This question has been answered by rcbriones on Mar 8, 2013. View Solution
mysnfox6 posted a question Mar 08, 2013 at 4:22pm

- 14 multiple choice questions I need help solving- PLEASE SHOW ALL WORK-


1. Kenny, Inc., is looking at setting up a new manufacturing plant in South Park. The company bought some land six years ago for $7.4 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. The land would net $10.2 million if it were sold today. The company now wants to build its new manufacturing plant on this land; the plant will cost $21.8 million to build, and the site requires $890,000 worth of grading before it is suitable for construction.

Required:
What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?


$31,110,000

$32,000,000

$18,490,000

$32,890,000

$28,310,000


2. Winnebagel Corp. currently sells 28,200 motor homes per year at $51,000 each and 7,000 luxury motor coaches per year at $115,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 16,000 of these campers per year at $13,000 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 2,400 units per year and reduce the sales of its motor coaches by 530 units per year.

Required:
What is the amount to use as the annual sales figure when evaluating this project?


$330,400,000

$269,450,000

$391,350,000

$147,050,000

$208,000,000


3. Herrera Music Company is considering the sale of a new sound board used in recording studios. The new board would sell for $25,700, and the company expects to sell 1,420 per year. The company currently sells 1,920 units of its existing model per year. If the new model is introduced, sales of the existing model will fall to 1,740 units per year. The old board retails for $21,600. Variable costs are 45 percent of sales, depreciation on the equipment to produce the new board will be $1,370,000 per year, and fixed costs are $1,270,000 per year.

Required:
If the tax rate is 40 percent, what is the annual OCF for the project?


$9,175,980

$4,428,660

$22,780,620

$10,545,980

$16,663,300


4. Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.04 million. The fixed asset falls into the three-year MACRS class (MACRS Table). The project is estimated to generate $2,240,000 in annual sales, with costs of $1,230,000. The project requires an initial investment in net working capital of $159,000, and the fixed asset will have a market value of $184,000 at the end of the project. Assume that the tax rate is 34 percent and the required return on the project is 15 percent.

Requirement 1:
(a) What is the project's Year 0 net cash flow? (Select rounded answers as directed, but do not use the rounded numbers in intermediate calculations.)


-$2,200,500

-$2,198,500

-$2,199,000

-$2,198,000

-$2,199,500


(b) What is the project's Year 1 net cash flow? (Select rounded answers as directed, but do not use the rounded numbers in intermediate calculations.)


$898,277

$897,777

$899,277

$896,777

$897,277


(c) What is the project's Year 2 net cash flow? (Select rounded answers as directed, but do not use the rounded numbers in intermediate calculations.)


$976,405

$974,405

$974,905

$975,405

$973,905


(d) What is the project's Year 3 net cash flow? (Select rounded answers as directed, but do not use the rounded numbers in intermediate calculations.)


$1,100,658

$1,100,158

$1,102,658

$1,101,158

$1,101,658


Requirement 2:
What is the NPV of the project? (Select rounded answers as directed, but do not use the rounded numbers in intermediate calculations.)


$42,873.15

$38,585.84

-$61,671.82

$47,160.47

-$70,769.22


5. Kolby’s Korndogs is looking at a new sausage system with an installed cost of $496,000. This cost will be depreciated straight-line to zero over the project’s four-year life, at the end of which the sausage system can be scrapped for $94,000. The sausage system will save the firm $182,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $40,000.

Required:
If the tax rate is 35 percent and the discount rate is 10 percent, what is the NPV of this project?


$18,299.36

$45,619.90

$125,619.90

$3,887.78

$83,887.78


6. Your firm is contemplating the purchase of a new $794,500 computer-based order entry system. The system will be depreciated straight-line to zero over its seven-year life. It will be worth $58,000 at the end of that time. You will save $178,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $53,000 at the beginning of the project. Working capital will revert back to normal at the end of the project.

Required:
If the tax rate is 35 percent, what is the IRR for this project? (Select rounded answers as directed, but do not use the rounded numbers in intermediate calculations.)


9.82%

10.15%

10.30%

9.54%

9.34%


7. CSM Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $490,000 is estimated to result in $189,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $60,000. The press also requires an initial investment in spare parts inventory of $23,500, along with an additional $3,500 in inventory for each succeeding year of the project. The shop’s tax rate is 30 percent and its discount rate is 10 percent.

Requirement 1:
Compute the NPV. (Select rounded answers as directed, but do not use the rounded numbers in intermediate calculations.)


$64,802.71

$18,766.24

$58,322.44

$71,282.98

$73,506.69


Requirement 2:
Should the company buy and install the machine press?


No

Yes



8. Suppose you bought a 9.2 percent coupon bond one year ago for $1,095. The bond sells for $1,071 today.

Required:
(a) Assuming a $1,000 face value, what was your total dollar return on this investment over the past year?


$75

$61

$92

$68

$24


(b) What was your total nominal rate of return on this investment over the past year?


6.21%

10.59%

2.19%

6.52%

5.90%


(c) If the inflation rate last year was 2.7 percent, what was your total real rate of return on this investment?


3.59%

-0.44%

1.04%

3.42%

3.25%



9. Using the following returns for X and Y.

Returns
________________________________________
Year X Y
1 23.8 % 26.8 %
2 – 18.8 – 5.8
3 11.8 28.8
4 20.8 – 15.8
5 6.8 32.8
________________________________________

Requirement 1:
(a) Calculate the average returns for X.


7.38%

8.85%

15.09%

11.06%

16.87%


(b) Calculate the average returns for Y.


13.35%

11.13%

20.02%

22.39%

16.69%


Requirement 2:
(a) Calculate the variances for X.


0.028455

0.018970

0.031301

0.022764

0.025610


(b) Calculate the variances for Y.


0.040094

0.055130

0.050118

0.033412

0.045106


Requirement 3:
(a) Calculate the standard deviations for X.


17.69%

16.87%

15.09%

16.00%

13.77%


(b) Calculate the standard deviations for Y.


23.48%

22.39%

18.28%

21.24%

20.02%


10. You’ve observed the following returns on Staverosky Corporation’s stock over the past five years: –27.00 percent, 16.00 percent, 32.00 percent, 5.00 percent, and 24.00 percent. The average inflation rate over this period was 4.40 percent and the average T-bill rate over the period was 5.50 percent.

Required:
(a) What was the average real return on the stock?


10.94%

5.36%

5.90%

10.44%

4.50%


(b) What was the average nominal risk premium on the stock?


4.05%

5.44%

5.36%

4.50%

4.94%


11. You’ve observed the following returns on Staverosky Corporation’s stock over the past five years: –29.00 percent, 18.00 percent, 34.00 percent, 7.00 percent, and 26.00 percent. The average inflation rate over this period was 4.20 percent and the average T-bill rate over the period was 5.30 percent.

Requirement 1:
What was the average real risk-free rate over this time period?


6.72%

5.66%

4.25%

1.06%

5.31%


Requirement 2:
What was the average real risk premium?


4.25%

5.31%

5.66%

6.72%

1.06%


12. You purchased a zero-coupon bond one year ago for $275.83. The market interest rate is now 9 percent.

Required:
If the bond had 15 years to maturity when you originally purchased it, what was your total return for the past year?


5.40%

3.20%

9.00%

5.71%

3.31%


13. A stock has had returns of −20.50 percent, 30.50 percent, 14.50 percent, −11.50 percent, 36.50 percent, and 28.50 percent over the last six years.

Required:
(a) What are the arithmetic average return for the stock?


9.75%

15.60%

10.74%

13.02%

13.00%


(b) What are the geometric average return for the stock?


9.75%

13.00%

10.74%

13.02%

15.60%


14. Suppose the returns on long-term government bonds are normally distributed. Assume long-term government bonds have a mean return of 5.8 percent and a standard deviation of 9.0 percent.

Requirement 1:
What is the approximate probability that your return on these bonds will be less than 3.2 percent in a given year?


33.33%

25.87%

15.87%

12.87%

8.37%


Requirement 2:
What range of returns would you expect to see 95 percent of the time?


-2.60% to 20.60%

-21.20% to 32.80%

-12.20% to 23.80%

-16.40% to 20.30%

-9.20% to 28.60%


Requirement 3:
What range would you expect to see 99 percent of the time?


-12.20% to 23.80%

-27.10% to 26.90%

-8.40% to 26.40%

-21.20% to 32.80%

-15.30% to 36.40%


Hello, I need help with these 14 corporate finance problems... all the correct answers to each are provided as one of five choices. Please make sure you SHOW CALL WORK so I fully understand how to solve the problem. I need this assignment completed ASAP.

Thank you very much,

Please let me know if you have any questions, I'll be online so I'll be able to respond quickly.



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answered the question Mar 08, 2013 at 10:57pm
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S olutions to assignment of mysnfox6 (March 9)
1.

$32,890,000
Cost to build new plant
Cost of site grading
Opportunity cost from sale of land
Initial investment in fixed assets

2.

$ 21,800,000...