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Question;HomeworkComplete the following problems. You should do this;work in excel. A set of ungraded practice problems similar to the;homework is provided in the week six material to help you do this;assignment. Please post your answers in the classroom discussion section underneath the week six assignment.1.Net;Present Value: Johnson Complex Fabrications is a metal parts;manufacturing company. It has developed a new process for producing;extruded aluminum tubing. The process requires $1,968,450 initial;investment. It expected to have a life of five years and would produce;net cash inflows for each of the next five years: year 1 $512,496, year 2;$242,637, year 3 $814,558, year 4 $887,225 and year 5 $712,642. What is the Net Present Value (NPV) if the discount rate is 15.9 percent? (10 points)2.;Free Cash Flow (FCF) and NPV for a project. Daniels Agricultural;Products is considering buying a new farm that it plans to operate for;ten years. The farm will require an initial investment of 12 million;dollars. The investment will consist of 2 million dollars for land and;10 million dollars for trucks and other equipment. The land, all trucks;and all other equipment is expected to be sold at the end of ten years;for a price of five million dollars, which is two million dollars above;book value. The farm is expected to produce revenue of 2 million;dollars each year and annual cash flow from operations is projected to;be 1.8 million dollars. The marginal tax rate is 35 percent and the;company?s required return or discount rate is 10 percent. Calculate the;NPV of this investment. (10 points)3. Replace an existing;asset: Davis Plumbing 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 initial purchase;cost of the system continues to decline. The company?s opportunity cost;of capital or discount rate is 10 percent. The initial investment;costs and annual savings made at different times in the future are shown;below: (10 points)Year Initial Investment Savings Per Year0 5,000 7,0001 4,500 7,0002 4,000 7,0003 3,600 7,0004 3,300 7,0005 3,100 7,000When should Davis replace the system to have the highest present value of the NPV? (10 points)4.;Scenario analysis: Park City Boutique Brewery management forecasts;that if the firm sells each case of Special Homebrewed for 20 dollars;then the demand for the product will be 15,000 cases per year. If they;raised the price per case ten percent then they expect demand to fall to;90 percent of the expected sales at the current price of 20 dollars per;case. The firm?s variable cost per case is ten dollars and the total;fixed cash costs for the year are 100,000 dollars. Depreciation and;amortization charges are 20,000 dollars and the firm has a 30 percent;marginal tax rate. Management anticipates it will need to increase;working capital by 3,000 dollars for the year, regardless of the pricing;of the product. What will be the effect of the price increase on the;firm?s free cash flow for the year? (10 points)5. WACC for a;firm: Acme Co. has a capital structure, based on current market;values, that consists of 50 percent debt, 10 percent preferred stock and;40 percent common stock. If the returns required by investors are 8;percent for the debt, 10 percent for the preferred stock and 15 percent;for the common stock, what is Acme?s after tax weighted average cost of;capital. Assume that the firm?s marginal tax rate is 40 percent. (10;points)

Paper#56860 | Written in 18-Jul-2015

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