FIN 701 Module Three Practice
Module Three Practice
1.     Spend 8000 on a new machine. You think it will provide after tax cash inflows of 3500 per year for the next three years. The cost of funds is 8%. Find the NPV, IRR, and MIRR. Should you buy it? (1019.84, .1493, .1241, yes)
2.     Let the machine in number one be Machine A. An alternative is Machine B. It costs 8000 and will provide after tax cash inflows of 5000 per year for 2 years. It has the same risk as A. Should you buy A or B? (1829.42<2375.4453, 395.73<513.84, buy B)
3.     Spend 100000 on Machine C. You will need 5000 more in net working capital. C is three year MACRS. The cost of funds is 8% and the tax rate is 40%. C is expected to increase revenues by 45000 and costs by 7000 for each of the next three years. You think you can sell C for 10000 at the end of the three year period.
a.      Find the year zero cash flow. (-105000)
b.     Find the depreciation for each year on the machine. (33330; 44450; 14810; 7410)
c.      Find the depreciation tax shield for the three operating years. (13332, 17780, 5924)
d.     What is the projects contribution to operations each year, ignoring depreciation effects. (22800)
e.      What is the cash flow effect of selling the machine? (8964)
f.      Find the total CF for each year.
0: (105000)
1: 36132
2: 40580
3:Â 42688
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g.     Should you buy it? (NPV=-2866.52, NO)
4.     Timco shares are currently valued at 53 each. There are two million outstanding. Last year, the dividend was 2, but we expect it to grow at 8% forever. Net Income is expected to be 10 million. The firm uses 40% debt in their capital structure. They can borrow more at 4%. The tax rate is 35%. New shares can be sold for 6% flotation costs. Find the breakpoint and the WACC before and after. (9.47, .083, .0844). Â
Answers
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Posted 21 Feb 2019 04:02 AM
My Price 10.00
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file 1550725093-Module Three Practice.docx preview (688 words )
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