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Strayer FIN534 week 8 homework set 4




Question;Directions;Answer the following questions on a separate document. Explain how you reached;the answer or show your work if a mathematical calculation is needed, or both.;Submit your assignment using the assignment link in the course shell. This;homework assignment is worth 100 points.;Use;the following information for Questions 1 through 5;Assume;you are presented with the following mutually exclusive investments whose;expected net cash flows are as follows;EXPECTED NET CASH FLOWS;Year;Project;A;Project B;0;?$400;?$650;1;?528;210;2;?219;210;3;?150;210;4;1,100;210;5;820;210;6;990;210;7;?325;210;Construct NPV profiles for Projects;A and B.;What is each project?s IRR?;If;each project?s cost of capital were 10%, which project, if either, should;be selected? If the cost of capital were 17%, what would be the proper;choice?;What;is each project?s MIRR at the cost of capital of 10%? At 17%? (Hint;Consider Period 7 as the end of Project B?s life.);What is the crossover rate, and what;is its significance?;Use;the following information for Questions 6 through 8;The;staff of Porter Manufacturing has estimated the following net after-tax cash;flows and probabilities for a new manufacturing process;Line;0 gives the cost of the process, Lines 1 through 5 give operating cash flows;and Line 5* contains the estimated salvage values. Porter?s cost of capital for;an average-risk project is 10%.;Net After-Tax Cash Flows;Year;P = 0.2;P = 0.6;P = 0.2;0;?$100,000;?$100,000;?$100,000;1;20,000;30,000;40,000;2;20,000;30,000;40,000;3;20,000;30,000;40,000;4;20,000;30,000;40,000;5;20,000;30,000;40,000;5*;0;20,000;30,000;Assume;that the project has average risk. Find the project?s expected NPV. (Hint;Use expected values for the net cash flow in each year.);Find;the best-case and worst-case NPVs. What is the probability of occurrence;of the worst case if the cash flows are perfectly dependent (perfectly;positively correlated) over time?;Assume that all the cash flows are;perfectly positively correlated. That is, assume there are only three possible;cash flow streams over time?the worst case, the most likely (or base);case, and the best case?with respective probabilities of 0.2, 0.6, and;0.2. These cases are represented by each of the columns in the table. Find;the expected NPV, its standard deviation, and its coefficient of variation;for each probability.;Use;the following information for Question 9;At;year-end 2013, Wallace Landscaping?s total assets were $2.17 million and its;accounts payable were $560,000. Sales, which in 2013 were $3.5 million, are;expected to increase by 35% in 2014. Total assets and accounts payable are;proportional to sales, and that relationship will be maintained. Wallace;typically uses no current liabilities other than accounts payable. Common stock;amounted to $625,000 in 2013, and retained earnings were $395,000. Wallace has;arranged to sell $195,000 of new common stock in 2014 to meet some of its;financing needs. The remainder of its financing needs will be met by issuing;new long-term debt at the end of 2014. (Because the debt is added at the end of;the year, there will be no additional interest expense due to the new debt.);Its net profit margin on sales is 5%, and 45% of earnings will be paid out as;dividends.;9. What were Wallace?s;total long-term debt and total liabilities in 2013?


Paper#48981 | Written in 18-Jul-2015

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