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- Cheese & Cake Factory is looking at a project with the following forecasted sales: first-yearsales quantity of 35,000 with an annual growth rate of 5% over the next 5 years. The sales priceper unit is $40 and will grow at 3% per year. The production costs are expected to be 50% ofthe current year's sales price. The manufacturing equipment to aid this project will have a totalcost (including installation) of $1,000,000. It will be depreciated using MACRS and has aseven-year MACRS life classification. Fixed costs are $300,000 per year.The change in net operating working capital is $10,000 and will be recovered at the end of year5. Cheese & Cake Factory has a tax rate of 40%. At the end of year 5, the manufacturingequipment can be sold for $150,000 and the cost of capital for this project is 10%. What are the operating cash flow for years one and two?The company you work for is considering a new product line that is projected to have the net cash flows below (in $1000). The values are in future dollars which have been inflated by 5% per year. The plant manager isn’t sure about how the present worth of the cash flows should be calculated, so he asked you to do it two ways over the 4-year planning horizon: (1) using an inflation-adjusted rate of 20% per year, and (2) converting all of the cash flows to current-value dollars and using a real interest rate. You said both ways will provide the same answer, but he asked you to show him the calculations. Prepare the present worth computations by methods (1) and (2).Hotel Today Ltd. is thinking of buying a real estate asset. The asset's projected stabilized NOI for the following year is $ 5,400,000 and it is currently selling for $ 65 million based on the market cap rate perception. Hotel Today Ltd. has a required return of 9% on this investment. Based on market forecasts, they have estimated a 1.5% growth per annum. Based on their internal cap rate perception, is it a good buy and why?
- Laurel Enterprises expects earnings next year of $4.00 per share and has a 40% retention rate, which it plans to keep constant. Its equity cost of capital is 10%, which is also its expected return on new investment. Its earnings are expected to grow forever at a rate of 4.0% per year. If its next dividend is due in one year, what do you estimate the firm's current stock price to be? The current stock price will be $________ (Round to the nearest cent.)You are running a hot Internet company. Analysts predict that its earnings will grow at 30% per year for the next five years (i.e., Year 1 to Year 5). After that, as competition increases, earnings growth is expected to slow to 4% per year and continue at that level forever. Your company has just announced earnings of $4 million. What is the present value of all future earnings if the interest rate is 7% ?HS Shipping wants to expand as soon as it can save $112 million. Towards that goal, the firm started saving three years ago and currently has $38.2 million saved. Starting today, the firm will add $15,000 a month to this savings account. The rate of return is 7.1 percent, compounded monthly. How long will it be from now before the company can expand?
- You are making a $120,000 investment and feel that a 22% rate of return is reasonable, given the nature of the risks involved. You expect to receive $48,000 in the first year, $54,000 in the second year, and $76,000 in the third year. You expect to pay out $12,000 as a disposal cost in the fourth year. What is the net present value of this investment given your expectations?We are examining a new project. We expect to sell 8,800 units per year at $191 net cash flow apiece (including CCA) for the next 16 years. In other words, the annual operating cash flow is projected to be $191 × 8,800 = $1,680,800. The relevant discount rate is 10%, and the initial investment required is $5,590,000. Suppose you think it is likely that expected sales will be revised upward to 9,550 units if the first year is a success a. If success and failure are equally likely, what is the NPV of the project? Consider the possibility of abandonment in answering. (Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) NPV $ b. After the first year, the project can be dismantled and sold for $2,846,000. What is the value of the option to abandon? (Negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round the final answer to 2 decimal places. Omit $ sign in your response.) The value…Sommer, Inc., is considering a project that will result in initial after-tax cash savings of $1.89 million at the end of the first year, and these savings will grow at a rate of 2 percent per year indefinitely. The firm has a target debt-equity ratio of .80, a cost of equity of 12.9 percent, and an after-tax cost of debt of 5.7 percent. The cost-saving proposal is somewhat riskier than the usual project the firm undertakes; management uses the subjective approach and applies an adjustment factor of 1 percent to the cost of capital for such risky projects. What is the maximum initial cost the company would be willing to pay for the project?
- BhupatbhaiMacro Systems just paid an annual dividend of $0.20 per share. Its dividend is expected to double for the next four years (D1 through D4), after which it will grow at a more modest pace of 2% per year. If the required return is 12%, what is the current price?You are running a hot Internet company. Analysts predict that its earnings will grow at 10% per year for the next 7 years. After that, as competition increases, earnings growth is expected to slow to 6% per year and continue at that level forever. Your company has just announced earnings of $4 million. What is the present value of all future earnings if the interest rate is 9 % ? (Assume all cash flows occur at the end of the year.)
