Posted: February 7th, 2017

If the appropriate interest rate is 7 percent, what is the present value of the cash flow stream that the company is offering you? (Round answer to the nearest whole dollar, e.g. 5,275.)

Problem 6.19 Problem 6.27 Problem 7.16 Problem 8.24 Problem 9.15 Problem 10.14 Problem 11.20 Problem 11.24 Problem 12.24 Problem 13.11

1. Problem 6.19 Trigen Corp. management will invest cash flows of $1,072,731, $379,554, $1,297,437, $818,400, $1,239,644, and $1,617,848 in research and development over the next six years. If the appropriate interest rate is 9.56 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.) 2. Problem 6.27 You wrote a piece of software that does a better job of allowing computers to network than any other program designed for this purpose. A large networking company wants to incorporate your software into their systems and is offering to pay you $533,000 today, plus $533,000 at the end of each of the following six years for permission to do this. If the appropriate interest rate is 7 percent, what is the present value of the cash flow stream that the company is offering you? (Round answer to the nearest whole dollar, e.g. 5,275.)

3. Problem 7.16 Barbara is considering investing in a stock and is aware that the return on that investment is particularly sensitive to how the economy is performing. Her analysis suggests that four states of the economy can affect the return on the investment. Using the table of returns and probabilities below, find Probability Return Boom 0.6 25.00% Good 0.1 15.00% Level 0.2 10.00% Slump 0.1 -5.00% What is the expected return on Barbara’s investment? (Round answer to 3 decimal places, e.g. 0.076.) (Round answer to 3 decimal places, e.g. 0.076.) What is the standard deviation of the return on Barbara’s investment? (Round intermediate calculations and answer to 5 decimal places, e.g. 0.07680.)

4. Problem 8.24 Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $1,010.44. The bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,083.69, what is the yield that Trevor would earn by selling the bonds today? (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.) 5. Problem 9.15 The First Bank of Ellicott City has issued perpetual preferred stock with a $100 par value. The bank pays a quarterly dividend of $1.65 on this stock. What is the current price of this preferred stock given a required rate of return of 12.0 percent? (Round answer to 2 decimal places, e.g. 15.25.)

6. Problem 10.14 Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,787,549. have a life of five years, and would produce the cash flows shown in the following table. Year Cash Flow 1 $438,748 2 -207,139 3 857,730 4 1,011,703 5 673,589 What is the NPV if the discount rate is 15.52 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)

7. Problem 11.20 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 $11.90 million. This investment will consist of $2.60 million for land and $9.30 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 $5.05 million, $2.10 million above book value. The farm is expected to produce revenue of $2.02 million each year, and annual cash flow from operations equals $1.82 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.) Accepted or rejected?

8. Problem 11.24 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 12.6 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?

9. 12.24

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 90 percent as high if the price is raised 12 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 $____________

10. Problem 13.11

Capital Co. has a capital structure, based on current market values, that consists of 23 percent debt, 12 percent preferred stock, and 65 percent common stock. If the returns required by investors are 10 percent, 12 percent, and 18 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 = _____%