• As a financial analyst, you must evaluate a proposed project to produce printer cartridges. The equipment would cost $55,000, plus $10,000 for installation. Annual sales would be 4,000 units at a price of $50 per cartridge, and the project's life would be 3 years. Current assets would increase by $5,000 and payables by $3,000. At the end of 3 years, the equipment could be sold for $10,000. Depreciation would be based on the MACRS 3-year class; so the applicable rates would be 33%, 45%, 15%, and 7%. Variable costs would be 70% of sales revenues, fixed costs excluding depreciation would be $30,000 per year, the marginal tax rate is 40%, and the corporate WACC is 11%.
• 1. What is the terminal year project cash flow?
• You did a scenario analysis to better understand the project’s NPV:

The firm's project CVs generally range from 1.0 to 1.5. A 3% risk premium is added to the WACC if the initial CV exceeds 1.5, and the WACC is reduced by 0.5% if the CV is 0.75 or less. Then a revised NPV is calculated. What WACC should be used for this project?

1. What is the net present value (NPV) of the project?

2. Based on this NPV, should Hasbro undertake this project?

3. What is the internal rate of return (IRR) of this project? You can find IRR by varying the discount rate in your table until NPV is zero. That new discount rate will be the IRR.

Your grade will be based on the completeness of your cash flow table and calculations as well as your answers above.

Monopoly expansion project Hasbro is considering a new high-profile marketing project to aggressively market a card game version of Monopoly called Monopoly Deal. The Marketing department would spend an extra $1.0 million per year for the next five years to increase TV commercials and print ads featuring Monopoly Deal. The primary Monopoly factory would be expanded at a cost of $5.5 million to manufacture more of the games. Assume that the factory expansion would be completed in the first year of the project. The Marketing department estimates that the marketing campaign will increase Hasbro sales enough to bring in additional cash inflows of $2.5 million per year for the five-year period. Hasbro uses a discount rate of 15% to evaluate projects such as this one. Use a 5-year time horizon, and assume no salvage value of the factory expansion at the end of this period.

1. What is the net present value (NPV) of the project?

2. Based on this NPV, should Hasbro undertake this project?

3. What is the internal rate of return (IRR) of this project? You can find IRR by varying the discount rate in your table until NPV is zero. That new discount rate will be the IRR.

Your grade will be based on the completeness of your cash flow table and calculations as well as your answers above.

Monopoly expansion project Hasbro is considering a new high-profile marketing project to aggressively market a card game version of Monopoly called Monopoly Deal. The Marketing department would spend an extra $1.0 million per year for the next five years to increase TV commercials and print ads featuring Monopoly Deal. The primary Monopoly factory would be expanded at a cost of $5.5 million to manufacture more of the games. Assume that the factory expansion would be completed in the first year of the project. The Marketing department estimates that the marketing campaign will increase Hasbro sales enough to bring in additional cash inflows of $2.5 million per year for the five-year period. Hasbro uses a discount rate of 15% to evaluate projects such as this one. Use a 5-year time horizon, and assume no salvage value of the factory expansion at the end of this period.

1. Greenwood ltd was listed at the Utopian stock exchange market ten years ago. The following table presents ten years of return data for the stock of Greenwood ltd and for the market index.

Required

1. Plot the returns of Greenwood ltd and the market index on a graph, with the market index’s returns on the horizontal axis
2. Derive the line of best fit
3. Estimate the beta factor of Greenwood ltd stock and comment on your result
4. Compute the coefficient of correlation between the returns the stock of Greenwood ltd and for the market index. Comment on your answer
5. State and explain factors affecting the return of stocks in your home country’s exchange market
6. Explain how an investor can construct a well diversified stock portfolio at your home country’s exchange market
7. Outline the main differences between active and passive stock portfolio management strategies.

2. Explain how foreign portfolio flows affect stock market performance in Kenya (Use a case study of Nairobi securities exchange)

A random sample of n = 15 heat pumps of a certain type yielded the following observations on lifetime (in years):

(a) Assume that the lifetime distribution is exponential and use an argument parallel to that of this example to obtain a 95% CI for expected (true average) lifetime. (Round your answers to two decimal places.)

  ,

years

(b) How should the interval of part (a) be altered to achieve a confidence level of 99%?

A 99% confidence level requires using a new value of n to capture an area of 0.005 in each tail of the chi-squared distribution.A 99% confidence level requires using critical values that capture an area of 0.1 in each tail of the chi-squared distribution.    A 99% confidence level requires using critical values that capture an area of 0.005 in each tail of the chi-squared distribution.A 99% confidence level requires using a new value of n to capture an area of 0.1 in each tail of the chi-squared distribution.

(c) What is a 95% CI for the standard deviation of the lifetime distribution? [Hint: What is the standard deviation of an exponential random variable?] (Round your answers to two decimal places.)

  ,

years

21. The pH of a 0.120 M phenol solution is (Ka of phenol = 1.3 x 10-10):

a. 1.000

b. 10.81

c. 11.11

d. 5.40

e. 4.48

22. Which list gives equal concentrations of the following solutions in order of decreasing acidity?

HC₃H₅O₃ (K_a = 1.4 x 10^-4)       H₂O (K_a = 1.0 x 10^-14)              HOCl (K_a = 3.5 x 10^-8)

HCN (K_a = 4.9 x 10^-10)                HCl (K_a = 2 x 10⁶)

a. HC₃H₅O₃ > HCl > HOCl > HCN > H₂O

b. HCl > HC₃H₅O₃ > HOCl > HCN > H₂O

c. HCN > HOCl > HCl > HC₃H₅O₃ > H₂O

d. HCl > HC₃H₅O₃ > HOCl > H₂O > HCN

e. H₂O > HCN > HOCl > HC₃H₅O₃ > HCl

23. Which statement is true?

a. As the strength of a weak acid increases, the percent dissociation decreases

b. As the concentration of a weak acid increases, the percent dissociation increases.

c. As the strength of a weak acid decreases, the percent dissociation increases.

d. The percent dissociation of a weak acid is independent of the identity of the weak    

      acid.

e. As the value of K_a increases, the percent dissociation increases.

25. Which of the following salts will form a basic solution?

NaBr

Ca(NO₃)₂

NH₄Cl

NaCH₃CO₂

Al(ClO₄)₃

Chapter 12 Problem 3 (Excel functions needed)

Consider the project contained in Problem 7 in Chapter 11 (California Health Center).

a. Perform a sensitivity analysis to see how NPV is affected by changes in the number of procedures per day, average collection amount, and salvage value. Remember supplies vary with number of procedures.

b. Conduct a scenario analysis. Suppose that the hospital's staff concluded that the three most uncertain variables were number of procedures per day, average collection amount, and the equipment's salvage value. Furthermore, the following data were developed:

c. Finally, assume that California Health Center's average project has a coefficient of variation of NPV in the range of 1.0 - 2.0. (Hint: Coefficient of variation is defined as the standard deviation of NPV divided by the expected NPV.) The hospital adjusts for risk by adding or subtracting 3 percentage points to its 10 percent corporate cost of capital. After adjusting for differential risk, is the project still profitable?

d. What type of risk was measured and accounted for in Parts b. and c.? Should this be of concern to the hospital's managers?

A local manufacturing company builds two products on the same production line that consists of seven workstations. The times in hours and process stations are listed below. Process 1 Process 2 Process 3 Process 4 Process 5 Process 6 Process 7 Product A 0.25 1.75 1.0 1.5 1.5 2.75 0.25 Product B 0.25 0.75 0.5 1.5 0.5 0.75 0.25 The standard times for Product A is 9.0 hours and Product B is 4.5 hours. The company averages 22 units of Product A and 55 units of Product B per month. The company’s typical month is 22 days. Currently the production line is in a straight line configuration but management read a study that said cellular manufacturing is a better solution. Specifically they are interested in a U-shaped cell. They have approached you to setup the cellular work cell and determine how many workers will be needed. Before they implement this U-shaped cell, write a memo that explains the benefits of the cellular design over the current straight line layout and whether or not they should implement the cellular layout. Include how many employees are needed including the calculations, which processes would be worked by each employee, how many workstations are needed, and how the workstations should be arranged.

Calculating the Direct Labor Mix Variance

Mangia Pizza Company makes frozen pizzas that are sold through grocery stores. Mangia uses two types of direct labor: machine operators and packers. Mangia developed the following standard mix for spreading on premade pizza shells to produce 18 giant-size sausage pizzas.

Mangia's recent batch (designed to produce 300 pizzas) used 300 direct labor hours. Of the total, 120 were for machine operators, and the remaining 180 hours were for packers. The actual yield was 780 pizzas.

Required:

Instructions for parts 2 and 3: If a variance is zero, enter "0" and select "Not applicable" from the drop down box.

1. Calculate the standard mix (SM) in hours for machine operators and for packers.

2. Calculate the mix variance.

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3. Calculate the actual proportion of hours worked by machine operators and by packers. Enter the percentages as whole numbers.

Using the results, would the direction of the mix variance be favorable or unfavorable?

The total market value of Okefenokee Real Estate Company’s equity is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock currently is 1.0 and that the expected risk premium on the market is 12%. The Treasury bill rate is 4%, and investors believe that Okefenokee's debt is essentialy free of default risk.

a. What is the required rate of return on Okefenokee stock? (Do not round intermediate calculations. Enter your answer as a whole percent.)

Required rate of return %

b. Estimate the WACC assuming a tax rate of 30%. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

WACC %

c. Estimate the discount rate for an expansion of the company’s present business. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Discount rate %

d. Suppose the company wants to diversify into the manufacture of rose-colored glasses. The beta of optical manufacturers with no debt outstanding is 1.5. What is the required rate of return on Okefenokee’s new venture? (You should assume that the risky project will not enable the firm to issue any additional debt.) (Do not round intermediate calculations. Enter your answer as a whole percent.)

Required rate of return %