FIN 571 Week 6 homework 5 problems

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 $2,142,067. have a life of five years, and wouldproduce the cash flows shown in the following table.YearCash Flow1$630,6262-247,4173826,3694796,7285834,219What is the NPV if the discount rate is 16.83 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 $11.90 million. This investment will consist of $2.30 millionfor land and $9.60 million for trucks and other equipment. The land, all trucks, and all other equipment isexpected to be sold at the end of 10 years at a price of $5.00 million, $2.14 million above book value. Thefarm is expected to produce revenue of $2.00 million each year, and annual cash flow from operationsequals $1.85 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 decimalplaces, e.g. 15.25.)NPV is =The project should be accepted or rejected?3. Bell Mountain Vineyards is considering updating its current manual accounting system with a high-endelectronic system. While the new accounting system would save the company money, the cost of the systemcontinues to decline. The Bell Mountains opportunity cost of capital is 11.0 percent, and the costs andvalues of investments made at different times in the future are as follows:Value of Future SavingsYearCost(at time of purchase)0$5,000$7,00014,4507,00023,9007,00033,3507,00042,8007,00052,2507,000Calculate 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 1 or year 2 or year3 or year 4, or year 5? Whichone .4. Chips 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 91 percent ashigh if the price is raised 10 percent. Chips variable cost per bottle is $10, and the total fixed cash cost forthe year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percentmarginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. Whatwill be the effect of the price increase on the firms FCF for the year? (Round answers to nearest wholedollar, e.g. 5,275.)At $20 per bottle the Chips FCF is $______________And at the new price Chips FCF is $_______________5. Capital Co. has a capital structure, based on current market values, that consists of 28 percent debt, 7percent preferred stock, and 65 percent common stock. If the returns required by investors are 9 percent, 10percent, and 18 percent for the debt, preferred stock, and common stock, respectively, what is Capitalsafter-tax WACC? Assume that the firms marginal tax rate is 40 percent. (Round intermediate calculationsto 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)After Tax WACC= _________%