# Financial Assignment

Question # 45868 | 6 months ago |
---|

$45 |
---|

1) A printing press company is considering buying one of two machines, X or Y; the respective costs and benefits of each are listed below:

Annual Pre-tax Machine Cost Life of Machine Savings for Company X $100,000 4 years $56,000 Y $125,000 5 years $60,000 a. Calculate the after-tax cash flow for each machine. Assume, for ease of calculation, straight-line depreciation and no salvage value for either machine. The firm's tax rate is 40 percent and its required rate of return is 16 percent. b. Calculate the NPV of each machine and the PI. Which would you select and why?

2)A networking service company is examining two mutually exclusive projects. The probability distributions of annual cash inflows are presented below: PROJECT A PROJECT B Probability Cash Flow Probability Cash Flow 0.25 $7,000 0.20 $5,000 0.25 8,000 0.30 6,000 0.25 9,000 0.30 7,000 0.25 10,000 0.20 8,000 What is the expected value and standard deviation of annual cash flows for each project? Which project's cash flows appears riskier?

3- The required rate of return on the bonds of the Exon Corporation is 12%. The firm's beta coefficient is 1.2, the risk-free rate is 8%, and the required rate of return on stocks in general is 14%. If the firm's marginal tax rate is 40%, and it will be financing projects with a 50-50 debt to equity mix, what its weighted average cost of capital?

4- A laundry business is considering an investment project which will cost $1,000 and last for two years. The possible cash flows and their initial and conditional probabilities are given below: Year 1 Year 2 Initial Cash Conditional Cash Probability Flow Probability Flow 0.30 $800 0.50 $900 0.50 $700 -------------------------------------------------- 0.40 $500 0.25 $800 0.50 $700 0.25 $600 -------------------------------------------------- 0.30 $200 0.60 $200 0.40 $100 If the risk-free rate is 4% and the company's required rate of return is 10%, calculate the expected NPV for the project. What is the probability that Treasury securities would be a better investment?

5- Novus company is considering the purchase of a new machine at a cost of $950,000, and expected to generate after-tax cash flows of $160,000 annually for the next 12 years. The firm has a weighted average cost of capital of 10 percent. The company plans to provide $250,000 from a new bond issue and $400,000 from a new stock issue. The balance of the financing would be provided internally by retaining earnings. The present value of the after-tax flotation costs on the debt issue will be 3 percent of the amount raised, while the common stock issue will carry flotation costs of 10 percent. Should the firm purchase the new machine?

6- A metal company produces a particular item for $2.50 and sells it for $3. Fixed costs associated with the item are $10,000 a year. Suppose the company is contemplating the addition of a new piece of equipment to reduce manufacturing costs. Variable costs will be reduced to $2.25, but fixed costs will be increased by $2,000 a year. How will this proposed change in the manufacturing process influence the break-even point?