FIN 571 Week 6 WileyPLUS Assignment NEW
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<strong>FIN</strong> <strong>571</strong> <strong>Week</strong> 6 <strong>WileyPLUS</strong> <strong>Assignment</strong> <strong>NEW</strong><br />
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<strong>NEW</strong>/<strong>FIN</strong>-<strong>571</strong>-<strong>Week</strong>-6-<strong>WileyPLUS</strong>-<strong>Assignment</strong>-<strong>NEW</strong><br />
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<strong>FIN</strong> <strong>571</strong> <strong>Week</strong> 6 <strong>WileyPLUS</strong> <strong>Assignment</strong> <strong>NEW</strong><br />
Complete the following in <strong>WileyPLUS</strong>:<br />
* Problem 10.14<br />
Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices.<br />
The process requires new machinery that would cost $1,968,450. have a life of five years, and would produce<br />
the cash flows shown in the following table.<br />
Year Cash Flow<br />
1 $512,496<br />
2 -242,637<br />
3 814,558<br />
4 887,225<br />
5 712,642<br />
What is the NPV if the discount rate is 15.9 percent? (Enter negative amounts using negative sign e.g. -45.25.<br />
Round answer to 2 decimal places, e.g. 15.25.)<br />
* Problem 11.20<br />
Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The<br />
farm will require an initial investment of $12.00 million. This investment will consist of $2.00 million for land<br />
and $10.00 million for trucks and other equipment. The land, all trucks, and all other equipment is expected<br />
to be sold at the end of 10 years at a price of $5.00 million, $2.00 million above book value. The farm is
expected to produce revenue of $2.00 million each year, and annual cash flow from operations equals $1.80<br />
million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the<br />
NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)<br />
* Problem 11.24<br />
Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end<br />
electronic system. While the new accounting system would save the company money, the cost of the system<br />
continues to decline. The Bell Mountain’s opportunity cost of capital is 10 percent, and the costs and values<br />
of investments made at different times in the future are as follows:<br />
Year Cost Value of Future Savings<br />
(at time of purchase)<br />
0 $5,000 $7,000<br />
1 4,500 7,000<br />
2 4,000 7,000<br />
3 3,600 7,000<br />
4 3,300 7,000<br />
5 3,100 7,000<br />
Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.)<br />
The NPV of each choice is:<br />
Suggest when should Bell Mountain buy the new accounting system?<br />
* Problem 12.24<br />
Chip’s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20,<br />
then the demand for the product will be 15,000 bottles per year, whereas sales will be 90 percent as high if<br />
the price is raised 10 percent. Chip’s variable cost per bottle is $10, and the total fixed cash cost for the year<br />
is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax<br />
rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect<br />
of the price increase on the firm’s FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.)<br />
* Problem 13.11<br />
Capital Co. has a capital structure, based on current market values, that consists of 50 percent debt, 10<br />
percent preferred stock, and 40 percent common stock. If the returns required by investors are 8 percent, 10<br />
percent, and 15 percent for the debt, preferred stock, and common stock, respectively, what is Capital’s aftertax<br />
WACC? Assume that the firm’s marginal tax rate is 40 percent. (Round intermediate calculations to 4<br />
decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)