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Finance problems

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Question;1.;A company is considering a 4-year;capital project. The original investment;today is $52,000. The expected annual;cash revenue minus cash expenses before taxes is $17,500 (in real terms). The original investment will be depreciated;over 4 years to 0 at t=4 using the straight-line method. The real cost of capital is 8.0% and the;income tax rate is 35%.;a.;Calculate the net present value of this;project if there is no inflation.;In;real terms;b.;Calculate the net present value of this;project if inflation is 5.0% per year.;2. The Solti Company;has determined that it needs a new truck for the delivery;of musical;instruments. It is deciding between two;competing trucks. One is;more expensive to buy but is sturdier and thus;will have lower annual;operating costs;and will last longer. You expect to have;to replace these;trucks when their;useful lives are over. You have the;following data;Truck;A Truck B;Initial cost $20,000 $16,000;Life;7 years 5 years;After-tax annual operating;Expenses $4,500 $5,500;The company?s cost of capital (discount;rate) is 10.0%.;Which of the two;trucks would you select? Depreciation;has already been;included in the;above data, so ignore it. (Show all;calculations);3. You have a cellar;filled with fine wines which you are keeping for resale at a;propitious time;(you consume the cheaper wines). You;expect the value of;these wines to increase over time as follows;(after all costs);Today $30,000;Year 1 34,500;Year 2 39,000;Year 3 41,900;Year 4 44,400;Year 5 46,600;If your cost of;capital is 8.0%, when would be the best time sell the wine?;4. A new machine has;come on the market. It is considerably;more efficient;than the old machine you now have on the factory floor. The old machine is expected to have 3 more;useful years. When should you replace;it? Here are the relevant data you need;to make your decision;Old;machine: Original cost $10,000;Year Net after-tax cash inflow After-tax resale value;0;$3,000;1;` $6,000;2,000;2;5,000 1,000;3;4,000 0;The company can;replace this machine with a new, more efficient machine at;a cost of $15,000. It would provide an after-tax cash flow of $8,000;per year;and could be sold;at the end of 3 years for $4,000 (after taxes).;The company?s;cost of capital is 10.0%. When (if at;all) should the company;replace the old;machine? (Show all calculations.);5. Joyce Silver owns Goodcomp;Inc. She expects after-tax profit per;share to;be $3.00 in the;forthcoming year. During years 2 through;5, she forecasts;that profit per share will grow by 12.0% each year. All profits will be reinvested in the business;to support growth, so there will be no dividends. Starting in year 6, she forecasts that profit;growth will fall to 7.0% per year for the foreseeable future, and that the;company will need to reinvest only 70% of earnings, paying out the rest in;dividends. The Golden Computer Company has recently;offered Silver $18 per share for her company.;Should Silver sell her stock if the appropriate required rate of return;(cost of capital) is 11.0%?

 

Paper#49795 | Written in 18-Jul-2015

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