answerkey_midterm1 - Question 1 a 0-24,000 1 6,000 3,600...

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Question 1 a) 0 1 2 3 4 5 Investment -24,000 -1,000 7,960 Sales 6,000 7,000 10,000 11,000 11,000 Variable Costs 3,600 4,200 6,000 6,600 6,600 Depreciation 4,000 4,000 4,000 4,000 4,000 Income before taxes -1,600 -1,200 0 400 400 Taxes -544 -408 0 136 136 Net Income -1,054 -792 0 264 264 Operational Cash flow 2,944 3,208 4,000 4,264 4,264 Var. NWC 400 100 0 200 0 -700 CF -24,400 2,844 2,208 4,200 4,264 12,924 PV CF -24,400 2,585 1,825 2,855 2,912 8,025 NPV=-6,198 (<0), do not do the project b) PI=0.746; Payback Period = 4.87 years Question 2 Skimmer 1: NPV = -7,500 150*A(5 years, 8%) = 8,099.91 Skimmer 2: NPV = -9,900 127*A(7 years, 8%) = 10,561.21 Skimmer 1 EAC = 2,028.43 Skimmer 2 EAC = 2,028.52 Question 3 a) Growth rate of dividends = -10% Last Dividend = $4.5 Next Dividend = $4.05 Discount Rate = 20% Price per share = $4.05/(0.2+0.1) = $13.5 b) Total Return = 20% Dividend Yield = $4.05/$13.5 = 30% Capital Gains = growth rate = -10%
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c) Price per share = $4.05/1.2 + $3.645/(1.2)^2 + $3.281/(1.2)^3 + 2.952/(1.2)^4 + $2.657/(1.2)^5 +
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