Sony International has an investment opportunity to produce a new stereo HDTV. The required investment on January 1 of this year is $200 million. The firm will depreciate the investment to zero using the straight-line method over four years. The investment has no resale value after completion of the project. The firm is in the 34 percent tax bracket. The price of the product will be $485 per unit, in real terms, and will not change over the life of the project. Labor costs for Year 1 will be $16.20 per hour, in real terms, and will increase at 3 percent per year in real terms. Energy costs for Year 1 will be $3.80 per physical unit, in real terms, and will increase at 2 percent per year in real terms. The inflation rate is 6 percent per year. Revenues are received and costs are paid at year-end. Refer to the following table for the production schedule: Year 1 Year 2 Year 3 Year 4 Physical production, in units 190,000 200,000 220,000 210,000 Labor input, in hours 1,195,000 1,275,000 1,435,000 1,355,000 Energy input, in physical units 285,000 305,000 325,000 310,000 The real discount rate for the company is 5 percent. Calculate the NPV of this project. (Enter your answer in dollars, not millions of dollars. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 1,234,567.89.) NPV $

Rosie Dry Cleaning was started on January 1, Year 1. It experienced the following events during its first two years of operation:

Events Affecting Year 1

1. Provided $26,830 of cleaning services on account.
2. Collected $21,464 cash from accounts receivable.
3. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Events Affecting Year 2

1. Wrote off a $201 account receivable that was determined to be uncollectible.
2. Provided $31,311 of cleaning services on account.
3. Collected $27,710 cash from accounts receivable.
4. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1 percent of the cleaning revenue on account.

Required
a. Organize the transaction data in accounts under an accounting equation.
b. Determine the following amounts:

1. (1) Net income for Year 1.
2. (2) Net cash flow from operating activities for Year 1.
3. (3) Balance of accounts receivable at the end of Year 1.
4. (4) Net realizable value of accounts receivable at the end of Year 1.

c. Determine the following amounts:

1. (1) Net income for Year 2.
2. (2) Net cash flow from operating activities for Year 2.
3. (3) Balance of accounts receivable at the end of Year 2.
4. (4) Net realizable value of accounts receivable at the end of Year 2.

The Alpha Company, located in numerous locations, is a wholesale distributor of computer equipment. The information shown below was taken from the company’s annual reports for the last three years.

Balance Sheet

                                                          year 2              year 1              year 0

Total Assets                                      $270,000                $155,000               $90,000

Accounts Payable                               $23,500                        $19,500                   $17,000

Loans Payable                                     $28,000                       $22,500               $20,000

Long-Term Debt                                $35,000                        $25,000                     $20,000

Preferred Stock                                  $5,000                          $5,000                      $5,000

Common Stock                                   $90,000                       $50,000                      $20,000

Retained Earnings                              $88,500                    $33,000                        $8,000

Total Liabilities &

Stockholders’ Equity                          $270,000                  $155,000                  $90,000

Income Statement

                                                                           year 2                  year 1

Sales                                                                $160,000                       $100,000

Cost of Goods Sold                                        ($120,000)                    ($700,000)

Selling & Administrative Expenses              ($230,000)                   ($200,000)

Interest Expense                                             ($30,000)                      ($20,000)

Income Tax Expense*                                       ($72,900)                   ($47,000)

Net Income                                                        $67,100                     $33,000

*The tax rate for 2018 was 52%.

*The tax rate for 2017 was 58.75%.

                                                                        year 2                 year 1

Preferred Stock Dividends                             $2,000                        $2,000

Common Stock Dividends                                $9,600                        $6,000

a) Calculate Return on Common Shareholder's Equity for year 2

b) Calculate Common Earnings Leverage for year 2

c) Calculate Return on Assets for year 2

d) Calculate Capital Structure Leverage for year 2

4. TTT Corp is evaluating the acquisition of KT Company.  TTT analyst projects the following post merger cash flows for KT Company if purchased by TTT Corp.

Net Sales

Year 1 $600 Year 2 $700      

Oper Expenses       

Year 1 $350 Year 2 $400        

Interest

Year 1 20 Year 2 25        

Depreciation

Year 1 10 Year 2   10         

Net Investment

Year 1 10 Year 2  10         

In Operating Capital

The current market beta for KT Company is 1.4 and its tax rate is 25% and debt ratio of 40%. TTT Corp has a tax rate of 25%.  Assume a market return of 10% and a risk free rate of 4%.

a. What is the appropriate discount rate to use in calculating the value of the acquisition? (Use the Adjusted Present Value Approach).

b. What are the free cash flows for the two years and tax shield for two years?

c. If we assume constant growth of 5% from beyond Year 2, calculate the horizon value of free cash flows and the horizon value of tax shield flows.

d. Find the value of the operations of the target.  Assume no non-operating assets.

e. If the market value of debt is $300 and there is no preferred stock, find the maximum price per share that should be offered for the target.  Assume there 100 shares of stock.

Mathews Mining Company is looking at a project that has the following forecasted​ sales: ​ first-year sales are 6,800 ​units, and sales will grow at 15​%

over the next four years​ (a five-year​ project). The price of the product will start at $124.00 per unit and will increase each year at 5​%.

The production costs are expected to be 62​% of the current​ year's sales price. The manufacturing equipment to aid this project will have a total cost​ (including installation) of

​$1,400,000. It will be depreciated using​ MACRS

Year   3-Year   5-Year   7-Year   10-Year
1   33.33%   20.00%   14.29%   10.00%
2   44.45%   32.00%   24.49%   18.00%
3   14.81%   19.20%   17.49%   14.40%
4   7.41%   11.52%   12.49%   11.52%
5       11.52%   8.93%   9.22%
6       5.76%   8.93%   7.37%
7           8.93%   6.55%
8           4.45%   6.55%
9               6.55%
10               6.55%
11               3.28%

and has a​ seven-year MACRS life classification. Fixed costs will be ​$50,000 per year. Mathews Mining has a tax rate of

30%

What is the operating cash flow for this project over these five​ years? Find the NPV of the project for Mathews Mining if the manufacturing equipment can be sold for

​$80, 000 at the end of the​ five-year project and the cost of capital for this project is 12​%.

What are the operating cash flows for the project in years 1 through 5?

What is the​ after-tax cash flow of the project at​ disposal?

What is the NPV of the​ project?

Required information

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Leach Inc. experienced the following events for the first two years of its operations:

Year 1:

1. Issued $10,000 of common stock for cash.
2. Provided $110,000 of services on account.
3. Provided $33,000 of services and received cash.
4. Collected $77,000 cash from accounts receivable.
5. Paid $14,000 of salaries expense for the year.
6. Adjusted the accounting records to reflect uncollectible accounts expense for the year. Leach estimates that 7 percent of the ending accounts receivable balance will be uncollectible.

Year 2:

1. Wrote off an uncollectible account for $690.
2. Provided $130,000 of services on account.
3. Provided $15,000 of services and collected cash.
4. Collected $112,000 cash from accounts receivable.
5. Paid $26,000 of salaries expense for the year.
6. Adjusted the accounts to reflect uncollectible accounts expense for the year. Leach estimates that 7 percent of the ending accounts receivable balance will be uncollectible.

1. d-1. Organize the transaction data in accounts under an accounting equation.
2. d-2. Prepare an income statement for Year 2.
3. d-3. Prepare the statement of changes in stockholders' equity for Year 2.
4. d-4. Prepare the balance sheet for Year 2.
5. d-5. Prepare the statement of cash flows for Year 2.
6. d-6. What is the net realizable value of the accounts receivable at December 31, Year 2?

The Darlington Equipment Company purchased a machine 5 years ago at a cost of $95,000. The machine had an expected life of 10 years at the time of purchase, and it is being depreciated by the straight-line method by $9,500 per year. If the machine is not replaced, it can be sold for $10,000 at the end of its useful life.

A new machine can be purchased for $170,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $60,000 per year. Sales are not expected to change. At the end of its useful life, the machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life; so the applicable depreciation rates are 33%, 45%, 15%, and 7%.

The old machine can be sold today for $50,000. The firm's tax rate is 40%. The appropriate WACC is 9%.

1. If the new machine is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest dollar. Negative amount should be indicated by a minus sign.
   $
2. What are the incremental net cash flows that will occur at the end of Years 1 through 5? Round your answers to the nearest dollar.

   Year 1

   Year 2

   Year 3

   Year 4

   Year 5

3. What is the NPV of this project? Round your answer to the nearest cent. Negative amount should be indicated by a minus sign.

The following separate scenarios relate to a 5-year lease, pertaining to equipment with a fair value of $25,000. Assume in all scenarios that payments are made at the beginning of the period.

1. Lease payments include a fixed payment of $5,000 per year.

2. Lease payments include a fixed payment of $5,000 per year, plus $250 for insurance and $300 for a maintenance contract.

3. Lease payments will be $5,000 in the first year and will increase by 3% (calculated on the previous year's payment) for each of the following 4 years.

4. Lease payments will be $5,000 in the first year and will increase each of the following years by the increase in the CPI from the preceding year. The current CPI is 120 and is expected to increase to 122 at the end of the next year.

5. Lease payments will be $5,000 in the first year and will increase each of the following years by (a) the increase in the CPI from the preceding year, or (b) 3%, whichever is greater. The current CPI is 120 and is expected to increase to 122 at the end of the next year.

6. Lease payments include a fixed payment of $5,000 per year. In addition, the lessee has guaranteed the residual value of the equipment for $1,000 at the end of the lease.

Required

For each of the six separate scenarios outlined above, and considering only the fair value lease criterion, determine how the lessee would classify the lease, assuming a discount rate of 7%.

I have gotten a Year 0 Cash Flow of -2,550,000
Year 1 CF of 937,064.23
Year 2 CF of 859,691.95
Year 3 CF of 1,108,430.80
And an NPV 355,186.94

My assignment says that the Year 0 CF and the NPV are correct, but all of the other Cash Flows are incorrect. But the sum (NPV) is correct, so I'm not sure what I'm doing wrong.