Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .76. It’s considering building a new $66.6 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.91 million in perpetuity. There are three financing options:
a. A new issue of common stock: The required return on the company’s new equity is 15.4 percent.
b. A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.5 percent, they will sell at par.
c. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .13.
(Assume there is no difference between the pretax and aftertax accounts payable cost.) If the tax rate is 21 percent, what is the NPV of the new plant? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Question 1 :

Suppose country A and country B are deciding whether to install new incinerator to reduce regional air pollution or not. The new incinerators can reduce the domestic pollution and the cross-border pollution that affects both countries.

To quantify the analysis, suppose that if country A installs the new incinerator, it generates benefit of $1 million from reducing domestic pollution and of $1 million from reducing cross-border pollution. But, the benefit from reducing cross-border pollution will be equally shared by two countries. So, country A and country B will get a benefit of $0.5 million from reducing cross border pollution if country A installs the new incinerator.

The same calculation applies to country B. In other words, the new incinerator generates $1 million benefits domestically in B, and $1 million shared benefits to both A and B (each country gets $0.5 million)

a) Suppose that there is no cost in installing the new incinerator. Draw the game matrix and determine the equilibrium.

b) Suppose that the cost of installing the new incinerator is $2 million, draw the game matrix again. What is the implication from the equilibrium?

The New York City subway station needs a modern transport solution for accessing a busy maintenance depot that services the L train. A second-hand system will cost $60,000; a new system will cost \$135,000. Both systems have a useful life of 6 years. The market value of the used system is expected to be $45,000 at the end of the useful lifetime, whereas the market value of the new system is anticipated to be $55,000 in 6 years. Current maintenance activity will require the used system to be operated 7 hours per day for 25 days per month. The new system with improved technology can decrease labor hours by 17%, compared to the used system. If labor costs $35 per hour and the MARR is 1% per month, calculate the difference between the annual worth of the used system and the new system (e.g., AW(Used System) – AW (New System)). If you believe the new system has a greater worth than the used system, this would be a negative number; if you believe the used system has greater worth, this would be a positive number. Report your answer to the nearest dollar.

Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt–equity ratio of .60. It’s considering building a new $71.5 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.9 million in perpetuity. There are three financing options:

A new issue of common stock: The required return on the company’s new equity is 15.3 percent.

A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7 percent, they will sell at par.

Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .12. (Assume there is no difference between the pretax and aftertax accounts payable cost.)

If the tax rate is 35 percent, what is the NPV of the new plant? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.)

NPV=

Apricot Computers is considering replacing its material handling system and either purchasing or leasing a new system. The old system has an annual operating and maintenance cost of $31,000, a remaining life of 8 years, and an estimated salvage value of $5,800 at that time.
A new system can be purchased for $237,000; it will be worth $26,000 in 8 years; and it will have annual operating and maintenance costs of $19,000/year . If the new system is purchased, the old system can be traded in for $21,000.
Leasing a new system will cost $22,000/year , payable at the beginning of the year, plus operating costs of $8,400/year , payable at the end of the year. If the new system is leased, the old system will be sold for $9,400.
MARR is 14%. Compare the annual worths of keeping the old system, buying a new system, and leasing a new system based upon a planning horizon of 8 years.

Click here to access the TVM Factor Table Calculator
For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round answer to 2 decimal places, e.g. 52.75. The absolute cell tolerance is ±1

What is the EUAC of the best option using the cash flow approach?

X Company is considering a new processor that costs $150,000. Shipping and setup costs for the new processor are estimated to be $15,000. X’s working capital requirement is expected to increase by $17,000 when the new processor begins operation and is expected to be fully recoverable at the end of the project. The new processor’s useful life is expected to be 5 years and its salvage value at that point is estimated to be $60,000. The new processor is being depreciated using a 5-year ACRS life. Assume a tax rate of 35% and a cost of capital of 12%.

Estimated incremental revenues and incremental cash operating expenses for the new processor before tax for each year are shown in the table below.

Q1.) What is the book value of the new processor at the end of Year 3?

Q2.) What is the total after-tax cash flows in Year 5? Total means incremental cash flows plus terminal cash flows.

Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt-equity ratio of .67. It’s considering building a new $65.7 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.45 million in perpetuity. There are three financing options: a. A new issue of common stock: The required return on the company’s new equity is 15.3 percent. b. A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.2 percent, they will sell at par. c. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .09. (Assume there is no difference between the pretax and aftertax accounts payable cost.)

If the tax rate is 22 percent, what is the NPV of the new plant? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)

Photochronograph Corporation (PC) manufactures time series photographic equipment. It is currently at its target debt–equity ratio of .56. It’s considering building a new $71.3 million manufacturing facility. This new plant is expected to generate aftertax cash flows of $7.88 million in perpetuity. There are three financing options: A new issue of common stock: The required return on the company’s new equity is 15.1 percent. A new issue of 20-year bonds: If the company issues these new bonds at an annual coupon rate of 7.3 percent, they will sell at par. Increased use of accounts payable financing: Because this financing is part of the company’s ongoing daily business, the company assigns it a cost that is the same as the overall firm WACC. Management has a target ratio of accounts payable to long-term debt of .14. (Assume there is no difference between the pretax and aftertax accounts payable cost.) If the tax rate is 38 percent, what is the NPV of the new plant? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.)

Woo Audio is a small company in New York that makes high-quality headphone amplifiers. The company makes each amplifier by hand using premium audio components and vacuum tubes. Recently, the owner of the company noticed a trend in the headphone community toward using portable, high-quality headphone amplifiers. These new units combine a digital-to-analog converter with a high-power amplifier in a package small enough to put in a pocket.

Review the three-phase, eight-stage, new product development process:

• Phase I: Generating and Screening Ideas
  Stage 1: Generating New Product Ideas
  Stage 2: Screening Product Ideas
  Stage 3: Concept Development and Testing
• Phase II: Developing New Products
  Stage 4: Business Case Analysis
  Stage 5: Technical and Marketing Development
• Phase III: Commercializing New Product
  Stage 6: Test Marketing and Validation
  Stage 7: Launch
  Stage 8: Evaluation

Select one of the phases and explain how Woo Audio would proceed through that phase to develop a conceptual new product that will generate excitement in the headphone community.