FOR JOHN CANTHAR ONLY
Greory5
week_6_assignments_fin571_gflanders.docxWeek 6 Assignment
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Problem 10.14 |
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Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,998,764. have a life of five years, and would produce the cash flows shown in the following table.
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Year |
Cash Flow |
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1 |
$416,147 |
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2 |
-302,059 |
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3 |
627,373 |
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4 |
1,087,649 |
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5 |
866,216 |
What is the NPV if the discount rate is 12.54 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)
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NPV is |
$ |
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Problem 11.20 |
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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 $2.90 million for land and $9.10 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 $5.25 million, $2.14 million above book value. The farm is expected to produce revenue of $2.06 million each year, and annual cash flow from operations equals $1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)
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NPV |
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$ |
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The project should be |
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. |
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Problem 11.24 |
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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 11.2 percent, and the costs and values of investments made at different times in the future are as follows:
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Year |
Cost |
Value of Future Savings (at time of purchase) |
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0 |
$5,000 |
$7,000 |
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1 |
4,350 |
7,000 |
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2 |
3,700 |
7,000 |
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3 |
3,050 |
7,000 |
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4 |
2,400 |
7,000 |
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5 |
1,750 |
7,000 |
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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?
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Bell Mountain should purchase the system in |
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Problem 12.24 |
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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 83 percent as high if the price is raised 17 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.)
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At $20 per bottle the Chip’s FCF is $ |
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Learning Team Reflection – Week 6
Watch the "Corporate Finance Video: Stable Money Makers" located in the WileyPLUS Assignment: Week 6 Videos Activity.
Identify a capital improvement that could help Betty with her Alpaca business.
Write a summary of no more than 700 words explaining how the capital improvement you identified could help the business. Click the Assignment Files tab to submit your assignment.
Week 6 Final Examination
** John I cannot get the Questions from the Exam because once I access the Exam you only get 1 time to take the Exam and it is timed**.
Week 6 Quiz
** John the Week 6 Quiz has not yet been posted so I can get the questions. When he activates the Quiz I will add that to this spreadsheet**
Week 6 Capital Budgeting Case (Paper and Spreadsheet)
THE FINAL PROJECT (TO be submitted via an Excel attachment and Word Document)
You are the executive officers of Big Buns, Inc. (BBI). BBI manufactures different types of chairs and accessories. You have had several good years and have decided to expand. BBI is looking at acquiring another company as a subsidiary.
As executives (financially savvy and adept in capital budgeting procedures :-)) you have narrowed your choices to two possible acquisitions; Hineys R Us, a seat cushion manufacturer, and Flaberific, a heavy duty lawn chair manufacturer. You only have $500,000 to spend, which happens to be the price tag for each of the companies. It is your job to determine which company you should acquire.
BBI's cost of capital is 10%.
The raw data for each company is as follows:
Hineys R Us (HRU)
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HRU is projected to sell 50,000 units (seat cushions) in year one at a retail price of $15 per unit with an increase of 30% per year.
Variable costs consist of Cost of goods sold, estimated at 25% of sales; advertising, estimated at 10% of sales; other variable costs, estimated at 5% of sales.
Fixed costs consist of labor for year one estimated at $200,000 with an increase of 10% per year; rent for year one estimated at $60,000 with an increase of 5% per year; depreciation estimated at $10,000 per year; and other fixed costs for year one estimated at $5,000 with an increase of 5% per year.
HRU's tax rate is estimated at 30%.
You also project that you will have to spend an additional $20,000 in year 2 and $50,000 in year 5 in capital expenditures.
To be conservative you are using a discount rate 2 points above BBI's cost of capital.
Flaberific (FLB)
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FLB is projected to sell 40,000 units (lawn chairs) in year one at a retail price of $25 per unit with an increase of 30% per year.
Variable costs consist of Cost of goods sold, estimated at 30% of sales; advertising, estimated at 15% of sales; other variable costs, estimated at 5% of sales.
Fixed costs consist of labor for year one estimated at $250,000 with an increase of 10% per year; rent for year one estimated at $80,000 with an increase of 5% per year; depreciation estimated at $20,000 per year; and other fixed costs for year one estimated at $5,000 with an increase of 5% per year.
FLB's tax rate is estimated at 30%.
You also project that you will have to spend an additional $75,000 in year 2 and $175,000 in year 5 in capital expenditures.
You consider FLB to be slightly more risky than HRU so you will use a discount rate 3 points above BBI's cost of capital.
**************WHAT IS REQUIRED***************** MS Excel
For both companies (HRU and FLB):
1) A 5 year projected Income Statement.
2) A 5 year projected Cash Flow.
3) Net Present Value
4) Internal Rate of Return
5) Payback Period
6) Profitability Index
7) Discounted Payback
8) Modified Internal rate of Return
9) Breakeven for year 1
MS Word 10) Based on items 1 through 7, write a minimum 500 word paper (APA Format) regarding which company should acquire BBI and the reasons why.
GOOD LUCK!!!!!!!!!!!!!!!
