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Consider a project to supply Detroit with 20,000 tons of machine screws annually for automobile production. You will need an initial $3,200,000 investment in threading equipment to get the project started; the project will last for four years. The accounting department estimates that annual fixed costs will be $700,000 and that variable costs should be $200 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the four-year project life. It also estimates a salvage value of $350,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $310 per ton. The engineering department estimates you will need an initial net working capital investment of $320,000. You require a return of 13 percent and face a marginal tax rate of 38 percent on this project. a-1 What is the estimated OCF for this project? (Do not round intermediate calculations. Round your answer to the nearest whole number, e.g., 32.) OCF $ a-2 What is the estimated NPV for this project? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) NPV $ b. Suppose you believe that the accounting department’s initial cost and salvage value projections are accurate only to within ±15 percent; the marketing department’s price estimate is accurate only to within ±10 percent; and the engineering department’s net working capital estimate is accurate only to within ±5 percent. What are your worst-case and best-case NPVs for this project? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places, e.g., 32.16.) Worst-case $ Best-case $
Suppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.5138 S$/US$. You have just placed an order for 39,000 motherboards at a cost to you of 231.20 Singapore dollars each. Calculate your profit if the exc..
Fairfax Paint operates stores in Virginia. The firm is evaluating the Vienna project, which would involve opening a new store in Vienna. The tax rate is 45 percent. What is the relevant operating cash flow (OCF) for year 1 of the Vienna project that ..
If your goal is to create a portfolio with an expected return of 11.3 percent, how much money will you invest in Stock X?
Corizon Company's balance sheet and income statement are shown below (in millions of dollars). Corizon and its creditors have agreed upon a voluntary reorganization plan. Calculate the required pre-tax earnings before and after the recapitalization..
Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next seven years, because the firm needs to plow back its earnings to fuel growth. The company will then pay a $12.35 per share dividend in year 10..
A project has the following estimated data: price = $100 per unit; variable costs = $51 per unit; fixed costs = $6,200; required return = 8 percent; initial investment = $7,000; life = five years. Ignore the effect of taxes. What is the accounting br..
Asset A has an expected return of 10% and standard deviation of 20%. Asset B has an expected return of 16% and a standard deviation of 40%. The correlation between A and B is 0.35. Portfolio C is composed of 30% asset A and 70% asset B. Now add an il..
You recently purchased a stock that is expected to earn 25% in a booming economy, 9% in a normal economy and lose 8% in a recessionary economy. There is a 15% probability of a boom, a 65% chance of a normal economy, and a 10% chance of a recession. W..
Superlink Inc. is considering an investment that has the following cash flows: What is the payback period for the investment project? What is the project's NPV if the firm's cost of capital is 12%?
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 opp..
Calculate each project's payback period, net present value (NPV),and internal rate of return (IRR).b. Which project (or projects) is financially acceptable? Explain your answer.
Which policy is least efficient? Discuss the differences in the benefits to farmers and the cost to the government.
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