Chapter 7 HWK

# The company has spent 149000 for a marketing study

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per set and have a variable cost of \$390 per set. The company has spent \$149,000 for a marketing study that tudy also determined that the company will lose sales of 9,400 sets of its high-priced clubs. The high-priced clubs its cheap clubs by 10,900 sets. The cheap clubs sell for \$430 and have variable costs of \$225 per set. The fixed arch and development for the new clubs. The plant and equipment required will cost \$28,630,000 and will be working capital of \$1,290,000 that will be returned at the end of the project. The tax rate is 34 percent, and the ost of capital is 10 percent. answer to 3 decimal places, e.g., 32.161.)

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a. b. \$4,892.52 rr 0.18 0 1 2 INV CF -1730000 6200 Q 6200 6200 76 NCF 471200 471200 OCF 471200 471200 Total CF -1730000 471200 471200 base case NPV \$387,613.46 After one year: rr 0.18 1 2 3 INV CF 6200 Q 6200 6200 6200 76 NCF 471200 471200 471200 OCF 471200.00 471200.00 471200.00 NPV \$2,027,583.89 Sold for \$ 1,600,000.00 EAC \$371,831.72 Then Q= We are examining a new project. We expect to sell 6,200 units per year at \$76 net cash fo The relevant discount rate is 18 percent, and the initial investment required is \$1,730,000. What is the base-case NPV? (Do not round intermediate calc NPV \$ After the first year, the project can be dismantled and sold fo it make sense to abandon the project? (Do not round interm Level of expected sales units

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3 4 5 6 7 8 9 10 6200 6200 6200 6200 6200 6200 6200 6200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 471200 4 5 6 7 8 9 6200 6200 6200 6200 6200 6200 471200 471200 471200 471200 471200 471200 471200.00 471200.00 471200.00 471200.00 471200.00 471200.00 76*Q 76*Q \$4,892.5226 units ow apiece for the next 10 years. In other words, the annual operating cash fow is projected to be \$76 × 6,200 = \$47 . culations and round your answer to 2 decimal places, e.g., 32.16.) or \$1,600,000. If expected sales are revised based on the first year’s performance, below what level of expected sal mediate calculations and round your answer to the nearest whole number, e.g., 32.)
71,200. les would

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\$1,755,894.40 total gold 51300 ounces Production 5700 ounces per year No. of years 9 years rr 0.11 0 1 2 3 4 Inv cf -33700000 Units 5700 5700 5700 5700 1370 Rev 7809000 7809000 7809000 7809000 base case NPV \$9,538,804.18 0 1 2 3 4 5700 5700 5700 1570 0.65 0 -33700000 8949000 8949000 8949000 1270 0.35 0 -33700000 7239000 7239000 7239000 Hickock Mining is evaluating when to open a gold mine. The mine has 51,300 ounces of gold left that c percent, and it will cost \$33.7 million to open the mine. When the mine is opened, the company will si ounce of gold will generate an aftertax cash fow of \$1,370 per ounce. If the company waits one year, t percent probability that the aftertax cash fow will be \$1,270 per ounce. What is the value of the option to wait? (Enter your answer in dollars, not millions of dollars, e.g.. 1,23 Option value \$
5 6 7 8 9 5700 5700 5700 5700 5700 7809000 7809000 7809000 7809000 7809000 5 6 7 8 9 10 Npv per branch 5700 5700 5700 5700 5700 5700 8949000 8949000 8949000 8949000 8949000 8949000 \$14,280,214.75 7239000 7239000 7239000 7239000 7239000 7239000 \$5,750,168.55 E(NPV) \$11,294,698.58 can be mined, and mining operations will produce 5,700 ounces per year. The required return on the gold mine ign a contract that will guarantee the price of gold for the remaining life of the mine. If the mine is opened toda there is a 65 percent probability that the contract price will generate an aftertax cash fow of \$1,570 per ounce a 34,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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is 11 ay, each and a 35
Suppose you’re confident about your own projections, but you’re a little unsure about Detroit’s a.

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• Spring '17
• OCF, intermediate calculations

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