Project #76821 - Corporate Finance

 

 

1.       Calculate the PVs of depreciation tax shields in the five-year and seven-year classes shown in Table 6.4. Assume the tax rate is 35% and the discount rate is 10%. Lastly, assume the asset in question costs $1. (Do not round intermediate calculations. Round your answers to 3 decimal places.)

 

  

 

 

Present Value

  Five year

 

  Seven year

 


 

 

 

2.       The following table tracks the main components of working capital over the life of a four-year project.

 

  

 

 

2010

2011

2012

2013

2014

  Accounts receivable

 0    

150,000   

225,000   

190,000   

0     

  Inventory

75,000    

130,000   

130,000   

95,000   

0     

  Accounts payable

25,000    

50,000   

50,000   

35,000   

0     


 

  

 

Calculate net working capital and the cash inflows and outflows due to investment in working capital. (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter 0 wherever required.)

 

  

 

 

2010

2011

2012

2013

2014

  Working capital

 

 

 

 

 

  Cash flows

 

 

 

 

 

 

 

 

3.       Machines A and B are mutually exclusive and are expected to produce the following real cash flows:

 

     

 

Cash Flows ($ thousands)

Machine

C0

C1

C2

C3

A

–100     

+110     

+121     

 

B

–120     

+110     

+121     

+133     


 

     

 

The real opportunity cost of capital is 10%. (Use PV table.)

 

  

 

a.

Calculate the NPV of each machine. (Do not round intermediate calculations. Round your answers to the nearest thousand.)

 

    

 

Machine

NPV

A

$  

B

$  


 

    

 

b.

Calculate the equivalent annual cash flow from each machine. (Do not round intermediate calculations. Round "PV Factor" to 3 decimal places and final answers to the nearest thousand.)

 

    

 

Machine

Cash flow

A

$  

B

$  


 

  

 

c.

Which machine should you buy?

 

 

 

Machine A

Machine B

 

 

 

 

4.       A game of chance offers the following odds and payoffs. Each play of the game costs $100, so the net profit per play is the payoff less $100.

 

  

 

Probability

Payoff

Net Profit

0.10      

$500     

$400     

0.50      

100     

0     

0.40      

0     

–100     


 

  

 

a-1.

What is the expected cash payoff?

 

  

 

  Expected cash payoff

$  

 

  

 

a-2.

What is the expected rate of return?

 

  

 

  Expected rate of return

%  

 

   

 

b-1.

Calculate the variance of this rate of return.  (Ignore the technical point referred to in footnote 16). (Round your answer to the nearest whole number.)

 

  

 

  Variance

 

 

  

 

b-2.

Calculate the standard deviation of this rate of return.  (Ignore the technical point referred to in footnote 16). (Round your answer to the nearest whole percent.)

 

  

 

 

  Standard deviation

%  

 

5.       Consider the following information:

       

 

  

 

Stock Return if Market Return Is:  

Stock

–10%

+10%

A

0           

+20           

B

–20           

+20           

C

–30           

0           

D

+15           

+15           

E

+10           

–10           


 

  

 

What is the beta of each of the stocks? (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place.)

 

  

 

Stock

Beta

A

     

B

     

C

     

D

     

E

     

 

Subject Business
Due By (Pacific Time) 07/19/2015 10:00 am
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