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FINANCE-Chapter 10, problems 10-1, 10-7 (a,b), 10-9, 10-13 (a,b,c)




Question;Please show work!;Chapter 10, problems 10-1, 10-7 (a,b), 10-9, 10-13 (a,b,c);10-1. A;project has an initial cost of $52,125, expected net cash inflows of $12,000;per year for 8 years, and a cost of capital of 12%. What is the project?s;NPV?(Hint: Begin by constructing a time line.);10-7. Your;division is considering two investment projects, each of which requires an;upfront expenditure of $15 million. You estimate that the investments will;produce the following net cash flows;Year Project A Project B;1 $5,000,000 $20,000,000;2 $10,000,000 $10,000,000;3 $20,000,000 $6,000,000;a. What are the two project?s net present values;assuming the cost of capital is 5%? 10%? 15%?;b. What are the two project?s IRRs at these same costs;of capital?;10-9.Davis;Industries must choose between a gas-powered and an electric-powered forklift;truck for moving materials in its factory. Since both forklifts perform the;same function, the firm will choose only one. (They are mutually exclusive;investments.) The electric-powered truck will cost more, but it will be less;expensive to operate, it will cost $22,000, whereas the gas-powered truck will;cost $17,500. The cost of capital that applies to both investments is 12%. The;life for both types of truck is estimated to be 6 years, during which time the;net cash flows for the electric-powered truck will be $6,290 per year and those;for the gas-powered truck will be $5,000 per year. Annual net cash flows;include depreciation expenses. Calculate the NPV and IRR for each type of;truck, and decide which to recommend.;10-13.Cummings;Products is considering two mutually exclusive investments whose expected net;cash flows are as follows;Expected Net;Cash Flows;Year Project A Project B;0 -$300 -$405;1 -$387 -$134;2 -$193 -$134;3 -$100 -$134;4 -$600 -$134;5 -$600 -$134;6 -$850 -$134;7 -$180 0;a.;Construct NPV profiles for Projects A and B.;b.;What is each project?s IRR?;c.;If you were told that each project?s cost of capital was 10%, which;project, if either, should be selected? If the cost of capital were 17%, what;would be the proper choice?;Chapter 12, problems 12-1, 12-5, 12-7 (a);12-1. Baxter Video Products?s sale are;expected to increase by 20% from $5 million in 2010 to $6 million in 2011. It;assets totaled $3 million at the end of 2010. Baxter is already at full;capacity, so its assets must grow at the same rate as projected sales. At the;end of 2010, current liabilities were $1 million, consisting of $250,000 of;accounts payable, $500,000 of notes payable, and $250,000 of accruals. The;aftertax profit margin is forecasted to be 5%, and the forecasted payout ratio;is 70%. Use the AFN equation to forecast Baxter?s additional funds needed for;the coming year.;12-5. At the end 2010, Bertin Inc.?s;total assets were $1.2 million and its accounts payable were $375,000. Sales;which in 2010 were $2.5 million, are expected to increase by 25% in 2011. Total;assets and accounts payable are proportional to sales, and that relationship;will be maintained. Bertin typically uses no current liabilities other than;accounts payable. Common stock amounted to $425,000 in 2010, and retained;earnings were $295,000. Bertin has arranged to sell $75,000 of new common stock;in 2011 to meet some of its financing needs. The remainder of its financing;needs will be met by issuing long-term debt at the end of 2011. (Because the;debt is added at the end of the year, there will be no additional interest;expense due to the new debt.) Its profit margin on sales is 6%, and 40% of;earnings will be paid out as dividends.;a. What;were Bertin?s total long-term debt and total liabilities in 2010?;b. How;much new long-term debt financing will be needed in 2011? (Hint: AFN-New;stock=New long-term debt.);12-7. Upton Computers makes bulk purchases;of small computers, stocks them in conveniently located warehouses, ships them;its chain of retail stores, and has a staff to advise customers and help them;set up their new computers. Upton?s balance sheet as of December 31, 2010, is;shown here (millions of dollars);Cash;$3.5;Accounts payable;$9.0;Receivables;26.0;Notes payable;18;Inventories;58.0;Accruals;8.5;Total current assets;$87.50;Total current;liabilities;$35.50;Net fixed assets;35.0;Mortgage loan;6.0;Common stock;15.0;Retained earnings;66.0;Total assets;$122.5;Total liabilities and;equity;$122.5;Sales for 2010 were $350 million and net;income for the year was $10.5 million, so the firm?s profit margin was 3.0%.;Upton paid dividends of $4.2 million to common stockholders, so its payout;ratio was 40%. Its tax rate is 40%, and it operated at full capacity. Assume;that all asset/sales ratios, spontaneous liabilities/sales ratios, the profit;margin, and the payout ratio remain constant in 2011.;a. If;sales are projected to increase by $70 million, or 20%, during 2011, use the;AFN equation to determine Upton?s projected external capital requirements.


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