Problem 11-06
New-Project Analysis

The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $980,000, and it would cost another $22,000 to install it. The machine falls into the MACRS 3-year class (the applicable MACRS depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%), and it would be sold after 3 years for $626,000. The machine would require an increase in net working capital (inventory) of $9,500. The sprayer would not change revenues, but it is expected to save the firm $397,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 30%.

1. What is the Year 0 net cash flow?
   $
2. 
   
3. 
   
4. 
   
5. What are the net operating 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	$

6. 
   
7. What is the additional Year 3 cash flow (i.e, the after-tax salvage and the return of working capital)? Do not round intermediate calculations. Round your answer to the nearest dollar.
   $
8. 
   
9. 
   
10. 
    
11. If the project's cost of capital is 14 %, what is the NPV of the project? Do not round intermediate calculations. Round your answer to the nearest dollar.
    $
    
    Should the machine be purchased?
    -Select-YesNoItem 7

Gringotts is currently one of the few Australian listed companies that have not published an annual corporate sustainability report. Since the sustainability report is voluntary and no executive team member is keen on bureaucracy, it is difficult for them to believe that Gringotts should report its sustainability initiatives. But you think there are good reasons to do this, and you want to convince them to look at it the way you do.

Please describe a ethical issue recently reported on the financial media. And write a normative approach to ethical decision-making by helping managers understand and correct ethical violations in their own departments.

Based on the data below, what is the AFN for Pear Computer at the end of next year?

What project or set of projects would be in your capital budget if SS and LL were independent?

I do not understand what PVIFA stands for in this problem and how you are getting the S5(Yen/$) figure (INternational Financial Management Eun & Resnick Chapter 12 Problem 3)

. A five-year, 4 percent Euroyen bond sells at par. A comparable risk five-year, 5.5 percent yen/dollar dual-currency bond pays $833.44 at maturity. It sells for ¥110,000. What is the implied ¥/$ exchange rate at maturity? Hint: The par value of the bond is not necessarily equivalent to ¥100,000

Attached is a spreadsheet showing the most recent financial statements for Wall Enterprises. Please do your calculations on the spreadsheet. Using the percent of sales method forecast the financial statements for the next three years. Sales are anticipated to grow by 10%, 8%, and 5% thereafter. The WACC is 9%. Balance the balance sheets by using the Line of Credit or adding a Marketable Securities line if needed. The interest rate on all debt is 8% and is based on the debt outstanding at the end of the prior year. Dividends are forecast to grow by 10% each year. No additional long-term debt or commons stock will be sold. Make a note of anything you assumed in your forecast. Calculate the FCF and the terminal value to determine the value of the company. Given the 10 million shares outstanding what is the implied stock price? If an investor is willing to pay $250 million for 25% of the company, assuming a terminal value of 8X EBIT in 2019, (ignore the DCF calculations you just did) what return on investment does that provide? Is that likely to be an acceptable investment to the investor?

Q–7. An American investor purchased 100 shares of a French beyond meat company on January 1, 2018 at €93.00 per share. e French company paid an annual dividend of €0.72 on December 31st, 2018 to all its shareholders. e stock was sold that day as well for €100.25. e exchange rate was € 0.68 per US dollar on January 1,2018 and €0.71 per US dollar on December 31, 2018. What is the investor’s total return in US dollars?

The last dividend paid by Coppard Inc. was $1.25. The dividend growth rate is expected to be constant at 12.5% for 3 years, after which dividends are expected to grow at a rate of 6% forever. If the firm's required return (r_s) is 11%, what is its current stock price?

Select the correct answer.

(Calculating free cash flows​) At​ present, Solartech Skateboards is considering expanding its product line to include​ gas-powered skateboards;​ however, it is questionable how well they will be received by skateboarders. Although you feel there is a 70 percent chance you will sell 9,000 of these per year for 10 years​ (after which time this project is expected to shut down because​ solar-powered skateboards will become more​ popular), you also recognize that there is a 15 percent chance that you will only sell 4,000 and also a 15 percent chance you will sell 16,000. The gas skateboards would sell for $ 140 each and have a variable cost of ​$50 each. Regardless of how many you​ sell, the annual fixed costs associated with production would be ​$120,000. In​ addition, there would be an initial expenditure of ​$800,000 associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified​ straight-line method down to zero over 10 years. Because of the number of stores that will need​ inventory, the working capital requirements are the same regardless of the level of sales. This project will require a​ one-time initial investment of $ 70,000 in net working​ capital, and that​ working-capital investment will be recovered when the project is shut down.​ Finally, assume that the​ firm's marginal tax rate is 35 percent.

a. What is the initial outlay associated with the​ project?

b. What are the annual free cash flows associated with the project for years 1 through 9 under each sales​ forecast? What are the expected annual free cash flows for years 1 through​ 9?

c. What is the terminal cash flow in year 10​ (that is, what is the free cash flow in year 10 plus any additional cash flows associated with the termination of the​ project)?

d. Using the expected free cash​ flows, what is the​ project's NPV given a required rate of return of 9 ​percent? What would the​ project's NPV be if 9,000 skateboards were​ sold?

​(Replacement chains​) Destination Hotels currently owns an older hotel on the best beachfront property on Hilton Head​ Island, and it is considering either remodeling the hotel or tearing it down and building a new convention​ hotel, but because both hotels would occupy the same physical​ location, the company can only choose one project-that ​is, these are mutually exclusive projects. Both of these projects have the same initial outlay of $ 1,800,000. The first​ project, since it is a remodel of an existing​ hotel, has an expected life of 9 years and will provide free cash flows of $ 400,000 at the end of each year for all 9 years. In​ addition, this project can be repeated at the end of 9 years at the same cost and with the same set of future cash flows. The proposed new convention hotel has an expected life of 18 years and will produce cash flows of $ 280,000 per year. The required rate of return on both of these projects is 9 percent. Calculate the NPV using replacement chains to compare these two projects.

(Calculating free cash flows​) You are considering new elliptical trainers and you feel you can sell 6,000 of these per year for 5 years​ (after which time this project is expected to shut down when it is learned that being fit is​ unhealthy). The elliptical trainers would sell for ​$1,000 each and have a variable cost of ​$500 each. The annual fixed costs associated with production would be ​$1,500,000. In​ addition, there would be a ​$6,000,000 initial expenditure associated with the purchase of new production equipment. It is assumed that this initial expenditure will be depreciated using the simplified​ straight-line method down to zero over 5 years. This project will also require a​ one-time initial investment of ​$1,100,000 in net working capital associated with​ inventory, and that working capital investment will be recovered when the project is shut down.​ Finally, assume that the​ firm's marginal tax rate is 34 percent.

a. What is the initial outlay associated with this​ project?

b. What are the annual free cash flows associated with this project for years 1 through​ 4?

c. What is the terminal cash flow in year 5 ​(that is, what is the free cash flow in year 5 plus any additional cash flows associated with the termination of the​ project)?

d. What is the ​project's NPV given a required rate of return of 9 ​percent?

Sully contributed $750,000 to an irrevocable trust. He did not retain any right to the trust’s assets. The income beneficiary was Sully's sister, Kate, and the remainder beneficiary was a University. When Sully died four years later, the value of the trust was $1,500,000. How much will be included in Sully's gross estate?