Question

SHOW WORK on EXCEL and EXPLAIN ANSWERS on all problems.

You are thinking of buying a miniature golf course to operate. It is expected to generate cash flows of $45,000 per year in years one through three and $55,000 per year in years four through eight. If the appropriate discount rate is 12%, what is the most you would pay for this golf course?

Your team is evaluating two mutually exclusive projects. The initial cost of each investment is $50,000. The probability of the cash flows is shown below. If the project will have a 5 year life and the appropriate cost of capital is 9% calculate the following:

Probability	CF(A)	CF(B)
10%	(34,000)	(13,500)
25%	(8,500)	2,125
30%	17,000	19,000
25%	42,500	31,875
10%	68,000	46,750

Expected value

NPV

Standard deviation

IRR

MIRR

Use the information below for the next problem

Depreciation	34,000
EBIT	179,000
Investment in Operating Assets	69,000
Tax Rate	34%
Find the free cash flow

3. Calculate the free cash flow

Use the following information for the next problem

The Security Market Line
	Security X	Market
Beta	0.76	1
Expected Return	?	12%
If the risk free rate is	2.80%
Find the expected return on security X

4. What is the expected return for Security X?

Use the following information for the next three problems,

Year	Cash Flow
1	$12,500
2	$14,000
3	$10,000
4	$11,000
5	$16,000

5. What is the NPV of above project if the initial investment was $35,000?

6. Calculate the IRR assuming a cost of capital of 11%.

7. Calculate the MIRR of the project assuming a cost of capital of 11%. ___________________________________________________________________________

8. Suppose that you are approached with an offer to purchase an investment that will provide cash flows of $1,600 per year for 18 years. The cost of purchasing this investment is $9,200. You have an alternative investment opportunity, of equal risk, that will yield 9% per year. What is the NPV that makes you indifferent between the two options?

___________________________________________________________________

9. The Claustrophobic Solution, Inc., a residential window and door manufacturer, has the following historical record of earnings per share (EPS) from 2015 to 2007:

	2015	2014	2013	2012	2011	2010	2009	2008	2007
EPS	$1.28	$1.22	$1.18	$1.13	$1.10	$1.05	$1.00	$0.95	$0.90

The company’s payout ratio has been 57% over the last nine years and the last quoted price of the firm’s share of stock was $15. Flotation costs for new equity will be 7%. The company has 34,000,000 of common shares of stock outstanding and a debt-equity ratio of 0.45.

If dividends are expected to grow at the same arithmetic average growth rate of the last nine years, what is the dividend payment per share in 2016?

_________________________________________________________________________-

Use the following data for the next 3 questions

The following are the company sales from 2000-2015

Year	Xylophone
2000	$230
2001	$573
2002	$994
2003	$1,683
2004	$3,192
2005	$6,140
2006	$8,892
2007	$13,586
2008	$18,376
2009	$29,476
2010	$33,598
2011	$44,208
2012	$58,473
2013	$96,368
2014	$149,306
2015	$209,397

Fit an exponential trend curve to the data- show the equation

Calculate the projected sales in 2016

What is the CAGR over the 2000-2015 period?

____________________________________________________________-

Use the following data for the next 3 problems

Roxie’s Surf Shop is expanding their product line, adding a high end surf board to their existing basic product.

Their fixed costs for the equipment needed for the new boards is $5700 per month.

The new board will cost $278 per board and they can be sold for $450.

How many new boards per month will they need to sell to breakeven quantity per month?

If the fixed costs are reduced to $4800 per month what is the new breakeven quantity?

If the fixed costs stay at $5300 and they want to have at least $1000 per month in profit how many boards should they sell?

Use the information below for the next 4 answers

Debt 5,000 bonds par $1,000 with a maturity 20 years; semi annual compounding. Coupon rate 8%. Price $1,310.

Preferred 50,000 shares of 3% par value $100 stock. Current price $63.00.

Common stock 72,000 shares currently selling for $87.00. The beta of the firm is 1.17, the risk free rate is 2.78%, Market return (Rm) =8.6%.

Cost of debt

Cost of preferred

Cost of equity

WACC

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%

Find the cash flows for each year

Net present value

Payback period

Discounted payback

IRR

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