1) You are thinking of buying a miniature golf course to operate. It is expected to generate cash flows of $40,000 per year in years one through four and $50,000 per year in years five through eight. If the appropriate discount rate is 10%, what is the present value of these cash flows?
a) $285,288
b) $167,943
c) $235,048
d) $828,230
2) In calculating the risk associated with two potential projects (A & B), which of the following statistical calculations indicates that the projects are equally risky?
i) The standard deviation of A is 100, and the coefficient of variation of A is 80.912
ii) The standard deviation of B is 1,000, and the coefficient of variation of B is 809.12
iii) The variance of A's possible outcomes is 258.10, and the standard deviation of A is 100
iv) The variance of B's possible outcomes is 2,581, and the standard deviation of B is 1,000
b) iii and iv
c) ii and iii
d) i and ii
e) i and iv
f) None of the above
3) The value for "a" in the regression equation Y = a + b(X) + e is shown in Excel as
a) the slope
b) the forecasted variable
c) the intercept
d) the independent predictor variable
e) none of the above
Use the information below for the next problem .
4. Calculate the free cash flow
Use the following information for the next problem
5. What is the expected return for Security X?
Use the following information for the next three problems,
|
|
PV of
|
|
Year
|
Cash Flow
|
Cash Flows
|
|
1
|
$14,000
|
$12,726
|
|
2
|
$14,000
|
$11,564
|
|
3
|
$10,000
|
$7,510
|
|
4
|
$10,000
|
$6,830
|
|
5
|
$8,000
|
$4,968
|
6. What is the NPV of above project if the initial investment was $35,000?
7. Calculate the IRR assuming a cost of capital of 11%.
8. Calculate the MIRR of the project assuming a cost of capital of 11%.
9. Suppose that you are approached with an offer to purchase an investment that will provide cash flows of $1,300 per year for 15 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?
10. The Claustrophobic Solution, Inc., a residential window and door manufacturer, has the following historical record of earnings per share (EPS) from 2011 to 2007:
|
2011
|
2010
|
2009
|
2008
|
2007
|
|
EPS
|
$1.10
|
$1.05
|
$1.00
|
$0.95
|
$0.90
|
The company's payout ratio has been 60% over the last five years and the last quoted price of the firm's share of stock was $12. Flotation costs for new equity will be 6%. The company has 32,000,000 of common shares of stock outstanding and a debt-equity ratio of 0.5.
If dividends are expected to grow at the same arithmetic average growth rate of the last five years, what is the dividend payment in 2012?
11. The following are the company sales from 2000-2009
|
Year
|
Xylophone
|
|
1
|
$230
|
|
2
|
$573
|
|
3
|
$994
|
|
4
|
$1,683
|
|
5
|
$3,192
|
|
6
|
$6,140
|
|
7
|
$10,624
|
|
8
|
$16,549
|
|
9
|
$21,975
|
a) Fit an exponential trend curve to the data and
b) Calculate the projected sales in 2010,
c) 2011,
d) 2012.
12. THE FINAL PROBLEM IS A CALCULATION PROBLEM with multiple parts
Frozen Turkeys Scenario
|
Cost of Land
|
$210,000
|
|
Cost of Buildings & Equipment
|
$325,000
|
|
MACRS Class
|
20
|
|
Life of Project (Years)
|
5
|
|
Terminal Value of Land
|
$315,000
|
|
Terminal Value of Buildings & Equipment
|
$170,000
|
|
First year sales (pounds)
|
250,000
|
|
Price per Pound
|
$3.40
|
|
Unit Sales Growth Rate
|
7.50%
|
|
Variable Costs as % of Sales
|
65%
|
|
Fixed Costs
|
72,000
|
|
Tax Rate
|
33%
|
|
WACC
|
10.50%
|
a. Prepare a statement of annual cash flows for years 0 through 5. Cash flows in year 0 are your expenses for building and land.
Sales growth is based on the annual growth rate in units.
Assume no changes in fixed or variable costs.
Depreciate the project cost for 5 years, with the cash flow in year 5 to include the terminal cash flow of ending the investment.
b. Calculate the NPV,
c. Profitability index,
d. IRR,
e. MIRR,
f. Payback and
g. Discounted payback of the cash flows
h. Using scenario manager find best case, worst case, base case of NPV based on sales in pounds, price per pound, and variable cost percent. Make sure to include scenario summary.