and common equity equals $240,000. The firm finances with only debt and common equity, so it has no preferred stock.

What are the firm’s ROE and ROIC? Do not round intermediate calculations. Round your answers to two decimal places.

Q3Company JC Electronics had a net income of $1,200,000 this year. The company has a target capital structure of 43% in debt and the rest in equity. The company is considering the following independent projects to invest for next year:

Project A: capital budget 500,000; cost of capital 15%; IRR 13%.

Project B: capital budget 600,000; cost of capital 14%; IRR 15%.

Project C: capital budget 1,000,000; cost of capital 15%; IRR 18%.

Assuming that the above projects are the only items to be budgeted for next year. What will be this year's dividend payout ratio?

Sadik Industries must install $1 million of new machinery in its Texas plant. It can obtain a bank loan for 100% of the required amount. Alternatively, a Texas investment banking firm that represents a group of investors believes that it can arrange for a lease financing plan. Assume that these facts apply:

1. The equipment falls in the MACRS 3-year class.
2. Estimated maintenance expenses are $54,000 per year.
3. The firm's tax rate is 32%.
4. If the money is borrowed, the bank loan will be at a rate of 13%, amortized in six equal installments at the end of each year.
5. The tentative lease terms call for payments of $280,000 at the end of each year for 3 years. The lease is a guideline lease.
6. Under the proposed lease terms, the lessee must pay for insurance, property taxes, and maintenance.
7. Sadik must use the equipment if it is to continue in business, so it will almost certainly want to acquire the property at the end of the lease. If it does, then under the lease terms it can purchase the machinery at its fair market value at Year 3. The best estimate of this market value is $160,000, but it could be much higher or lower under certain circumstances. If purchased at Year 3, the used equipment would fall into the MACRS 3-year class. Sadik would actually be able to make the purchase on the last day of the year (i.e., slightly before Year 3), so Sadik would get to take the first depreciation expense at Year 3 (the remaining depreciation expenses would be at Year 4 through Year 6). On the time line, Sadik would show the cost of the used equipment at Year 3 and its depreciation expenses starting at Year 3.

The annual sales for​ Salco, Inc. were $ 4.46 million last year. The​ firm's end-of-year balance sheet was as​ follows:  Salco's income statement for the year was as​ follows:

a. Calculate​ Salco's total asset​ turnover, operating profit​ margin, and operating return on assets. b. Salco plans to renovate one of its plants and the renovation will require an added investment in plant and equipment of $ 1.09 million. The firm will maintain its present debt ratio of 50 percent when financing the new investment and expects sales to remain constant. The operating profit margin will rise to 13.9 percent. What will be the new operating return on assets ratio​ (i.e., net operating income divided by total ​assets) for Salco after the​ plant's renovation?

c. Given that the plant renovation in part ​(b​) occurs and​ Salco's interest expense rises by $ 53,000 per​ year, what will be the return earned on the common​ stockholders' investment? Compare this rate of return with that earned before the renovation. Based on this​ comparison, did the renovation have a favorable effect on the profitability of the​ firm?

Balance sheet

Income statement