Your assignment for this week is to solve the following problems and be ready to discuss the solutions and their implications relative to the financial management of a company: Chapter 2, problems 2-1, 2-2, 2-5 and 2-6. Chapter 3, problems 3-1 3-4 and 3-5. In your submission of assigned problems also respond to the following question: What is "free cash flow" and why is it the most important measure of cash flow?
Your assignment for this week is to solve the following problems and be ready to discuss the solutions and their implications relative to the financial management of a company: Chapter 2, problems 2-1, 2-2, 2-5 and 2-6. Chapter 3, problems 3-1 3-4 and 3-5. In your submission of assigned problems also respond to the following question: What is "free cash flow" and why is it the most important measure of cash flow?
Related questions
| Period | CF | ||
| 0 | -100,000 | ||
| 1 | 13,000 | ||
| 2 | 50,000 | ||
| 3 | 31,000 | ||
| 4 | 34,000 | ||
| 5 | 18,000 | ||
| 6 | 16,000 | ||
| 7 | 12,000 |
Suppose you have the following initial outlay and free cash flow information on a potential investment project where upper management requires a payback period of 4 or fewer years (i.e. required payback period ⤠3.99999 years) and that investors' Required Rate of Return is 15%. Also, suppose that you will make project acceptance or rejection decisions for each problem independently of decisions made in other problems. Assuming that we want to find the project's Internal Rate of Return(IRR), what value must we set the project's Net Present Value (NPV) to?
| Solve the problems below using well-formattedExcel solutions. Do not hardcode numbers in the formulasâ¦..only usecell references to the input data. I will change the input data inyour problem to check alternate solutions. You will turn in acomplete working Excel spreadsheet with your solution. | ||||||||||||||
| Given the following set of cash flows: | ||||||||||||||
| Period | Cash Flow | |||||||||||||
| 1 | $ 40,000 | |||||||||||||
| 2 | $ 35,000 | |||||||||||||
| 3 | $ 30,000 | |||||||||||||
| 4 | $ 25,000 | |||||||||||||
| 5 | $ 20,000 | |||||||||||||
| 6 | $ 15,000 | |||||||||||||
| 7 | $ 10,000 | |||||||||||||
| 8 | $ 5,000 | |||||||||||||
| 1. If your required rate of return is 8% per year,what is the present value of the above cash flows? | ||||||||||||||
| 2. If your required rate of return is 8% per year,what is the future value of the above cash flows? | ||||||||||||||
| 3. Suppost that you are offered another investmentthat is identical, except the cash flows are reveresed. Compute thePV and FV, is this investment worth more or less than #1 and#2? | ||||||||||||||
| 4. If you paid $150,000 for the originalinvestment, what average annual rate of return would you earn? Whatreturn would you earn on the reversed cash flows? | ||||||||||||||
Use the following data for the remaining problems.
Capstone Quarry is analyzing whether a new contract proposal will be a good idea. The relevant data is shown below. The net working capital will be paid in the same time period as the cost of the equipment and will be recovered at the end of the project. Remember to calculate the after-tax gain or loss of salvage as part of your terminal cash flow.
| Capstone Quarry Company Contract Analysis | |
| Amount of Rock Salt per Year | 23,000 Tons |
| Revenue per Ton | $ 145 |
| Cost of Equipment | $ 2,750,000 |
| Life(years) | 5 |
| MACRS Class | 5 |
| Fixed Cost per year | $ 475,000 |
| Var Cost/Ton | $ 85 |
| Actual Salvage | $ 105,000 |
| Change in NWC | $ 85,000 |
| Required Return | 12% |
| Tax Rate | 34% |
***Just Need These Answers***
24) IRR
25) MIRR
Hint:
| Annual Cash Flows for Capstone Quarry | ||||||
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Initial Outlay | ||||||
| Unit Sales | ||||||
| Sales | ||||||
| Variable Costs | ||||||
| Fixed Costs | ||||||
| Depreciation | ||||||
| Taxable Cash Flows | ||||||
| Taxes | ||||||
| Add: Depreciation | ||||||
| Annual After-Tax Cash Flow | ||||||
| Terminal Cash Flow | ||||||
| Total Annual Cash Flows | ||||||
