Answers Homework 5

Answers Homework 5 - 30,000,000.00 PAYOFF OF PROFIT IF NOT...

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ITEM DESCRIPTON VARIABLES Initial Investment $200,000.00 Depreciation Method SLN Economic Life of Equipment, YRS 5 Annual Depreciation Expenses 40,000.00 Toys Unit Selling Price 25.00 Varialble Cost per Unit 5.00 Fixed Cost per Year 350,000.00 Corporate Tax Rate 25% Discount Rate 12% STEP 1 CALCULATE THE EAC OF INITIAL INVESTMENT INITIAL INVESTMENT $200,000.00 5-YEAR ANNUTY FACTOR AT 12% 3.6 EAC $55,481.58 STEP 2 CALCULATE THE PV BREAK-EVEN POINT EAC OF INITIVAL INVESTMENT $55,481.58 FIXED COST 350,000.00 ANNUAL DEPRECIATION 40,000.00 CORPORATE TAX RATE 25% UNIT SELLING PRICE 25.00 UNIT VARIABLE COST 5.00 FINANCIAL BREAK-EVEN POINT 20,532.00 =ROUND((55,481.58+350,000*(1-0.25)-(40,000*0.25))/((25-5)*(1-0.25)),0)
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PROBABILITY OF SUCCESS, IF SUCCESS 70% PV OF PROFIT IF SUCCESSFUL
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Unformatted text preview: 30,000,000.00 PAYOFF OF PROFIT IF NOT SUCCESSFUL 3,000,000.00 EXECTED PAYOFF 21,900,000.00 DISCOUNT RATE 15% INITIAL COST, IF SEGMENT LAUNCHED 1,000,000.00 NPV OF CUSTOMER RESEARCH 18,043,478.26 Because NPV is positive, the firm should launch customer research segment Question (a) Returns on Stock YEAR 1 216.00% 2.1600 YEAR 2 21.00% 0.2100 YEAR 3 4.00% 0.0400 YEAR 4 16.00% 0.1600 YEAR 5 19.00% 0.1900 AVERAGE RETURN 0.5520 INFLATION RATE 4.20% 0.0420 REAL RETURN 48.94% 0.4894 Question (b) Returns on Stock YEAR 1 216.00% 2.1600 YEAR 2 21.00% 0.2100 YEAR 3 4.00% 0.0400 YEAR 4 16.00% 0.1600 YEAR 5 19.00% 0.1900 AVERAGE RETURN 0.5520 AVERAGE T-BILL RATE 5.10% 0.0510 RISK PREMIUM 50.10% 0.5010...
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