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FINC-3040-A-Finance
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You are looking at a new project and you have estimated the following cash flows and net profit (in million $):
– Year 0: Cash Flow (CF) = -$ 75 (Initial outlay/cost)
– Year 1: Cash Flow (CF) = $ 50; Net income (NI) = $ 10
– Year 2: Cash Flow (CF) = $ 70; Net income (NI) = $ 15
– Year 3: Cash Flow (CF) = $ 40; Net income (NI) = $ 20
– Year 4: Cash Flow (CF) = $ 30; Net income (NI) = $ 10
– Year 5: Cash Flow (CF) = $ 20; Net income (NI) = $ 5
Average Book Value of Investment (in million $) is $ 50.
Your required return for assets of this risk is 30%.
What is the Discounted Payback Period for the project?
Give the answer in years, rounding to the nearest unit, with no decimal places (e.g., if the answer would be 3.234 years, give 3; or if the answer would be 4.562 years, give 5).
Which cash flows should not be included in the analysis of a project?
Ginobili Inc. has just paid a dividend of $3 per share. The company pledges to increase its dividend by 5 percent per year indefinitely. If you require a 25 percent return on your investment, how much will you pay for the company's stock today?
You are looking at two savings accounts. The first pays 4.3% (APR) with daily compounding. The second pays 4.9% (APR) with monthly compounding.
What is the effective annual rate for an account with the higher effective annual rate?
Give the answer in
percentage, rounding to the nearest unit, with no decimal places (e.g., if the
answer would be 3.234%, give 3; or if the answer would be 4.562%, give 5).
Air Jordan Corp. is evaluating a project with the following cash flows:
Year
|
Cash flows ($)
|
0
|
-220,000
|
1
|
150,000
|
2
|
190,000
|
3
|
200,000
|
4
|
-300,000
|
The company uses a 15 percent interest rate on all of its projects.
Calculate the MIRR of the project using the combination approach.
Give the answer in percentage, rounding to the nearest unit, with no decimal places (e.g., if the answer would be 3.234%, give 3; or if the answer would be 4.562%, give 5).
A semiannual-coupon-paying bond with a coupon rate of 5% per annum and a face value of $1,000 matures in 10 years. If the yield is 6% per annum, what is the price of this bond?
Give the answer in dollars without decimal places, rounding to the nearest dollar (e.g., if the answer would be $790.34, give 790; or if the answer would be $1,092.98, give 1,093).
Pippen Inc. is considering a six-year project to improve its production efficiency. Buying a machine for $2,000,000 is estimated to result in $340,000 in annual pre-tax cost savings. The machine falls into Class 8 for CCA purposes (CCA rate of 20 percent per year; Accelerated Investment Incentive in the first year is applied), and it will have a salvage value at the end of the project of $458,752. The machine also requires an initial investment in spare parts inventory of $200,000, that will be regained at the end of the project. If the tax rate is 30 percent and its discount rate is 15 percent, what is the Net Present Value for this project?
Give the answer in thousands of dollars without decimal places, rounding to the nearest thousand (e.g., if the answer would be $154,790.34, give 155; or if the answer would be $154,392.28, give 154).
Rodman Inc. considers replacing an old machine with a new one. The company has following information for the two machines:
1) Old Machine
· Initial cost is $600,000 (purchased 6 years ago)
· The machine is expected to be used for 5 more years and its salvage value in 5 years will be $86,016
· Salvage value of the machine today is $300,000
· The machine falls into Class 8 for CCA purposes (CCA rate of 20 percent per year; Accelerated Investment Incentive in the first year is applied).
2) New Machine
· Initial cost is $3,000,000 (today)
· The machine is expected to be used for 5 years and its salvage value in 5 years will be $860,160
· The machine will generate before-tax operating savings of $450,000 per year
· The machine falls into Class 8 for CCA purposes (CCA rate of 20 percent per year; Accelerated Investment Incentive in the first year is applied)
· The machine requires an increase in Net Working Capital today of $100,000 (to be regained in 5 years)
· Preliminary consultancy fee to analyze the machine performance is $80,000 and it has already been paid.
The discount rate is 15%. The tax rate is 30%.
What is the Net Present Value of the new machine purchase project?
Give the answer in thousands of dollars without decimal places, rounding to the nearest thousand (e.g., if the answer would be $154,790.34, give 155; or if the answer would be $154,392.28, give 154).
Curry Inc. is trying to choose between the following two mutually investment projects:
Year
|
Project A
Cash flows ($)
|
Project B
Cash flows ($)
|
0
|
-220,000
|
-420,000
|
1
|
200,000
|
300,000
|
2
|
200,000
|
300,000
|
3
|
200,000
|
300,000
|
4
|
200,000
|
300,000
|
The required return is 15 percent. The company applies the profitability index decision rule. What is the profitability index for a project with the higher profitability index?
Give the answer rounding to the nearest unit, with no decimal places (e.g., if the answer would be 1.234, give 1; or if the answer would be 1.562, give 2).
You have following assumptions for the investment project:
• The initial cost of fixed assets is $600,000. The project has a 3-year life. There is no salvage
• Investment in inventory required is $100,000 (to be regained in 3 years).
• Discount rate (Required return) is 20%.
• ax rate
• Estimated sales volume, price and costs for the base-case scenario are:
Project information
|
Base case scenario
|
Sales Volume (units)
|
1,000,000
|
Price ($ per unit)
|
6.00
|
Variable Cost ($ per unit)
|
0.60
|
Fixed Cost per year ($)
|
50,000
|
You assume that in the worst-case scenario the sales volume is only 700,000 units.
What is the sensitivity of the project’s Net Present Valu to changes in sales volume?
Give the answer in dollars per unit, rounding the final result to the nearest dollar, with no decimal places (e.g., if the answer would be $70.34 per unit, give 70; or if the answer would be $79.58 per unit, give 80).