Fresh A+ Solution OF FIN 571 Week Six Problems WileyPlus
Adams NigelQuestion 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 $1,708,221. have a life of five years, and would produce the cash flows shown in the following table.
Year | Cash Flow |
1 | $556,468 |
2 | -302,107 |
3 | 909,698 |
4 | 934,692 |
5 | 538,472 |
What is the NPV if the discount rate is 13.50 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)
NPV is | $ |
Question 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 $12.00 million. This investment will consist of $2.50 million for land and $9.50 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, $2.33 million above book value. The farm is expected to produce revenue of $2.04 million each year, and annual cash flow from operations equals $1.90 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 | $ |
The project should be | acceptedrejected | . |
Accepted? Rejected?
Question 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 Mountainâ€™s opportunity cost of capital is 14.5 percent, and the costs and values of investments made at different times in the future are as follows:
Year | Cost | Value of Future Savings | |
0 | $5,000 | $7,000 | |
1 | 4,700 | 7,000 | |
2 | 4,400 | 7,000 | |
3 | 4,100 | 7,000 | |
4 | 3,800 | 7,000 | |
5 | 3,500 | 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:
NPV_{0} = $
NPV_{1} = $
NPV_{2} = $
NPV_{3} = $
NPV_{4} = $
NPV_{5} = $
Suggest when should Bell Mountain buy the new accounting system?
Bell Mountain should purchase the system in year 4year 2year 3year 5year 1. |
In what year?
Question 4
Chipâ€™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 8 percent. Chipâ€™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 firmâ€™s FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.)
At $20 per bottle the Chipâ€™s FCF is $ and at the new price Chipâ€™s FCF is $. |
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Question 5
Capital Co. has a capital structure, based on current market values, that consists of 44 percent debt, 3 percent preferred stock, and 53 percent common stock. If the returns required by investors are 8 percent, 10 percent, and 14 percent for the debt, preferred stock, and common stock, respectively, what is Capitalâ€™s after-tax WACC? Assume that the firmâ€™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 | = | % |
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FIN 571 Week Six Problems WileyPlus
NOT RATEDQuestion 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 $1,708,221. have a life of five â€¦
7 years ago