Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Question
Chapter 6, Problem 22QAP
Summary Introduction
Adequate information:
Net cash flow=$345,000
Real discount rate=4%
Real growth rate=-3%
To compute: Present value of cash flows.
Introduction: Present value is the sum of the current value of money of future cash flows. It is also known as a present discounted value, in which the
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Calculate the Operating Cash for this Firm:A new firm, GASFORALL, Co expects to generate Sales of $117,700. GASFORALL has variable costs of $74,800, and fixed costs of $15,300. The per-year depreciation is $3,850 and the tax rate is 35 percent. Given this info: What is the annual operating cash flow?
C. Exodus Corp. is analyzing the performance of its cash management. On the average,
the firm holds inventory 65 days, pays its suppliers in 35 days, and collects its
receivables in 15 days. The firm has a current annual outlay of P1,960,000 on operating
cycle investments. Exodus currently pays 10 percent for its negotiated financing.
(Assume a 360-day year.)
Calculate the following:
a. Cash conversion cycle
b. Operating cycle.
c. Daily expenditure and the firm's annual savings if the operating cycle is reduced
by 15 days.
A research analyst wants to use the discounted free cash flow model to determine the enterprise value of
Machinex Ltd, a heavy machinery manufacturing company. The analyst has put together the following forecast
of Machinex's income statement over the next three years (all figures in $ million):
All figures in $ million
Financial year ending 31 March
2024 2025
Revenue
180.0
Less: Operating expenses
120.0
Operating earnings before depreciation
60.0
Less: Depreciation
30.0
Earnings before interest and tax (EBIT) 30.0
5.0
25.0
7.0
18.0
Less: Interest expense
Earnings before tax
Less: Tax expense
Net profit (earnings)
2026
200.0 240.0
128.0
145.0
72.0
95.0
25.0
20.0
47.0
75.0
5.0
5.0
42.0
70.0
11.8
19.6
30.2
50.4
In addition, the analyst has determined that:
Operating working capital (OWC) in each year will be 15% of revenue in that year
Capital expenditure (capex) will be $30 million in each year
The corporate tax rate is 28%.
.
Machinex's free cash flow to the firm (FCF) in year 2026 is…
Chapter 6 Solutions
Corporate Finance
Ch. 6 - Opportunity Cost In the context of capital...Ch. 6 - Prob. 2CQCh. 6 - Incremental Cash Flows Your company currently...Ch. 6 - Depreciation Given the choice, would a firm prefer...Ch. 6 - Prob. 5CQCh. 6 - Prob. 6CQCh. 6 - Equivalent Annual Cost When is EAC analysis...Ch. 6 - Prob. 8CQCh. 6 - Capital Budgeting Considerations A major college...Ch. 6 - To answer the next three questions, refer to the...
Ch. 6 - Prob. 11CQCh. 6 - To answer the next three questions, refer to the...Ch. 6 - Prob. 1QAPCh. 6 - Prob. 2QAPCh. 6 - Calculating Project NPV Down Under Boomerang,...Ch. 6 - Calculating Project Cash Flow from Assets In the...Ch. 6 - Prob. 5QAPCh. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Prob. 7QAPCh. 6 - Prob. 8QAPCh. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Calculating Salvage Value An asset used in a...Ch. 6 - Calculating NPV Thurston Petroleum is considering...Ch. 6 - Prob. 12QAPCh. 6 - Cost-Cutting Proposals Starset Machine Shop is...Ch. 6 - NPV and Bonus Depreciation In the previous...Ch. 6 - Prob. 15QAPCh. 6 - Prob. 16QAPCh. 6 - NPV and Bonus Depreciation Eggz, Inc., is...Ch. 6 - Prob. 18QAPCh. 6 - Prob. 19QAPCh. 6 - Prob. 20QAPCh. 6 - Prob. 21QAPCh. 6 - Prob. 22QAPCh. 6 - Prob. 23QAPCh. 6 - Prob. 24QAPCh. 6 - Prob. 25QAPCh. 6 - Prob. 26QAPCh. 6 - Prob. 27QAPCh. 6 - Prob. 28QAPCh. 6 - Prob. 29QAPCh. 6 - Prob. 30QAPCh. 6 - Prob. 31QAPCh. 6 - Prob. 32QAPCh. 6 - Prob. 33QAPCh. 6 - Prob. 34QAPCh. 6 - Prob. 35QAPCh. 6 - Prob. 36QAPCh. 6 - Prob. 37QAPCh. 6 - Prob. 38QAPCh. 6 - Prob. 39QAPCh. 6 - Prob. 40QAPCh. 6 - Prob. 41QAPCh. 6 - Prob. 42QAPCh. 6 - Prob. 1MCCh. 6 - GOODWEEK TIRES, INC. After extensive research and...
Knowledge Booster
Similar questions
- The manager of a production system expects to spend S100,000 the first year with amounts increasing by $10,000 each year. Income is expected to be $400,000 the first year, decreasing by $50,000 each year. a) Draw cash flow diagrams of expenditures and income separately over an 8 year period at an interest rate of 12% per year. b) Detemine the present worth of the company's net cash flow (present worth = present income present expenditure). Please write fomula and show your solution step by step. Use compound interest tables.arrow_forwardQuestion. Semis Inc. has an average age of inventory of 70 days, an average collection period of 60 days and an average payment period of 60 days. The firm's total annual outlays for operating cycle investments are $3.65 million. Assuming a 365-day year, how much financing is required to support its cash conversion cycle?arrow_forwardKabab Co. is considering a $240,000 investment, which will provide net returns of $110,000, $160,000, and $220,000 in the second, third, and fourth years, respectively. What is the payback period? Round up to the next month Use the following table: Year Cash Outflow Cash Inflow Net Cash Flow Cumulative Cash Flowarrow_forward
- 1. Swanky Beverage Co. expects the following cash flows from its manufacturing plant in Palau over the next 5 years: Year Annual Cash Flows 1 $4,100,000 2 $2,900,000 3 $3,000,000 4 $6,600,000 5 $5,600,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 7%. What is the present value of this uneven cash flow stream (rounded to the nearest whole dollar)? $14,668,080 $26,200,000 $17,841,473 $12,806,365 2. Identify whether the situations described in the following table are examples of uneven cash flows or annuity payments. You recently moved to a new apartment and signed a contract to pay monthly rent to your landlord for a year SOE Corp. hires an average of 10 people every year and matches the contribution of each employee toward his or her retirement fund. Franklinia Venture Capital (FVC) invested in a budding entrepreneur’s restaurant. The restaurant owner promises to pay FVC 10% of the profit…arrow_forward6. A report from the marketing department indicates that a new product will generate the following revenue stream: P62,500 in the first year, P89,400 in year two, P136,200 in year three, P128,300 in year four, and P112,000 in year five. If your firm's discount rate is 11% and the cash flows are received at the end of each year, what is the present value of this cash flow stream? a.P379,435.35b.P421,173.24c.P476,036.04d.P528,400.00arrow_forwardThe Purple Lion Beverage Company expects the following cash flows from its manufacturing plant in Palau over the next five years: Year 1 $250,000 Annual Cash Flows Year 2 $20,000 Year 3 Year 4 $180,000 $450,000 Year 5 $550,000 The CFO of the company believes that an appropriate annual interest rate on this investment is 4%. What is the present value of this uneven cash flow stream, rounded to the nearest whole dollar?arrow_forward
- Your consulting firm was recently hired to improve the performance of RP Inc, which is highly profitable but has been experiencing cash shortages due to its high growth rate. As one part of your analysis. you want to determine the firm's cash conversion cycle. Using the following information and a 365-day year, what is the firm's present cash conversion cycle? Average inventory Annual sales Annual cost of goods seld Average accounts receivable Average accunts payable P5.000 P00.000 PH0,000 P0,000 F5000 140.6 days 120.6 days 133.6 days 148.0 days O 126.9 daysarrow_forwardPROBLEM The Seminole Company wishes to apply the Miller-Orr model to manage its cash investment. Seminole’s management has determined that the cost of either investing in or selling marketable securities is $200. By looking at Seminole Company’s past cash needs, they have determined that the variance of daily cash flows is $10,000. Seminole Company’s opportunity cost of cash, per day, is estimated to be 0.05%. Seminole management has figured, based on their experience dealing with the cash flows of the company, that there should be a cushion— a safety stock—of cash of $20,000. 4. How much is the lower limit based on the Miller-Orr model of cash management?(Use a number, no decimal value, no commas, no currency, no space) * 5. How much is the upper limit based on the Miller-Orr model of cash management? (Use a number, no decimal value, no commas, no currency, no space) * 6.How much is the return point based on the Miller-Orr model of cash management? (Use a number, no decimal value, no…arrow_forwardThe manager of a production system expects to spend $100,000 the first year with amounts decreasing by $10,000 each year. Income is expected to be $400,000 the first year, decreasing by $50,000 each year. a) Draw cash flow diagrams of expenditures and income separately over a 6 year period at an interest rate of 10% per year. b) Determine the present worth of the company's net cash flow (present worth = present income - present expenditure). Please write fomula and show your solution step by step. Use compound interest tables. How much money could a fim borow to finance a project if it is expected revenues of 5140,000 yeuly for the 9 years pesiod of time with the interest rate 9% per year? Please wnte fomuls and show your solutica step by step. Use compound iaterest tahles a) drawe the Cash fiow b) find the selution C) find the future value of the evenuesarrow_forward
- The manager of a production system expects to spend $100,000 the first year with amounts decreasing by $10,000 each year. Income is expected to be $400,000 the first year, decreasing by $50,000 each year. a) Draw cash flow diagrams of expenditures and income separately over a 6 year period at an interest rate of 10% per year. b) Determine the present worth of the company's net cash flow (present worth = present income - present expenditure). Please write fomula and show your solution step by step. Use compound interest tables. %3Darrow_forwardThe manager of a production system expects to spend $100,000 the first year with amounts increasing by $10,000 each year. Income is expected to be $400,000 the first year, increasing by $50,000 each year. a) Draw cash flow diagrams of expenditures and income separately over a 5 year period at an interest rate of 10% per year. b) Detemine the present worth of the company's net cash flow (present worth expenditure). Please write fomula and show your solution step by step. Use compound interest tables. = present income- presentarrow_forwardYou have recently been hired to improve the performance of Multiplex Corporation, which has been experiencing a severe cash shortage. As one part of your analysis, you want to determine the firm’s cash conversion cycle. Using the following information and a 365-day year,(a) what is your estimate of the firm’s current cash conversion cycle? • Current inventory = $ 180,000.00 • Annual sales = $ 700,000.00 • Accounts receivable = $ 165,000.00 • Accounts payable = $ 85,000.00 • Total annual purchases = $ 567,000.00 • Purchases credit terms: net 30 days. • Receivables credit terms: net 50 days.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning