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  • From: Finance,
  • Due on: Tue 10 Dec, 2013 (08:58am)
  • Asked on: Tue 10 Dec, 2013
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Problem 5.17

Your finance text book sold 56,500  copies in its first year. The publishing company expects the sales to grow at  a rate of 22.0   percent for the next three years, and by 9.0  percent in the fourth year. Calculate the total number of copies that the  publisher expects to sell in year 3 and 4. (If  you solve this problem with algebra round intermediate calculations to 6  decimal places, in all cases round your final answers to the nearest whole  number.)


Find the present value of $5,200  under each of the following rates and periods.


(If you solve this problem with algebra round intermediate calculations to 6 decimal places, in all cases round your final answer to the nearest penny.)


a.8.9 percent compounded monthly for five years.


Present value   $\"\\"\\\\"\\\\"\\"\"


b.6.6 percent compounded quarterly for eight years.


Present value   $\"\\"\\\\"\\\\"\\"\"


c.4.3 percent compounded daily for four years.


Present value   $\"\\"\\\\"\\\\"\\"\"


d.5.7 percent compounded continuously for three years.


Present value   $\"\\"\\\\"\\\\"\\"\"


Problem 6.19


Trigen Corp. management will invest cash flows of $1,447,780,  $1,402,425, $332,798,  $818,400, $1,239,644, and $1,617,848 in research and development over the next  six years. If the appropriate interest rate is 8.48  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.)

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 $502,000  today, plus $502,000 at the end of each of the following six years for permission to do this. If the appropriate interest rate is 6  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 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 0.3 25.00%
Good 0.4 15.00%
Level 0.1 10.00%
Slump 0.2 -5.00%


What is the expected return on Barbara’s investment? (Round  answer to 3 decimal places, e.g. 0.076.)



Problem 8.24


Trevor Price bought 10-year bonds issued by Harvest Foods five years ago for $944.06. The bonds make semiannual coupon payments at a rate of 8.4 percent. If the current price of the bonds is $1,033.47, 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%.)


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 14.0   percent? (Round  answer to 2 decimal places, e.g. 15.25.)

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 $1,534,210. have a  life of five years, and would produce the cash flows shown in the following  table.

YearCash Flow
1 $473,393
2 -288,956
3 705,896
4 1,060,411
5 783,835

What  is the NPV if the discount rate is 12.07  percent? (Enter  negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal  places, e.g. 15.25.)

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 $11.80  million. This investment will consist of $2.90  million for land and $8.90  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 $5.02  million, $2.48  million above book value. The farm is expected to produce revenue of $2.05  million each year, and annual cash flow from operations equals $1.94  million. The marginal tax rate is 35  percent, and the appropriate discount rate is 10  percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)


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 14.6  percent, and the costs and values of investments made at different times in the future are as follows:

YearCostValue of Future Savings (at time of purchase)
0 $5,000 $7,000  
1 4,400 7,000  
2 3,800 7,000  
3 3,200 7,000  
4 2,600 7,000  
5 2,000 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?

Bell Mountain should purchase the system in .



Problem 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 88  percent as high if the price is raised 10  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 $\"\\"\\\\"\\\\"\\"\".


Problem 13.11


Capital Co. has a capital structure, based on current  market values, that consists of 43  percent debt, 10   percent preferred stock, and 47  percent common stock. If the returns required by investors are 11  percent, 11   percent, and 14   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 = \"\\"\\\\"\\\\"\\"\" %









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