Mett Co. is planning to develop a new product. A year after the launch of the product, it can generate additional cash flows for the company of either £250,000, £110,000, £90,000 or £50,000, with all four scenarios equally likely. The project requires an initial investment of £90,000. The company’s beta is 0.65, its cost of capital is 6%, and the riskfree rate is 3%. Assume perfect capital markets. a) What is the Net Present Value (NPV) of the project?  b) Suppose that the project is sold to investors as an all-equity firm to raise funds for the initial investment. The cash flows of the project will be distributed to equity holders in one year. How much money can be raised in this way – that is, what is the initial market value of the unlevered equity? Explain your answer.

Caspian Sea Drinks is considering buying the J - Mix 2000. It will allow them to make and sell more product. The machine cost $1.92 million and create incremental cash flows of $582, 193.00 each year for the next five years. The cost of capital is 9.20 %. What is the profitability index for the J - Mix 2000?

Delta Plc is considering investing in bespoke software solutions, which requires an initial investment of £130,000. The annual cash inflows during years 1-3 are expected to be £38,000 for year 1; £43,000 for year 2 and £50,000 for year 3. The company’s money cost of capital is 6% and inflation is expected to be 3% during the life of the project. a) Calculate the ARR of the project, taking inflation into account.  b) Calculate the (undiscounted) Payback Period of the project, taking inflation into account.  c) Calculate the NPV of the project using the money cost of capital as the discount rate.  d) Calculate the NPV of the project using the real rate of return as the discount rate (round up to 2 decimal places).  e) Discuss the impact that the decision made on the project acceptance based on the money cost of capital and real rate of return would have on Delta Plc.

Midlife Crisis Inc. (MCI) has two assets: epsilon1,60 in cash and an investment project. The cash is invested in the risk-free asset which earns 5% per year. The project requires an investment of £800 today and generates an expected cash flow of £1,600 one year from now. This opportunity recurs perpetually each year. Thus, for example, one year from now MCI can again invest £800 and generate epsilon1,600 one year subsequent to that investment. MCI has 800 shares outstanding. The market equity risk premium is 5% per year, and the investment project has a CAPM beta of 1. Assume a Modigliani and Miller world. When answering this question, state any additional assumptions you may need to make. Show your calculations. (a) Should MCI invest in the project? Explain.  (b) Suppose MCI's CFO decides to pursue the project. What is the value of MCI? (c) Suppose MCI's CFO decides to take the project and always pay out all free cash flow as a dividend. What is MCI's cum-dividend price expected to be…

A project has annual cash flows of $6,500 for the next 10 years and then $6,000 each year for the following 10 years. The IRR of this 20-year project is 12.3%. If the firm's WACC is 12%, what is the project's NPV? Do not round intermediate calculations. Round your answer to the nearest cent. Project A requires an initial outlay at t=0 of $1,000, and its cash flows are the same in Years 1 through 10. Its IRR is 17%, and its WACC is 10%. What is the project's MIRR? Do not round intermediate calculations. Round your answer to two decimal places. A project has the following cash flows: 0 1 2 3 4 5 -$400 $195 -$X $176 $350 $488 This project requires two outflows at Years 0 and 2, but the remaining cash flows are positive. Its WACC is 13%, and its MIRR is 14.21%. What is the Year 2 cash outflow? Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest cent.

Charlie   Charlie Ltd is considering investing in equipment to make a new product. The machine would cost £500,000 and would be sold after 6 years for an estimated £200,000. The production would generate net positive cashflows as follows: Year Net operating cashflow (£) 1 80,000 2 80,000 3 90,000 4 100,000 5 110,000 6 120,000   The company has a cost of finance of approximately 10% pa. Calculate: The Payback Period (assume the operating cashflows are spread evenly over each year) The Accounting Rate of Return based on average investment The NPV (assume here that operating cashflows occur at the end of each year) The IRR (try 15% for the other rate)

Consider a project with free cash flows in one year of $90,000 in a weak economy or $117,000 in a strong economy, with each outcome being equally likely. The initial investment required for the project is $80,000, and the project's cost of capital is 15%. The risk-free interest rate is 5%. Suppose that to raise the funds for the initial investment the firm borrows $40,000 at the risk-free rate and issues new equity to cover the remainder. In this situation, the cost of capital for the firm's levered equity is closest to:

Caspian Sea Drinks is considering buying the J-Mix 2000. It will allow them to make and sell more product. The machine cost $1.54 million and create incremental cash flows of $552,182.00 each year for the next five years. The cost of capital is 11.42%. What is the internal rate of return for the J-Mix 2000?

Blue Llama Mining Company is analyzing a project that requires an initial investment of $3,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $325,000 Year 2 –100,000 Year 3 425,000 Year 4 500,000   1. Blue Llama Mining Company’s WACC is 7%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 17.53%   -20.06%   22.14%   16.61%   2. If Blue Llama Mining Company’s managers select projects based on the MIRR criterion, they should accept or reject this independent project.   3. Which of the following statements about the relationship between the IRR and the MIRR is correct? A typical firm’s IRR will be equal to its MIRR.   A typical firm’s IRR will be less than its MIRR.   A typical firm’s IRR will be greater than its MIRR.

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