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

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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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