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Week 6 assignment




Question;1.;Briarcrest Condiments is a spice-making firm. Recently, it developed a new;process for producing spices. The process requires new machinery that would;cost $2,142,067. have a life of five years, and would produce the cash flows;shown in the following table.;Year;Cash Flow;1;$630,626;2;-247,417;3;826,369;4;796,728;5;834,219;What is the NPV if the discount rate is 16.83 percent? (Enter negative amounts using negative sign e.g. -45.25.;Round answer to 2 decimal places, e.g. 15.25.);NPV is =;2.;Archer Daniels Midland Company is considering buying a new farm that it plans;to operate for 10 years. The farm will require an initial investment of $11.90;million. This investment will consist of $2.30 million for land and $9.60;million for trucks and other equipment. The land, all trucks, and all other;equipment is expected to be sold at the end of 10 years at a price of $5.00;million, $2.14 million above book value. The farm is expected to produce;revenue of $2.00 million each year, and annual cash flow from operations equals;$1.85 million. The marginal tax rate is 35 percent, and the appropriate;discount rate is 9 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2;decimal places, e.g. 15.25.);NPV is =;The project should be accepted or rejected?;3.;Bell Mountain Vineyards is considering updating its current manual accounting;system with a high-end electronic system. While the new accounting system would;save the company money, the cost of the system continues to decline. The Bell;Mountain?s opportunity cost of capital is 11.0 percent, and the costs and;values of investments made at different times in the future are as follows;Year;Cost;Value of Future;Savings;(at time of purchase);0;$5,000;$7,000;1;4,450;7,000;2;3,900;7,000;3;3,350;7,000;4;2,800;7,000;5;2,250;7,000;Calculate the NPV of;each choice.;(Round answers to the nearest whole dollar, e.g.;5,275.);The NPV of each choice;is;NPV0 = $;NPV1 = $;NPV2 = $;NPV3 = $;NPV4 = $;NPV5 = $;Suggest when should;Bell Mountain buy the new accounting system?;Bell Mountain should purchase the system in year 1 or year 2 or year3 or year 4, or;year 5? Which one.;4. Chip?s Home Brew Whiskey management;forecasts that if the firm sells each bottle of Snake-Bite for $20, then the;demand for the product will be 15,000 bottles per year, whereas sales will be;91 percent as high if the price is raised 10 percent. Chip?s variable cost per;bottle is $10, and the total fixed cash cost for the year is $100,000.;Depreciation and amortization charges are $20,000, and the firm has a 30;percent marginal tax rate. Management anticipates an increased working capital;need of $3,000 for the year. What will be the effect of the price increase on;the firm?s FCF for the year? (Round answers to;nearest whole dollar, e.g. 5,275.);At $20 per;bottle the Chip?s FCF is $;And at the;new price Chip?s FCF is $;5. Capital Co. has a capital structure;based on current market values, that consists of 28 percent debt, 7 percent;preferred stock, and 65 percent common stock. If the returns required by;investors are 9 percent, 10 percent, and 18 percent for the debt, preferred;stock, and common stock, respectively, what is Capital?s after-tax WACC? Assume;that the firm?s marginal tax rate is 40 percent. (Round;intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to;2 decimal places, e.g. 15.25%.);After Tax WACC= _________%


Paper#49380 | Written in 18-Jul-2015

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