1-(future value) Albert Pujols hit 47 home runs in 2009.If his home -run output grew at a rate of 12 percent per year ,what would it have been over the following 5 years ?

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1-(future value) Albert Pujols hit 47 home runs in 2009.If his home -run output grew at a rate of 12 percent per year ,what would it have been over the following 5 years ?

 

2-(Present value) The state lottery’s million-dollar payout provides for $1 million to be paid over 19 years in 20 payments of $50000.The first $50000 payment is made immediately,and the 19 remaining $50000 payments occur at the end of each of the next 19 years .If 10 percent is the appropriate discount rate ,what is the present value of this stream of cash flows? If 20 percent is the appropriate discount rate ,what is the present value of the cash flows?

 

3-(Nonannual compounding using a calculator) Bowflex’s television ads say you can get a fitness machine that sells for $999 for $33 a month for 36 months. What rate of interest are you paying on this Bowflex loan ?

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At a required return of 8 percent, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

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1. A project that provides annual cash flows of $1,930 for 8 years costs $7,700 today.
Requirement 1:
At a required return of 8 percent, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
  NPV   $
Requirement 2:
At a required return of 24 percent, what is the NPV of the project? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)
  NPV   $
Requirement 3:
At what discount rate would you be indifferent between accepting the project and rejecting it? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
  Discount rate  %
2. Romboski, LLC, has identified the following two mutually exclusive projects:
Year Cash Flow (A) Cash Flow (B)
0   −$ 65,000     −$ 65,000  
1     34,000       19,000  
2     27,000       25,000  
3     21,000       29,000  
4     17,000       34,000  
Requirement 1:
(a) What is the IRR for each of these projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
  Internal rate of return
  Project A  %
  Project B  %
(b) If you apply the IRR decision rule, which project should the company accept?
   
 
Requirement 2:
(a) Assume the required return is 11 percent. What is the NPV for each of these projects? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
  Net present value
  Project A $
  Project B $
(b) Which project will you choose if you apply the NPV decision rule?
   
 
Requirement 3:
(a) Over what range of discount rates would you choose Project A? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
  Project A @  %
(b) Over what range of discount rates would you choose Project B? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g.,32.16).)
  Project B @  %
(c) At what discount rate would you be indifferent between these two projects? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
  Discount rate  %
3. Kerron Company is presented with the following two mutually exclusive projects. The required return for both projects is 15 percent.
Year Project M Project N
0 –$125,000 –$310,000
1 57,000 135,000
2 64,000 161,000
3 59,000 129,000
4 34,000 92,000
Required:
(a) What is the IRR for each project? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
    IRR
  Project M  %
  Project N  %
(b) What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
        NPV
  Project M $
  Project N $
(c) Which, if either, of the projects should the company accept?
   
 
4. The Yurdone Corporation wants to set up a private cemetery business. According to the CFO, Barry M. Deep, business is “looking up.” As a result, the cemetery project will provide a net cash inflow of $109,000 for the firm during the first year, and the cash flows are projected to grow at a rate of 5.1 percent per year forever. The project requires an initial investment of $1,425,000.
Required:
(a) If Yurdone requires a return of 12 percent on such undertakings, what is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
  NPV $
(b) Should the cemetery business be started?
   
 
(c) The company is somewhat unsure about the assumption of a growth rate of 5.1 percent its cash flows. At what constant growth rate would the company just break even if it still required a return of 12 percent on its investment? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimalplaces (e.g., 32.16).)
  Minimum growth rate  %
Anderson International Limited is evaluating a project in Erewhon. The project will create the following cash flows:
Year  Cash Flow
0 –$690,000
1 243,000
2 175,000
3 256,000
4 231,000
5. All cash flows will occur in Erewhon and are expressed in dollars. In an attempt to improve its economy, the Erewhonian government has declared that all cash flows created by a foreign company are “blocked” and must be reinvested with the government for one year. The reinvestment rate for these funds is 4 percent. Assume Anderson uses a required return of 10 percent on this project.
Requirement 1:
What is the NPV of the project? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)
  Net present value $
Requirement 2:
What is the IRR of the project? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
  Internal rate of return  %

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Draft of Financial Statements and Accounting Policies The Financial Analysis Final Project focuses on:

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Draft of Financial Statements and Accounting Policies

The Financial Analysis Final Project focuses on:

  • The process and application of financial statement development and analysis in a real-world situation.
  • The application of ratios for comparative analysis based on standard metrics.
  • Analytical tools for interpreting results of financial statements.
  • Internal controls and business processes.

By Thursday, December 5, 2013, submit the following :

Your analysis of the financial statements and accounting policies, in APA format, containing:

Financial Statements

  • Discuss the major financial statements in detail. What formats are used? What significant trends (over three years) can you find? What is the future forecast, or what do the pro forma statements indicate?

Accounting Policies

  • What are the significant accounting policies relating to revenue recognition, short-term investments, cash, inventories, and property and equipment? What are some of the major topics of the disclosure notes to the statements?
  • Provide a brief summary of the Management Discussion and Announcement (MDA) section.
  • Discuss key internal controls, business processes, and transactions.
Assignment 3 Grading Criteria
Maximum Points
Expressed a solid understanding of the company’s financials.
10
Discussed trends/patterns found in the financials.
15
Identified significant accounting policies and disclosure notes in the financials.
20
Discussed key internal controls and business processes.
10
Resources are current, accurate, credible, and appropriate for the assignment and discipline.
10
Presented a structured report free of spelling and grammatical errors and cited sources in APA format.

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As a financial consultant, you have contracted with Wheel Industries to evaluate their procedures involving the evaluation of long term investment opportunities. 

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Assignment 1: LASA # 2—Capital Budgeting Techniques

By Friday, December 6, 2013, submit the following assignment:

As a financial consultant, you have contracted with Wheel Industries to evaluate their procedures involving the evaluation of long term investment opportunities.  You have agreed to provide a detailed report illustrating the use of several techniques for evaluating capital projects including the weighted average cost of capital to the firm, the anticipated cash flows for the projects, and the methods used for project selection.  In addition, you have been asked to evaluate two projects, incorporating risk into the calculations.

You have also agreed to provide an 8 pages report, in good form, with detailed explanation of your methodology, findings, and recommendations.

Company Information

Wheel Industries is considering a three-year expansion project, Project A.  The project requires an initial investment of $1.5 million. The project will use the straight-line depreciation method. The project has no salvage value. It is estimated that the project will generate additional revenues of $1.2 million per year before tax and has additional annual costs of $600,000.  The Marginal Tax rate is 35%.

Required:

  1. Wheel has just paid a dividend of $2.50 per share. The dividends are expected to grow at a constant rate of six percent per year forever. If the stock is currently selling for $50 per share with a 10% flotation cost, what is the cost of new equity for the firm? What are the advantages and disadvantages of using this type of financing for the firm?
  2. The firm is considering using debt in its capital structure. If the market rate of 5% is appropriate for debt of this kind, what is the after tax cost of debt for the company? What are the advantages and disadvantages of using this type of financing for the firm?
  3. The firm has decided on a capital structure consisting of 30% debt and 70% new common stock. Calculate the WACC and explain how it is used in the capital budgeting process.
  4. Calculate the after tax cash flows for the project for each year. Explain the methods used in your calculations.
  5. If the discount rate were 6 percent calculate the NPV of the project. Is this an economically acceptable project to undertake? Why or why not?
  6. Now calculate the IRR for the project. Is this an acceptable project? Why or why not? Is there a conflict between your answer to part C? Explain why or why not?

 

Wheel has two other possible investment opportunities, which are mutually exclusive, and independent of Investment A above.  Both investments will cost $120,000 and have a life of 6 years. The after tax cash flows are expected to be the same over the six year life for both projects, and the probabilities for each year’s after tax cash flow is given in the table below.

Investment B   Investment C
Probability After Tax
Cash Flow		   Probability After Tax
Cash Flow
0.25 $20,000   0.30 $22,000
0.50   32,000   0.50   40,000
0.25   40,000   0.20   50,000

 

  1. What is the expected value of each project’s annual after tax cash flow? Justify your answers and identify any conflicts between the IRR and the NPV and explain why these conflicts may occur.
  2. Assuming that the appropriate discount rate for projects of this risk level is 8%, what is the risk-adjusted NPV for each project? Which project, if either, should be selected? Justify your conclusions.

 

 

 

Assignment 2: Discussion Question

The finance department of a large corporation has evaluated a possible capital project using the NPV method, the Payback Method, and the IRR method.  The analysts are puzzled, since the NPV indicated rejection, but the IRR and Payback methods both indicated acceptance. Explain why this conflicting situation might occur and what conclusions the analyst should accept, indicating the shortcomings and the advantages of each method.  Assuming the data is correct, which method will most likely provide the most accurate decisions and why?

 

By Friday, December 6, 2013, respond to the discussion question. Submit your response to the appropriate Discussion Area.

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