Can you show me how to solve these problems? PLEASE!!! I can't figure out how to solve these. :-(
1.Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,953,490. have a life of five years, and would produce the cash flows shown in the following table.
Year Cash Flow
1 $570,818
2 -230,748
3 819,690
4 908,962
5 734,805
What is the NPV if the discount rate is 15.25 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)
NPV is $
2.Archer 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 $12.10 million. This investment will consist of $2.50 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 $5.17 million, $2.07 million above book value. The farm is expected to produce revenue of $2.07 million each year, and annual cash flow from operations equals $1.88 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 ___
3.Bell 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 13.8 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 4,200 7,000
2 3,400 7,000
3 2,600 7,000
4 1,800 7,000
5 1,000 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 .
4.Chip’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 88 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 $ .
5.Capital Co. has a capital structure, based on current market values, that consists of 21 percent debt, 9 percent preferred stock, and 70 percent common stock. If the returns required by investors are 10 percent, 12 percent, and 17 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= %
THis is the answer to #3 Bell Vineyards
0 $2,000
1 $2,460
2 $2,780
3 $2,986
4 $3,101
5 $3,144
Year 6 to purchase
This is the answer to #5-Capital Co
WACC 14.24%
Sure! I'll walk you through the steps to solve each of these problems.
1. To calculate the NPV (Net Present Value) of the cash flows, you need to discount each cash flow to its present value and then sum them up. The discount rate is 15.25 percent.
To find the present value of each cash flow, you can use the formula:
PV = CF / (1+r)^n, where CF is the cash flow, r is the discount rate, and n is the year.
Using this formula, you need to calculate the present value for each year's cash flow and then sum them up. In this case, the cash flow in Year 2 is negative. Remember to use negative sign for cash outflows.
2. To calculate the NPV of this investment, you need to consider the initial investment, annual cash flows, and the salvage value.
First, calculate the annual cash flow by subtracting the operating expenses from the revenue. Then, calculate the after-tax cash flow by multiplying the annual cash flow with (1 - tax rate).
Next, calculate the present value of the after-tax cash flow for each year using the discount rate. Finally, calculate the present value of the salvage value at the end of 10 years.
Subtract the initial investment from the sum of the present value of cash flows and the present value of the salvage value to get the NPV.
3. To calculate the NPV of each choice, you need to calculate the present value of the cost and the present value of the future savings for each year.
Use the same formula as in problem 1, but this time for the costs and future savings values for each year. Then, subtract the present value of the cost from the present value of the future savings to get the NPV for each choice.
To suggest when Bell Mountain should buy the new accounting system, compare the NPV values for each choice and choose the option with the highest NPV.
4. To calculate the effect of the price increase on the firm's FCF (Free Cash Flow), you need to calculate the FCF at the current price and the FCF at the new price.
First, calculate the annual revenue at the current price by multiplying the demand and the price. Then, calculate the variable cost as the variable cost per bottle multiplied by the number of bottles sold.
Calculate the EBIT (Earnings Before Interest and Taxes) by subtracting the fixed costs, depreciation, and amortization from the revenue.
Calculate the taxes by multiplying the EBIT with the marginal tax rate. Finally, calculate the FCF by subtracting the taxes and the change in working capital from the EBIT.
Repeat the above steps for the new price and compare the FCF at both prices to determine the effect of the price increase on the FCF.
5. To calculate the after-tax WACC (Weighted Average Cost of Capital), you need to consider the weights of each component (debt, preferred stock, and common stock) in the capital structure and the returns required by investors.
First, calculate the weighted cost of each component by multiplying the weight with the corresponding return required. Then, sum up the weighted costs to get the pre-tax WACC.
Next, calculate the after-tax WACC by multiplying the pre-tax WACC with (1 - tax rate).
I hope this explanation helps you understand how to solve these problems! Let me know if you have any specific questions about any of the steps.