Description GF520: Corporate Finance | Unit 5 Assignment Assignment: Textbook Problems This assignment will be used to assess Course Outcome GF520-5: Evaluate capital budgeting including the process, principles, commonly used decision criterion, and relation between NPV, company value, and stock price. Complete the following Problems from the textbook: ● Chapter 6 – Problems 6-2, 6-19, and 6-25, pages194–197 ● Chapter 7 – Problems 7-9, 7-11, and 7-13, pages 227–228 You must show your work to receive credit for your answers. No credit will be given for the correct answer alone. You should perform all calculations in Excel and paste them into the Word document using the “Paste Special-Excel Worksheet Object” feature. This allows your instructor to double click on your work to see the formulas and calculations you used to answer the selected problems. 2 attachmentsSlide 1 of 2attachment_1attachment_1attachment_2attachment_2.slider-slide > img { width: 100%; display: block; } .slider-slide > img:focus { margin: auto; } Unformatted Attachment Preview GF520: Corporate Finance | Unit 5 Assignment Assignment: Textbook Problems This assignment will be used to assess Course Outcome GF520-5: Evaluate capital budgeting including the process, principles, commonly used decision criterion, and relation between NPV, company value, and stock price. Complete the following Problems from the textbook: ● ● Chapter 6 – Problems 6-2, 6-19, and 6-25, pages194–197 Chapter 7 – Problems 7-9, 7-11, and 7-13, pages 227–228 You must show your work to receive credit for your answers. No credit will be given for the correct answer alone. You should perform all calculations in Excel and paste them into the Word document using the “Paste Special-Excel Worksheet Object” feature. This allows your instructor to double click on your work to see the formulas and calculations you used to answer the selected problems. Review the Grading Rubric before starting this Assignment. Once completed, submit your file, including a title page to the Unit 5 Assignment Dropbox. Assignments are due Tuesday 11:59 p.m. ET of their assigned unit. GF520: Textbook Problems Item criteria Points are earned based on critical thinking, analysis, and correct and thorough responses to the following: Points Possible Chapter 6 – Problems 6-2, 6-19, and 6-25 30 Chapter 7 – Problems 7-9, 7-11, and 7-13 35 Grammar and Writing Style 5 Total Points 70 Points Earned Chapter 6 Problem 2 2.Calculating Project NPV The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 22 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project. a. Compute the incremental net income of the investment for each year. b. Compute the incremental cash flows of the investment for each year. c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project? Problem 19 19. Capital Budgeting with Inflation Consider the following cash flows on two mutually exclusive projects: The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in nominal terms. The appropriate nominal discount rate is 11 percent and the inflation rate is 4 percent. Which project should you choose? Problem 25 25.Calculating NPV and IRR for a Replacement A firm is considering an investment in a new machine with a price of $15.6 million to replace its existing machine. The current machine has a book value of $5.4 million and a market value of $4.1 million. The new machine is expected to have a 4-year life, and the old machine has four years left in which it can be used. If the firm replaces the old machine with the new machine, it expects to save $6.3 million in operating costs each year over the next four years. Both machines will have no salvage value in four years. If the firm purchases the new machine, it also will need an investment of $250,000 in net working capital. The required return on the investment is 10 percent and the tax rate is 21 percent. The company uses straight-line depreciation. What are the NPV and IRR of the decision to replace the old machine? Chapter 7 Problem 9 9.Financial Break-Even Analysis You are considering investing in a company that cultivates abalone to sell to local restaurants. Use the following information: Sales price per abalone = $43 Variable costs per abalone = $10.45 Fixed costs per year = $435,000 Depreciation per year = $130,000 Tax rate = 21% The discount rate for the company is 15 percent, the initial investment in equipment is $910,000, and the project’s economic life is seven years. Assume the equipment is depreciated on a straight-line basis over the project’s life and has no salvage value. a. What is the accounting break-even level for the project? b. What is the financial break-even level for the project? Problem 11 11.Break-Even Intuition Consider a project with a required return of R percent that costs $I and will last for N years. The project uses straight-line depreciation to zero over the N-year life; there are no salvage value or net working capital requirements. a. At the accounting break-even level of output, what is the IRR of this project? The payback period? The NPV? b. At the cash break-even level of output, what is the IRR of this project? The payback period? The NPV? c. At the financial break-even level of output, what is the IRR of this project? The payback period? The NPV? Problem 13 13.Project Analysis You are considering a new product launch. The project will cost $720,000, have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 380 units per year; price per unit will be $17,400; variable cost per unit will be $14,100; and fixed costs will be $680,000 per year. The required return on the project is 15 percent and the relevant tax rate is 21 percent. a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within ±10 percent. What are the upper and lower bounds for these projections? What is the base-case NPV? What are the best-case and worst-case scenarios? b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs. c. What is the accounting break-even level of output for this project? Purchase answer to see full attachment Tags: business and finance NPV stock price Capital Budgeting Business Management User generated content is uploaded by users for the purposes of learning and should be used following Studypool’s honor code & terms of service.

Description

GF520: Corporate Finance | Unit 5 Assignment
Assignment: Textbook Problems
This assignment will be used to assess Course Outcome GF520-5: Evaluate capital budgeting including the
process, principles, commonly used decision criterion, and relation between NPV, company value, and stock
price.
Complete the following Problems from the textbook:
● Chapter 6 – Problems 6-2, 6-19, and 6-25, pages194–197
● Chapter 7 – Problems 7-9, 7-11, and 7-13, pages 227–228
You must show your work to receive credit for your answers. No credit will be given for the correct answer
alone. You should perform all calculations in Excel and paste them into the Word document using the “Paste
Special-Excel Worksheet Object” feature. This allows your instructor to double click on your work to see the
formulas and calculations you used to answer the selected problems.

2 attachmentsSlide 1 of 2attachment_1attachment_1attachment_2attachment_2.slider-slide > img { width: 100%; display: block; }
.slider-slide > img:focus { margin: auto; }

Unformatted Attachment Preview

GF520: Corporate Finance | Unit 5 Assignment
Assignment: Textbook Problems
This assignment will be used to assess Course Outcome GF520-5: Evaluate capital budgeting including the
process, principles, commonly used decision criterion, and relation between NPV, company value, and stock
price.
Complete the following Problems from the textbook:
●
●
Chapter 6 – Problems 6-2, 6-19, and 6-25, pages194–197
Chapter 7 – Problems 7-9, 7-11, and 7-13, pages 227–228
You must show your work to receive credit for your answers. No credit will be given for the correct answer
alone. You should perform all calculations in Excel and paste them into the Word document using the “Paste
Special-Excel Worksheet Object” feature. This allows your instructor to double click on your work to see the
formulas and calculations you used to answer the selected problems.
Review the Grading Rubric before starting this Assignment. Once completed, submit your file, including a title
page to the Unit 5 Assignment Dropbox. Assignments are due Tuesday 11:59 p.m. ET of their assigned unit.
GF520: Textbook Problems
Item criteria
Points are earned based on critical thinking, analysis, and correct and thorough
responses to the following:
Points
Possible
Chapter 6 – Problems 6-2, 6-19, and 6-25
30
Chapter 7 – Problems 7-9, 7-11, and 7-13
35
Grammar and Writing Style
5
Total Points
70
Points
Earned
Chapter 6
Problem 2
2.Calculating Project NPV The Best Manufacturing Company is considering a new investment. Financial
projections for the investment are tabulated here. The corporate tax rate is 22 percent. Assume all sales
revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows
occur at the end of the year. All net working capital is recovered at the end of the project.
a. Compute the incremental net income of the investment for each year.
b. Compute the incremental cash flows of the investment for each year.
c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?
Problem 19
19. Capital Budgeting with Inflation Consider the following cash flows on two mutually exclusive
projects:
The cash flows of Project A are expressed in real terms, whereas those of Project B are expressed in
nominal terms. The appropriate nominal discount rate is 11 percent and the inflation rate is 4 percent.
Which project should you choose?
Problem 25
25.Calculating NPV and IRR for a Replacement A firm is considering an investment in a new machine
with a price of $15.6 million to replace its existing machine. The current machine has a book value of
$5.4 million and a market value of $4.1 million. The new machine is expected to have a 4-year life, and
the old machine has four years left in which it can be used. If the firm replaces the old machine with the
new machine, it expects to save $6.3 million in operating costs each year over the next four years. Both
machines will have no salvage value in four years. If the firm purchases the new machine, it also will
need an investment of $250,000 in net working capital. The required return on the investment is 10
percent and the tax rate is 21 percent. The company uses straight-line depreciation. What are the NPV
and IRR of the decision to replace the old machine?
Chapter 7
Problem 9
9.Financial Break-Even Analysis You are considering investing in a company that cultivates
abalone to sell to local restaurants. Use the following information:
Sales price per abalone
= $43
Variable costs per abalone
= $10.45
Fixed costs per year
= $435,000
Depreciation per year
= $130,000
Tax rate
= 21%
The discount rate for the company is 15 percent, the initial investment in equipment is
$910,000, and the project’s economic life is seven years. Assume the equipment is
depreciated on a straight-line basis over the project’s life and has no salvage value.
a. What is the accounting break-even level for the project?
b. What is the financial break-even level for the project?
Problem 11
11.Break-Even Intuition Consider a project with a required return of R percent that costs $I and
will last for N years. The project uses straight-line depreciation to zero over the N-year life;
there are no salvage value or net working capital requirements.
a. At the accounting break-even level of output, what is the IRR of this project? The payback
period? The NPV?
b. At the cash break-even level of output, what is the IRR of this project? The payback period?
The NPV?
c. At the financial break-even level of output, what is the IRR of this project? The payback
period? The NPV?
Problem 13
13.Project Analysis You are considering a new product launch. The project will cost $720,000,
have a 4-year life, and have no salvage value; depreciation is straight-line to zero. Sales are
projected at 380 units per year; price per unit will be $17,400; variable cost per unit will be
$14,100; and fixed costs will be $680,000 per year. The required return on the project is 15
percent and the relevant tax rate is 21 percent.
a. Based on your experience, you think the unit sales, variable cost, and fixed cost projections
given here are probably accurate to within ±10 percent. What are the upper and lower bounds
for these projections? What is the base-case NPV? What are the best-case and worst-case
scenarios?
b. Evaluate the sensitivity of your base-case NPV to changes in fixed costs.
c. What is the accounting break-even level of output for this project?

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Tags:
business and finance

NPV

stock price

Capital Budgeting

Business Management

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