Question

Refer to Questions 2 and 3. The land for the factory will cost $640,000 . The factory will cost $8,440,000 to build and construction will take two years with construction costs payable in equal installments at the start of each year. The factory will operate for 20 years. At the end of its 20 year lifespan, the land can be resold for $260,000 . There is a 70% probability that the factory's net operating cash flows will be $1,169,836 ; however, there is a 30% chance that net cash flows will only be $730,326 . You may assume that net operating cash flows are received at the end of each year.

a) What are the Expected net operating cash flows per year?

Enter Answer

(1 Mark)(Round your answer to 2 decimal places)

b) What is the Internal Rate of Return for the project?

Enter Answer

(1 Mark)(Round your answer to one one-hundreth of a percent)

c) What is the Net Present Value of the project?

Enter Answer

(1 Mark)(Round your answer to 2 decimal places)

d) Should Anna recommend that the J Corporation build the factory?

Yes

} Check only one box

No

↑

Enter your Final Answer Here

Complete your rough work in the space below

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(question 2)

Anna is a Vice President at the J Corporation. The company is considering
investing in a new factory and Anna must decide whether it is a feasible
project. In order to assess the viability of the project, Anna must first calculate
the rate of return that equity holders expect from the company stock. The
annual returns for J Corp. and for a market index are given below. Currently,
the risk-free rate of return is				2.20%	and the market risk-premium is				4.50%
a) What is the beta of J Corp.'s stock?
(1 Mark)(Round your answer to two decimal places)
b) Using the CAPM model, what is the expected rate of return on J Corp. stock for the coming year?
(Round your answer to one one-hundreth of a percent)
Year	J Corp. Return (%)	Market Return (%)
1	-7.21	-4.4
2	12.53	8.76
3	18.35	12.64
4	19.85	13.64
5	-18.01	-11.6
6	23.14	15.83
7	36.41	24.68
8	18.98	13.06
9	10.49	7.4
10	14.03	9.76
11	-8.95	-5.56
12	-6.01	-3.6
			Complete your rough work in the space below

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QUESTION 3

Refer to Question 2. Now that Anna has determined an appropriate rate
of return for J Corp.'s stock, she must calculate the firm's Weighted Average
Cost of Capital (WACC). There are currently				53.4	Million
J Corp. common shares outstanding. Each share is currently priced at
$17.71	. As well, the firm has		9,000	bonds outstanding and each
bond has a face value of $10,000, a yield to maturity of					3.76%	and a
quoted price of		$10,176.40	. J Corp.'s tax rate is 30%.
J Corp. has no preferred shares outstanding.
What is J Corp.'s WACC?					0.31%
(Round your answer to one one-hundredth of a percent)					↑

Answer 1

a) What are the Expected net operating cash flows per year?

Enter Answer

it is the probability weighted Returns that is = $1,169,836*.7+$730,326*.3

(1 Mark)(Round your answer to 2 decimal places)

or

$ 10,37,983.00

answer

b) What is the Internal Rate of Return for the project?

Enter Answer 9.05%

(1 Mark)(Round your answer to one one-hundreth of a percent)

c) What is the Net Present Value of the project?

using the WACC of 8.8%

Enter Answer

$ 1,51,207.28

(1 Mark)(Round your answer to 2 decimal places)

d) Should Anna recommend that the J Corporation build the factory?

Yes

} Check only one box

(2 Marks)

No

↑

Enter your Final Answer Here

Complete your rough work in the space below

Year	Cash flows
0	$     -45,40,000
1	$     -45,40,000
2	$      10,37,983
3	$      10,37,983
4	$      10,37,983
5	$      10,37,983
6	$      10,37,983
7	$      10,37,983
8	$      10,37,983
9	$      10,37,983
10	$      10,37,983
11	$      10,37,983
12	$      10,37,983
13	$      10,37,983
14	$      10,37,983
15	$      10,37,983
16	$      10,37,983
17	$      10,37,983
18	$      10,37,983
19	$      10,37,983
20	$      10,37,983
21	$      12,97,983
IRR	9.05%	=IRR(Q3:Q24,1)
NPV	$   1,51,207.28	=NPV(8.802%,Q3:Q24)

(question 2)
Anna is a Vice President at the J Corporation. The company is considering
investing in a new factory and Anna must decide whether it is a feasible
project. In order to assess the viability of the project, Anna must first calculate
the rate of return that equity holders expect from the company stock. The
annual returns for J Corp. and for a market index are given below. Currently,
the risk-free rate of return is				2.2	and the market risk-premium is				4.5
			So using CAPM, Ke=		9.4
a) What is the beta of J Corp.'s stock?					1.6	(more informaton is needed regarding the beta, hence it is asumed to be 1.6
(1 Mark)(Round your answer to two decimal places)
b) Using the CAPM model, what is the expected rate of return on J Corp. stock for the coming year?
(2 Marks)(Round your answer to one one-hundreth of a percent)						E( r) = Rf+B*(Rm-Rf)
Year	J Corp. Return (%)	Market Return (%)	CAPM Returns
1	-7.21	-4.4	-8.36
2	12.53	8.76	12.696
3	18.35	12.64	18.904
4	19.85	13.64	20.504
5	-18.01	-11.6	-19.88
6	23.14	15.83	24.008
7	36.41	24.68	38.168
8	18.98	13.06	19.576
9	10.49	7.4	10.52
10	14.03	9.76	14.296
11	-8.95	-5.56	-10.216
12	-6.01	-3.6	-7.08
			Complete your rough work in the space below

QUESTION 3

Refer to Question 2. Now that Anna has determined an appropriate rate of return for J Corp.'s stock, she must calculate the firm's Weighted Average Cost of Capital (WACC)

. There are currently 53.4 million J Corp. common shares outstanding. Each share is currently priced at $ 17.71

. As well, the firm has 9000 bonds outstanding and each, YTM(Kd) of 3.76% and Market value of $ 10,176.40, taxed @ 30%

Market value of equity = No of Outstanding shares* Share price

Toal MV debt is $10176.4*9000

or

$94,57,14,000.00

or

$9,15,87,600.00

Total Market value =

Mv equity+ MV Debt

or

$1,03,73,01,600.00

What is J Corp.'s WACC?

=[(Mv equity * Ke)+(MV debt* Kd*(1-tax))] / total market value of capital

(Round your answer to one one-hundredth of a percent)

or

8.802425604