Problem 3-14 Income versus Cash Flow (LO3)

Butterfly Tractors had $15.00 million in sales last year. Cost of goods sold was $8.20 million, depreciation expense was $2.20 million, interest payment on outstanding debt was $1.20million, and the firm’s tax rate was 35%.

a. What was the firm’s net income? (Enter your answers in millions rounded to 2 decimal places.)

b. What was the firm’s cash flow? (Enter your answers in millions rounded to 2 decimal places.)

c. What would happen to net income and cash flow if depreciation were increased by $1.20 million? (Enter your numeric answers in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.)

f. What would be the impact on cash flow if depreciation was $1.20 million and interest expense was $2.20 million? (Enter your numeric answer in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.)

Please Answer Question 2 Only:

You have the following initial information on CMR Co. on which to base your calculations and discussion for questions 1) and 2):
• Current long-term and target debt-equity ratio (D:E) = 1:4
• Corporate tax rate (TC) = 30%
• Expected Inflation = 1.75%
• Equity beta (E) = 1.6385
• Debt beta (D) = 0.2055
• Expected market premium (rM – rF) = 6.00%
• Risk-free rate (rF) = 2.15%

^{1) The CEO of CMR Co., for which you are CFO, has requested that you evaluate a potential investment in a new project. The proposed project requires an initial outlay of $7.15 billion. Once completed (1 year from initial outlay) it will provide a real net cash flow of $575 million in perpetuity following its completion. It has the same business risk as CMR Co.’s existing activities and will be funded using the firm’s current target D:E ratio.
a) What is the nominal weighted-average cost of capital (WACC) for this project?
b) As CFO, do you recommend investment in this project? Justify your answer (numerically).}

Please Answer Question 2 Only:

2) Assume now a firm that is an existing customer of CMR Co. is considering a buyout of CMR Co. to allow them to integrate production activities. The potential acquiring firm’s management has approached an investment bank for advice. The bank believes that the firm can gear CMR Co. to a higher level, given that its existing management has been highly conservative in its use of debt. It also notes that the customer’s firm has the same cost of debt as that of CMR Co. Thus, it has suggested use of a target debt-equity ratio of 2:6 when undertaking valuation calculations.
a) What would the required rate of return for BFS Co.’s equity become if the proposed gearing structure were adopted following acquisition by the customer?
b) Would the above project described in 1) be viable for the new owner of BFS Co.? Justify your answer (numerically).

Please Only answer Question 2: Question 1 has been given for context of the question

Given the following list, indicate if each entry normally is an item related to the ongoing core business of a company. Enter “Yes” if it normally relates to the ongoing core business and “No” of it does not.

A) Litigation-related charges:

B) Royalty expense:

C) Impairment of goodwill:

D) Restructuring charges:

E) SG&A expense:

F) R&D expense:

G) Gains and losses on the sale of assets:

H) Amortization of acquired intangibles:

I) Purchased R&D expense:

J) Asset write-offs:

Prepare a pro-forma statement by using assumptions to calculate the annual operating net cash flow for three years to calculate the the NPV and IRR.

Assess project feasibility using NPV and IRR method.

Company is Z-energy

For the data part you can refer to the Yahoo finance or assume any relevant data according to the company

John’s Weed-B-Gone yard service sprays lawns to rid them of weeds. John mixes the two chemicals, Weed-X and Pest-O, in proportions depending on the climate and the particular weed problems of the season. A standard mix calls for a gallon of the mixture to combine equal parts of Weed-X and Pest-O. Weed-X has a standard cost of $9.80 per gallon and Pesto-O has a standard cost of $25.00 per gallon. Each gallon can treat 100 square yards of lawn. John expects to treat 536,000 square yards of lawn.

For the past season, John treated 653,000 square yards. He used 3,300 gallons of Weed-X and 3,100 gallons of Pest-O. He paid a total of $30,030 for the Weed-X and $76,260 for the Pest-O.

Required:

a. Compute the materials price and efficiency variances for the season. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

b. Compute the materials mix and yield variances for the season. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Question Nine

Mr West decides to deposit $5000 in a BankEast Ltd account that pays 8% p.a. continuously compounded. What will be his account balance in five years?

Question Ten

Norton Industries Pty Ltd is looking at investing in Project X that is expected to generate the following cash flows each year for six years.

Suppose similar investments are paying a return of 10% pa compounded semi-annually. How much should the Project X cost Norton Industries?

Please show works, don't use excel.

​(MIRR)  Star Industries owns and operates landfills for several municipalities throughout the Midwestern part of the U.S. Star typically contracts with the municipality to provide landfill services for a period of 20 years. The firm then constructs a lined landfill​ (required by federal​ law) that has capacity for five years. The ​$9.6 million expenditure required to construct the new landfill results in negative cash flows at the end of years​ 5, 10, and 15. This change in sign on the stream of cash flows over the​ 20-year contract period introduces the potential for multiple​ IRRs, so​ Star's management has decided to use the MIRR to evaluate new landfill investment contracts. The annual cash inflows to Star begin in year 1 and extend through year 20 are estimated to equal ​$3.5 million​ (this does not reflect the cost of constructing the landfills every five​ years). Star uses a 10.4​% discount rate to evaluate its new​ projects, so it plans to discount all the construction costs every five years back to year 0 using this rate before calculating the MIRR.

a.What are the​ project's NPV,​ IRR, and​ MIRR?

b.Is this a good investment opportunity for Star​ Industries? Why or why​ not?

Prepare a pro-forma statement by using assumptions to calculate the annual operating net cash flow for three years to calculate the the NPV and IRR.

Assess project feasibility using NPV and IRR method.

Company is Z-energy

For the data part you can refer to the Yahoo finance or assume any relevant data according to the company

Payback: Quebec Ltd is purchasing machinery at a cost of $4,424,766. The company expects, as a result, cash flows of $751,751, $1,196,086, and $2,756,146 over the next three years. The payback period is

years.

(Round your answer to 2 decimal places. All intermittent calculations should be rounded to 4 decimal places before carrying to next calculation.)

The present capital sructure is as follows :

1.800,000 R2 ordinary shares now trading at r2,50 per share preference

2. 250,000 preference shares trading at r2 per share (isuued at R3 per share).10% fixed rate of interest.

3.Abank loan of R1 500,000 AT 13% p.a (payable over 5 years.

Additional data: the company's beta is 1.3. The return on the market is 14% and the risk fee rate is 7%.

its current tax rate is 28&. its current divided is 40c per share and it expects its dividends to grow by 8%.

You are required to : Assuming that the company uses the Sividend growth model to calculate its cost of equity. Calculate its weighted average cost of capital.

If a further R500,000 is needed to finance te expansion ,which option should they use from eitherr ordinary shares, preference share or loan financing and why?

Please help with the calculations and explain

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $850 per set and have a variable cost of $410 per set. The company has spent $310,000 for a marketing study that determined the company will sell 69,700 sets per year for seven years. The marketing study also determined that the company will lose sales of 13,200 sets of its high-priced clubs. The high-priced clubs sell at $1,220 and have variable costs of $680. The company will also increase sales of its cheap clubs by 15,200 sets. The cheap clubs sell for $440 and have variable costs of $230 per set. The fixed costs each year will be $10,600,000. The company has also spent $2,600,000 on research and development for the new clubs. The plant and equipment required will cost $38,900,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $3,300,000 that will be returned at the end of the project. The tax rate is 21 percent, and the cost of capital is 9 percent.

a. Calculate the payback period. (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) \

b. Calculate the NPV. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

c. Calculate the IRR. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

a.Payback period:_______years

b. NPV____

c.IRR

ABC Corp is considering an ‘easing’ of credit policy to expand sales. The following data has been assembled:

Additional Sales: $1,000,000

Production/marketing Costs= 60% of Sales.

Collection Costs = 12% of Sales.

Bad Debts= 16% of sales.

Tax Rate = 10%

Accts Receivable turnover = 5

Inventory Turnover= 4

Cost of Capital= 15%

Q1:Project Net Income (after taxes) on additional sales.

Q2:What is the additional required investment in Inventory?

Q3 :What is the additional required investment in A/R?

Q4 :What is the return on the total additional investment?

Q5 :Should the company ease it’s credit policy?Justify response.

Methods of Planner Compensation

When a planner and client establish their relationship, an agreement will be made regarding the method of compensation.

Do you believe an ideal method exists?

Is a particular model such as fee or commission preferable or is the best option situational?

Why would you prefer your stated method if hiring a planner?

Reynolds Enterprises is attempting to evaluate the feasibility of investing $85,000, CF₀, in a machine having a 5-year life. The firm has estimated the cash inflows associated with the proposal as shown below. The firm has a 12 percent cost of capital.

a.   Calculate the payback period for the proposed investment.

b.   Calculate the NPV for the proposed investment.

c.   Calculate the IRR for the proposed investment.

d.   Evaluate the acceptability of the proposed investment using NPV and IRR. What recommendation would you make relative to implementation of the project? Why?