Bigg company is evaluation two projects for next year’s capital budgeting. The after-tax cash flow ($) (including depreciation) are following:

Project A                              Project B

Year 0    -7500 -17500

Year 1    2000                                       5600

Year 2    2000                                       5600

Year 3    2000                                       5600

Year 4    2000                                       5600

Year 5    2000                                       5600

Year 6    4000                                       9000

If company’s WACC is 13%, find NPV, IRR, Payback and discount payback for each project. If the projects are mutually exclusive what is your recommendation to the company.(show working please)

GM is considering two mutually exclusive projects, A and B. Project A costs $150,000 and is expected to generate $50,000 in year one, $85,000 in year two, and $35,000 per year in years 3 and 4. Project B costs $120,000 and is expected to generate $64,000 in year one, $45,000 in year two, $25,000 in year three, and $55,000 in year four. GM's required rate of return for these projects is 10%. GM decides to use NPV to evaluate these projects. Which project or projects will they choose?

Project A

Project B

Projects A&B

GM would reject both projects

Three different companies each purchased trucks on January 1, Year 1, for $60,000. Each truck was expected to last four years or 250,000 miles. Salvage value was estimated to be $5,000. All three trucks were driven 79,000 miles in Year 1, 47,000 miles in Year 2, 51,000 miles in Year 3, and 74,000 miles in Year 4. Each of the three companies earned $49,000 of cash revenue during each of the four years. Company A uses straight-line depreciation, company B uses double-declining-balance depreciation, and company C uses units-of-production depreciation.

Answer each of the following questions. Ignore the effects of income taxes.

Required

1. a-1. Calculate the net income for Year 1.

2. a-2. Which company will report the highest amount of net income for Year 1?

3. b-1. Calculate the net income for Year 4.

4. b-2. Which company will report the lowest amount of net income for Year 4?

5. c-1. Calculate the book value on the December 31, Year 3, balance sheet.

6. c-2. Which company will report the highest book value on the December 31, Year 3, balance sheet?

7. d-1. Calculate the retained earnings on the December 31, Year 4, balance sheet.

8. d-2. Which company will report the highest amount of retained earnings on the December 31, Year 4, balance sheet?

   e. Which company will report the lowest amount of cash flow from operating activities on the Year 3 statement of cash flows?

Three different companies each purchased trucks on January 1, Year 1, for $72,000. Each truck was expected to last four years or 200,000 miles. Salvage value was estimated to be $7,000. All three trucks were driven 67,000 miles in Year 1, 42,000 miles in Year 2, 40,000 miles in Year 3, and 62,000 miles in Year 4. Each of the three companies earned $61,000 of cash revenue during each of the four years. Company A uses straight-line depreciation, company B uses double-declining-balance depreciation, and company C uses units-of-production depreciation. Answer each of the following questions. Ignore the effects of income taxes. Required a-1. Calculate the net income for Year 1. a-2. Which company will report the highest amount of net income for Year 1? b-1. Calculate the net income for Year 4. b-2. Which company will report the lowest amount of net income for Year 4? c-1. Calculate the book value on the December 31, Year 3, balance sheet. c-2. Which company will report the highest book value on the December 31, Year 3, balance sheet? d-1. Calculate the retained earnings on the December 31, Year 4, balance sheet. d-2. Which company will report the highest amount of retained earnings on the December 31, Year 4, balance sheet? e. Which company will report the lowest amount of cash flow from operating activities on the Year 3 statement of cash flows?

Profitability Ratios

East Point Retail, Inc., sells professional women's apparel through company-owned retail stores. Recent financial information for East Point is provided below (all numbers in thousands).

Assume the apparel industry average return on total assets is 8.0%, and the average return on stockholders’ equity is 15.0% for the year ended April 2, Year 3.

a. Determine the return on total assets for East Point for fiscal Years 2 and 3. Round to one decimal place.

b. Determine the return on stockholders' equity for East Point for fiscal Years 2 and 3. Round to one decimal place.

c. The return on stockholders' equity is greater than  the return on total assets due to the positive  use of leverage.

d. During fiscal Year 3, East Point’s results were weak  compared to the industry average. The return on total assets for East Point was less  than the industry average. The return on stockholders’ equity was less  than the industry average. These relationships suggest that East Point has less  leverage than the industry, on average.

Monhegan Computers is considering whether to begin offering customers the option to have their old personal computers recycled when they purchase new systems. The recycling system would require Monhegan to invest $650,000 in the grinders and magnets used in the recycling process (that is at t=0). The company estimates that for each system it recycles, it would generate $1.75 in incremental revenues from the sale of scrap metal and plastics. The recycled computers will cost the firm nothing, but it will cost the firm $0.25 per unit to dispose of the toxic elements from the recycled computer. The firm expects to use the recycling equipment for five years, and at t=5 sell the recycling equipment for $30,000. The machinery will be depreciated at the five-year MACRS depreciation schedule. (The MACRS depreciation schedule for a five year life is: year 1--20%, year 2--32%, year 3—19.2%, year 4—11.52%, year 5—11.52%, year 6—5.76%. Note that a five year life lasts 6 years because of the half year convention for the first year, but the machinery is sold at t=5.) During the life of the machine no new capital expenditures or investments in working capital will be required. Monhegan estimates that in the first year of the recycling project, it could recycle 110,000 PCs and that this number will grow by 20% per year over the remaining four-year life of the recycling equipment. Monhegan uses a 14% discount rate to analyze capital expenditures and pays taxes equal to 30%. You must calculate the PFCFs. What is the project’s NPV?

On January 1, Boston Company completed the following transactions (use a 7% annual interest rate for all transactions): (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Promised to pay a fixed amount of $7,900 at the end of each year for nine years and a one-time payment of $118,800 at the end of the 9th year. In transaction (1), determine the present value of the debt. In transaction (2), what single sum amount must the company deposit on January 1 of this year, as well as the total interest revenue earned. In transaction (3), determine the present value of this obligation. In transaction (4), what is the amount of each of the equal annual payments that will be paid on the note? As well as the total interest expense incurred?

1. Promised to pay a fixed amount of $7,900 at the end of each year for nine years and a one-time payment of $118,800 at the end of the 9th year.
2. Established a plant remodeling fund of $492,850 to be available at the end of Year 10. A single sum that will grow to $492,850 will be deposited on January 1 of this year.
3. Agreed to pay a severance package to a discharged employee. The company will pay $76,900 at the end of the first year, $114,400 at the end of the second year, and $151,900 at the end of the third year.
4. Purchased a $179,500 machine on January 1 of this year for $35,900 cash. A five-year note is signed for the balance. The note will be paid in five equal year-end payments starting on December 31 of this year

Assume that the export price of a Toyota Corolla from Osaka, Japan, is ¥2,100,000. The exchange rate is ¥87.59 /$.

The forecast rate of inflation in the United States is 2.1 % per year and in Japan it is 0.0 % per year. Use this data to answer the following questions on exchange rate pass-through.

a. What was the export price for the Corolla at the beginning of the year expressed in U.S. dollars?

b. Assuming purchasing power parity holds, what should be the exchange rate at the end of the year?

c. Assuming 100% exchange rate pass-through, what will be the dollar price of a Corolla at the end of the year?

d. Assuming 75% exchange rate pass-through, what will be the dollar price of a Corolla at the end of the year?

a. What was the export price for the Corolla at the beginning of the year expressed in U.S. dollars?

The export price for the Corolla at the beginning of the year expressed in U.S. dollars is

$__.

(Round to the nearest cent.)

b. Assuming purchasing power parity holds, what should be the exchange rate at the end of the year?

Assuming purchasing power parity holds, the exchange rate be at the end of the year should be

yen¥__ /$.

(Round to two decimal places.)

c. Assuming 100% exchange rate pass-through, what will be the dollar price of a Corolla at the end of the year?

Assuming 100% exchange rate pass-through, the dollar price of a Corolla at the end of the year will be

$__.

(Round to the nearest cent.)

d. Assuming 75% exchange rate pass-through, what will be the dollar price of a Corolla at the end of the year?

Assuming 75% exchange rate pass-through, the dollar price of a Corolla at the end of the year will be

$__.

(Round to the nearest cent.)

AT&T would like to test the hypothesis that the proportion of 18- to 34-year-old Americans that own a cell phone is less than the proportion of 35- to 49-year-old Americans. A random sample of 200 18- to 34-year-old Americans found that 126 owned a smartphone. A random sample of 175 35- to 49-year-old Americans found that 119 owned a smartphone. If Population 1 is defined as 18- to 34-year-old Americans and Population 2 is defined as 35- to 49-year-old Americans, and using LaTeX: \alpha α = 0.01, the conclusion for this hypothesis test would be that because the test statistic is _______________________________________________________________. less than the critical value, AT&T can conclude that the proportion of 18- to 34-year-old Americans that own a cell phone is less than the proportion of 35- to 49-year-old Americans less than the critical value, AT&T cannot conclude that the proportion of 18- to 34-year-old Americans that own a cell phone is less than the proportion of 35- to 49-year-old Americans more than the critical value, AT&T can conclude that the proportion of 18- to 34-year-old Americans that own a cell phone is less than the proportion of 35- to 49-year-old Americans more than the critical value, AT&T cannot conclude that the proportion of 18- to 34-year-old Americans that own a cell phone is less than the proportion of 35- to 49-year-old Americans none of these answers are correct