Briarcrest Condiments is a spice-making firm.
Problem 10.14Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,456,035. have a life of five years, and would produce the cash flows shown in the following table.Year Cash Flow1 $583,272 2 -277,310 3 776,192 4 1,095,900 5 549,304 What is the NPV if the discount rate is 13.14 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) NPV is? $ Problem 11.20Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.00 million. This investment will consist of $2.40 million for land and $9.60 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.21 million, $2.25 million above book value. The farm is expected to produce revenue of $2.09 million each year, and annual cash flow from operations equals $1.96 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)NPV $ The project should be acceptedrejected . Problem 11.24Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountain's opportunity cost of capital is 16.2 percent, and the costs and values of investments made at different times in the future are as follows:Year Cost Value of Future Savings (at time of purchase)0 $5,000 $7,000 1 4,400 7,000 2 3,800 7,000 3 3,200 7,000 4 2,600 7,000 5 2,000 7,000 Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.)The NPV of each choice is:NPV0 = $NPV1 = $NPV2 = $NPV3 = $NPV4 = $NPV5 = $Suggest when should Bell Mountain buy the new accounting system?Bell Mountain should purchase the system in year 4year 1year 3year 5year 2. Problem 12.24Chip's Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 86 percent as high if the price is raised 7 percent. Chip's variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firm's FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.)At $20 per bottle the Chip's FCF is $ and at the new price Chip's FCF is $. Problem 13.11Capital Co. has a capital structure, based on current market values, that consists of 34 percent debt, 18 percent preferred stock, and 48 percent common stock. If the returns required by investors are 9 percent, 11 percent, and 16 percent for the debt, preferred stock, and common stock, respectively, what is Capital's after-tax WACC? Assume that the firm's marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)After tax WACC = Problem 5.21Find the present value of $4,800 under each of the following rates and periods.(If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to the nearest penny.)a. 8.9 percent compounded monthly for five years.Present value $ b. 6.6 percent compounded quarterly for eight years.Present value $ c. 4.3 percent compounded daily for four years.Present value $ d. 5.7 percent compounded continuously for three years.Present value $ Problem 6.19Trigen Corp. management will invest cash flows of $330,048, $599,048, $1,314,893, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years. If the appropriate interest rate is 6.5 percent, what is the future value of these investment cash flows six years from today? (Round answer to 2 decimal places, e.g. 15.25.)Future value $
A B C D
INVESTMENT $30,000,000 $20,000,000 $25,000,000
PROJECTS A B C D INVESTMENT $30,000,000 $20,000,000 $25,000,000 $25,000,000 EXPECTED RETURN 10.00% 14.00% 11.50% 16.00% The firms capital structure consists of: FMV CAPITAL PERCENTAGE AMOUNT DEBT 30% $15,000,000 PREFERRED STOCK 10% $5,000,000 COMMON STOCK 60% $30,000,000 $50,000,000 Other information about the firm: CORPORATE TAX RATE 30% DEBT CURRENT PRICE $1,050.00 ANNUAL INTEREST 6.00% CURRENT INTEREST PAID SEMIANNUALLY ORIGINAL MATURITY 25 YEARS, BUT NOW 20 YEARS LEFT MATURITY VALUE $1,000.00 FLOTATION COST INSIGNIFICANT MARKET YIELD PROJECTED: UP TO $20 MILLION 9% ABOVE $20 MILLION 12% 3 % additional premium PREFERRED CURRENT PRICE $45.00 LAST DIVIDEND (D0) $3.38 FIXED AT 7.5% OF PAR FLOTATION COST $1.50 NEXT DIVIDEND (D1) $3.38 COMMON CURRENT PRICE $35.00 LAST DIVIDEND (D0) $1.00 RETAINED EARNINGS $10,000,000 GROWTH RATE (g) 9% FLOTATION COST $1.50 NEXT DIVIDEND (D1) $1.090 NOTE - Once retained earnings is maxed out new common stock will need to be issued. Any preferred stock would be new preferred stock. You may want to review case in chapter 11. REQUIRED: In all of the required parts one part builds on the previous part. If you can't do a part use the set of other numbers to solve the next part. a. What is the current Kd, Kp and Ke assuming no new debt or stock? b. Since any new capital investment will require issuing new perferred stock, what would the the new returns be preferred stock (knp) and the new cost of capital? c. What amount of increase (marginal cost of capital) in capital structure will the firm run out of retained earnings and be forced to issue new common stock? d. If new common stock has to be issued what will the new return required be (Kne) and the new cost of capital? Note: All Answers Should Be Taken Out to 2 Decimal Places, Especially the Interest Rate Answers. Part a Current price 1,050 Maturity value 1,000 Interest payment Payment periods Yield rate six month rate Annual yield annual rate Kd Kp Ke Current Cost of capital Can't really use the current cost of capital since accepting any new projects will require issuing new Preferred stock requiring a rate higher than its current 7.5% yield. Part b Use your solutions in Part a to do this part, but if you couldn't complete Part a, assume Kd=4%, Kp=8%, and Ke=13%; = Knp preferred stock New cost of capital Part c If the capital structure increases more than new common stock will have to be issued to finance new projects since internally generated RE runs out, and the required return on common stock will increase as demanded by shareholders. Part d Kne common stock If you could not come up with the Kne common stock returns, do the cost of capital assuming Kd=5%, Knp=9%, and Ke=14%= New cost of capital