The lease of Theme Park, Inc., is about to expire. Management must decide whether to renew the lease for another 10 years or to relocate near the site of a proposed motel. The town planning board is currently debating the merits of granting approval to the motel. A consultant has estimated the net present value of Theme Park’s two alternatives under each state of nature as shown below. Suppose that the management of Theme Park, Inc., has decided that there is a 0.21 probability that the motel’s application will be approved.

a-1.
If management uses maximum expected monetary value as the decision criterion, calculate expected monetary value for the alternatives "Renew" and "Relocate"? (Omit the "$" sign in your response.)

a-2. Which alternative should it choose?

• Renew lease??

• Relocate??

c. If management has been offered the option of a temporary lease while the town planning board considers the motel’s application, would you advise management to sign the lease? The lease will cost $21,000. (Omit the "$" sign in your response.)

Yes  because the cost is less  than EVPI of $ ??? .

Markov Chains:

A small town purchases salt by railroad-car loads to be used for melting ice and snow on the roads during the winter. One railroad car holds twelve tons of salt. The amount of salt used in any one storm depends upon the severity and duration of the storm. Past experience shows that, of the storms which are serious enough to call for any salt, some will require only one pass of the salt trucks, some will require two passes, and a few will require three passes. Each pass (a complete coverage of all of the streets of the town) consumes five tons of salt. Also from past experience, it has been estimated that 50 percent of the storms are one-pass storms, 40 percent are two-pass, and 10 percent are three-pass. The initial supply of salt at the beginning of winter is five railroad cars, or sixty tons. Construct a Markov chain model to show the consumption of salt over time, where time is measured discretely in the number of storms since the beginning of winter.

Please give the answer in either Matrix Form or as a Transition Diagram for a thumbs up. Thank you

Classifying Relevant and Irrelevant Items

The law firm of Hannan, Taylor, and Masteller has been asked to represent a local client. All legal

proceedings will be held out of town in Boston.

Required

The law firm’s accountant has asked you to help determine the incremental cost of accepting this client.

Classify each of the following items on the basis of their relationship to this engagement. Items may

have multiple classifications.

Relevant costs Irrelevant costs

Opportunity Outlay Outlay Sunk

1. The case will require three attorneys to stay four

nights in a Boston hotel. The predicted hotel bill

is $2,400.

2. Hannan, Taylor, and Masteller’s professional staff

is paid $2,000 per day for out-of-town assignments.

3. Last year, depreciation on Hannan, Taylor, and

Masteller’s office was $25,000.

4. Round-trip transportation to Boston is expected to

cost $250 per person.

5. The firm has recently accepted an engagement that

will require partners to spend two weeks in Chi-

cago. The predicted out-of-pocket costs of this trip

are $8,500.

6. The firm has a maintenance contract on its com-

puter equipment that will cost $2,200 next year.

Town Beverage has 8 million shares of common stock outstanding, 6 million shares of preferred stock outstanding, and 5 thousand bonds. If the common shares are selling for $20 per share, the preferred shares are selling for $10 per share, and the bonds are selling for 105 percent of par, what would be the weight used for preferred stock in the computation of Town Beverage's WACC?

A. 26.64% B. 27.27% C. 29.85% D. 33.33% E. 42.84%

Echo Sound has 4 million shares of common stock outstanding, 500,000 shares of preferred stock
outstanding, and 45,000 bonds. If the common shares are selling for $28.50 per share, the preferred shares
are selling for $38.75 per share, and the bonds are selling for 96.85 percent of par, what would be the weight
used for debt in the computation of Echo Sound's WACC?
A. less than 22.70 percent
B. more than 22.70 percent but less than 24.15 percent
C. more than 24.15 percent but less than 25.60 percent
D. more than 25.60 percent but less than 27.05 percent
E. more than 27.05 percent

Conch Republic Electronics

C

onch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded more than 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company in its finance department.

One of the major revenue-producing items manufactured by Conch Republic is a smartphone. Conch Republic currently has one smartphone model on the market and sales have been excellent. The smartphone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smartphone that has all the features of the existing one but adds new features such as wifi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smartphone.

Conch Republic can manufacture the new smartphone for $205 each in variable costs. Fixed costs for the operation are estimated to run $5.1 million per year. The estimated sales volume is 64,000, 106,000, 87,000, 78,000, and 54,000 per year for the next five years, respectively. The unit price of the new smartphone will be $485. The necessary equipment can be purchased for $34.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.5 million.

Net working capital for the smartphones will be 20 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC will thus first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a required return of 12 percent.

Shelly has asked Jay to prepare a report that answers the following questions:

QUESTIONS

1. What is the payback period of the project?

2. What is the profitability index of the project?

3. What is the IRR of the project?

4. What is the NPV of the project?

Week 3 Term Project - Conch Republic Electronics I think you will find an Excel spreadsheet to be the most effective way of completing this assignment. Use the attached Conch Republic Spreadsheet to help you. Conch Republic Electronics Conch Republic Electronics is a mid sized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company's finance department. One of the major revenue-producing items manufactured by Conch Republic is a personal digital assistant (PDA). Conch Republic currently has one PDA model on the market, and sales have been excellent. The PDA is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current PDA has limited features in comparison with newer models. Conch Republic developed a prototype for a new PDA that has all the features of the existing PDA but adds new features such as cell phone capability. The company has performed a marketing study to determine the expected sales figures for the new PDA. Conch Republic can manufacture the new PDA for $200 each in variable costs. Fixed costs for the operation are estimated to run $4.5 million per year. The estimated sales volume is 70,000, 80,000, 100,000, 85,000, and 75,000 per each year for the next five years, respectively. The unit price of the new PDA will be $340. The necessary equipment can be purchased for $16.5 million and will be depreciated on a 5 year straight-line schedule. Net working capital investment for the PDAs will be $6,000,000 the first year of operations. Of course NWC will be recovered at the projects end. Conch Republic has a 35 percent corporate tax rate and a 12 percent required return. Shelly has asked Jay to prepare a report that answers the following questions: What is the IRR of the project? What is the NPV of the project, based on the required rate of return of 12%?

CHAPTER CASE

Conch Republic Electronics

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelly Couts, who inherited the company. The company originally repaired radios and other household appliances when it was founded more than 70 years ago. Over the years, the company has expanded, and it is now a reputable manufacturer of various specialty electronic items. Jay McCanless, a recent MBA graduate, has been hired by the company in its finance department.

One of the major revenue-producing items manufactured by Conch Republic is a smartphone. Conch Republic currently has one smartphone model on the market and sales have been excellent. The smartphone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smartphone that has all the features of the existing one but adds new features such as wifi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smartphone.

Conch Republic can manufacture the new smartphone for $205 each in variable costs. Fixed costs for the operation are estimated to run $5.1 million per year. The estimated sales volume is 64,000, 106,000, 87,000, 78,000, and 54,000 per year for the next five years, respectively. The unit price of the new smartphone will be $485. The necessary equipment can be purchased for $34.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $5.5 million.

Net working capital for the smartphones will be 20 percent of sales and will occur with the timing of the cash flows for the year (i.e., there is no initial outlay for NWC). Changes in NWC will thus first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a required return of 12 percent.

Shelly has asked Jay to prepare a report that answers the following questions:

QUESTIONS

1. What is the payback period of the project?

2. What is the profitability index of the project?

3. What is the IRR of the project?

4. What is the NPV of the project?

*****PLEASE SHOW YOUR WORK

Conch Republic Electronics is a midsized electronics manufacturer located in Key West, Florida. The company president is Shelley Couts, who inherited the company. When it was founded over 70 years ago, the company originally repaired radios and other household appliances. Over the years, the company expanded into manufacturing and is now a reputable manufacturer of various electronic items. Jay McCanless, a recent graduate, has been hired by the company's finance department. One of the major revenue-producing items manufactured by Conch Republic is a smart phone. Conch Republic currently has one smart phone model on the market, and sales have been excellent. The smart phone is a unique item in that it comes in a variety of tropical colors and is preprogrammed to play Jimmy Buffett music. However, as with any electronic item, technology changes rapidly, and the current smart phone has limited features in comparison with newer models. Conch Republic spent $750,000 to develop a prototype for a new smart phone that has all the features of the existing smart phone but adds new features such as WiFi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smart phone. Conch Republic can manufacture the new smart phones for $215 each in variable costs. Fixed costs for the operation are estimated to run $6.1 million per year. The estimated sales volume is 155,000, 165,000, 125,000, 95,000, and 75,000 per year for the next five years, respectively. The unit price of the new smart phone will be $520. The necessary equipment can be purchased for $40.5 million and will be depreciated on a seven-year MACRS schedule. It is believed the value of the equipment in five years will be $6.1 million. Net working capital for the smart phones will be 20 percent of sales and will occur with the timing of the cash flows for the year; for example, there is no initial outlay for NWC, but changes in NWC will first occur in Year 1 with the first year's sales. Conch Republic has a 35 percent corporate tax rate and a required return of 12 percent. Shelley has asked Jay to prepare a report that answers the following questions.

Create Pro Forma Income Statement from YEAR 1 to 5 (Show EBITDA and EBIT).

Luke and Sarah lived in a house in Albury where they both had permanent jobs. In July 2012 they purchased a rural block of 30 acres for $160,000 with the intention of building a house and moving out of town. In September 2012 they listed their house in Albury for sale at $570,000, however given a downturn in the market the house remained unsold until March 2014 when they finally accepted an offer of $460,000. Settlement took place in April 2014 and they commenced construction on the new house in May 2014. Whilst the house was being built Luke and Sarah rented the Albury house back from the new owners at an amount of $480 per week.

In November 2014 the new house was completed at a cost of $410,000 and Luke and Sarah moved in. Additional costs incurred by them included construction of a road for $15,000, sinking a dam at a cost of $30,000 and connection of electricity at a cost of $40,000. They financed the new property with a home loan of $450,000 payable over 30 years at a rate of 4.20%.

Luke and Sarah began a horse agistment business in January 2015 to which they allocated 20 acres of their property. They constructed fencing to create smaller paddocks, built shade shelters and installed water troughs at a total cost of $80,000. To fund the cost of the improvements they took out a small business loan for $80,000 payable over 10 years at a rate of 5.30%.

In October 2019, Luke was offered a promotion in his job which required them to re-locate to Queensland. They listed the rural property for sale and in December 2019 it sold for an amount of $850,000 with settlement occurring in January 2020 at which time Luke and Sarah moved to Queensland.

Required

Advise Luke and Sarah of the taxation consequences of selling the rural property including whether any taxation exemptions or concessions may apply. You do not need to calculate the amount of any resulting capital gain or loss .

Luke and Sarah lived in a house in Albury where they both had permanent jobs. In July 2012 they purchased a rural block of 30 acres for $160,000 with the intention of building a house and moving out of town. In September 2012 they listed their house in Albury for sale at $570,000, however given a downturn in the market the house remained unsold until March 2014 when they finally accepted an offer of $460,000. Settlement took place in April 2014 and they commenced construction on the new house in May 2014. Whilst the house was being built Luke and Sarah rented the Albury house back from the new owners at an amount of $480 per week.

In November 2014 the new house was completed at a cost of $410,000 and Luke and Sarah moved in. Additional costs incurred by them included construction of a road for $15,000, sinking a dam at a cost of $30,000 and connection of electricity at a cost of $40,000. They financed the new property with a home loan of $450,000 payable over 30 years at a rate of 4.20%.

Luke and Sarah began a horse agistment business in January 2015 to which they allocated 20 acres of their property. They constructed fencing to create smaller paddocks, built shade shelters and installed water troughs at a total cost of $80,000. To fund the cost of the improvements they took out a small business loan for $80,000 payable over 10 years at a rate of 5.30%.

In October 2019, Luke was offered a promotion in his job which required them to re-locate to Queensland. They listed the rural property for sale and in December 2019 it sold for an amount of $850,000 with settlement occurring in January 2020 at which time Luke and Sarah moved to Queensland.

Required

Advise Luke and Sarah of the taxation consequences of selling the rural property including whether any taxation exemptions or concessions may apply. You do not need to calculate the amount of any resulting capital gain or loss .