NPV

A project has an initial cost of $65,475, expected net cash inflows of $12,000 per year for 11 years, and a cost of capital of 10%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round your intermediate calculations. Round your answer to the nearest cent.

Consider the case of Falcon Freight Inc. (FF):

Five years of realized returns for FF are given in the following table. Remember:

Given the preceding data, the average realized return on FF’s stock is   ._________-

The preceding data series represents ________ of FF’s historical returns. Based on this conclusion, the standard deviation of FF’s historical returns is   ._____________

If investors expect the average realized return from 2012 to 2016 on FF’s stock to continue into the future, its coefficient of variation (CV) will be __________________

The Casper Ice Cream Company is an ice cream manufacturer in Richmond, Utah famous for making Fat Boy Ice Cream Sandwiches. The owner, Mr. Casper, the grandson of the founder, is considering replacing an existing ice cream maker and batch freezer with a new maker which has a greater output capacity and operates with less labor. His only alternative is to overhaul his ice cream maker and batch freezer which have a current net book value of $6,000 and three years of remaining depreciable life (straight line). The equipment would cost $10,000 to overhaul but this would increase its useful life for 10 years which is also the life of the new machinery. Mr. Casper’s accountant tells him the new net book value of the overhauled equipment could be depreciated straight line over four years. The old machinery has zero salvage value currently.

The new maker and freezer would cost $50,000 including installation. It would be fully depreciated over 10 years and would have $3,000 salvage at the end of that period. Because of automatic features, the new equipment would allow labor saving of $9,000 per year.

Even though the new equipment has increase capacity, Mr. Casper does not feel any extra product could be sold until year five. At that time, he estimates that additional sales would result in additional net cash revenues before tax of $5,000 per year for the remaining life of the machine. By the end of year four, however, working capital would have to be increased by $3,000 to support the higher sales. This increase in working capital will be recovered at the end of the project, which will last for 10 years.   

Casper Company is currently in the 30% tax bracket. Mr. Casper demands a rate of return of 16%.   

Complete a NPV and IRR analysis on the project.

Stock quotes

Smith Enterprises recently was profiled on a financial information website and touted as a "hot" growth stock. You acquired the stock quote shown here from that website.

The last trade time is shown to be at 4:00 PM Eastern Time. The abbreviation “ttm” stands for “trailing twelve months,” and the number shown reflects data from the previous 12 months. The abbreviation “3m” reflects data from the previous 3 months.

What exchange does Smith Enterprises trade on?

NYSE

FTSE

NASDAQ

AMEX

SME

What is Smith’s earnings per share (EPS) for the trailing 12 months?

$1.97

$2.24

$1.75

$2.03

$1.67

How much did the price increase today over yesterday’s closing price?

$5.22

$5.29

$5.08

$5.15

$5.36

How heavy was the trading of Smith’s stock today relative to the normal level of trading?

Relatively light trading

Average trading

Relatively heavy trading

Calculate the annualized cost of the trade credit terms of 3​/15 net 75 when payment is made on the net due date​ (assume a​ 365-day year).

The annualized cost of the trade credit terms is ___% (round to 2 decimal places)

This case continues following the new project of the WePPROMOTE Company, that you and your partner own. WePROMOTE is in the promotional materials business. The project being considered is to manufacture a unique case for smartphones. The case is very durable, attractive and fits virtually all models of smartphone. It will also have the logo of your client, a prominent, local company and is planned to be given away at public relations events by your client.

As we know from prior cases involving this company, more and more details of the project become apparent and with more precision and certainty.

The following are the final values to the data that you have been estimating up to this point:

- You can borrow funds from your bank at 3%.

- The cost to install the needed equipment will be $105,000 and this cost is incurred prior to any cash is received by the project.

- The gross revenues from the project will be $25,000 for year 1, then $27,000 for years 2 and 3. Year 4 will be $28,000 and year 5 (the last year of the project) will be $23,000.

- The expected annual cash outflows (current project costs) are estimated at being $13,000 for the first year, then $12,000 for years 2, 3, and 4. The final year costs will be $10,000.

- Your tax rate is 30% and you plan to depreciate the equipment on a straight-line basis for the life of the equipment.

- After 5 years the equipment will stop working and will have a residual (salvage) value of $5,000).

- The discount rate you are assuming is now 7%.

The Tasks:

1. Perform the final NPV calculations and provide a narrative of how you calculated the computations and why.

2. Then provide a summary conclusion on whether you should continue to pursue this business opportunity.

At $73 , a firm can sell 4,525 stereo earphones (3.5 mm for android). At this price, elasticity is estimated at 2.4. What is the change in total revenue (+ or -) if the firm drops price by 10%? Round your answer to the nearest dollar.

A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: (PLEASE ANSWER FULL QUESTIONS)

1. What is each project's NPV? Round your answer to the nearest cent. Do not round your intermediate calculations.

   Project A: $  

   Project B: $  

2. What is each project's IRR? Round your answer to two decimal places.

   Project A: %

   Project B: %

3. What is each project's MIRR? (Hint: Consider Period 7 as the end of Project B's life.) Round your answer to two decimal places. Do not round your intermediate calculations.

   Project A: %

   Project B: %

4. From your answers to parts a-c, which project would be selected?

   _________Project AProject B

   If the WACC was 18%, which project would be selected?

   _________Project AProject B

5. 
   

6. Construct NPV profiles for Projects A and B. Round your answers to the nearest cent. Do not round your intermediate calculations. Negative value should be indicated by a minus sign.

   Discount Rate	NPV Project A	NPV Project B
   0%	$	$
   5	$	$
   10	$	$
   12	$	$
   15	$	$
   18.1	$	$
   23.54	$	$

7. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. Do not round your intermediate calculations.

   %

8. What is each project's MIRR at a WACC of 18%? Round your answer to two decimal places. Do not round your intermediate calculations.

   Project A: %

   Project B: %

Suppose Capital One is advertising a

6060​-month,

5.25 %5.25%

APR motorcycle loan. If you need to borrow

$ 8 comma 700$8,700

to purchase your dream​ Harley-Davidson, what will be your monthly​ payment?​ (Note: Be careful not to round any intermediate steps less than six decimal​ places.)

NPV AND IRR

A store has 5 years remaining on its lease in a mall. Rent is $2,100 per month, 60 payments remain, and the next payment is due in 1 month. The mall's owner plans to sell the property in a year and wants rent at that time to be high so that the property will appear more valuable. Therefore, the store has been offered a "great deal" (owner's words) on a new 5-year lease. The new lease calls for no rent for 9 months, then payments of $2,500 per month for the next 51 months. The lease cannot be broken, and the store's WACC is 12% (or 1% per month).

1. Should the new lease be accepted? (Hint: Be sure to use 1% per month.)
   
   -Select-Yes or No
2. If the store owner decided to bargain with the mall's owner over the new lease payment, what new lease payment would make the store owner indifferent between the new and old leases? (Hint: Find FV of the old lease's original cost at t = 9; then treat this as the PV of a 51-period annuity whose payments represent the rent during months 10 to 60.) Round your answer to the nearest cent. Do not round your intermediate calculations. $
3. The store owner is not sure of the 12% WACC—it could be higher or lower. At what nominal WACC would the store owner be indifferent between the two leases? (Hint: Calculate the differences between the two payment streams; then find its IRR.) Round your answer to two decimal places. Do not round your intermediate calculations.
   
   %

Describe the concept of variance analysis. Explain the importance of variance analysis. Provide specific examples of how variance analysis is beneficial to the organization.

Paymaster Enterprises has arranged to finance its seasonal​ working-capital needs with a​ short-term bank loan. The loan will carry a rate of

14 percent per annum with interest paid in advance​ (discounted). In​ addition, Paymaster must maintain a minimum demand deposit with the bank of 11 percent of the loan balance throughout the term of the loan. If Paymaster plans to borrow $120,000 for a period of 6 ​months, what is the annualized cost of the bank​ loan?

The annualized cost of the bank loan is ______%.

​(Round to two decimal​ places.)