problem1. Dahlia Enterprises requires someone to supply it with 121,000 cartons of machine screws each year to support its manufacturing requires over the next five years, and you’ve decided to bid on the contract. It will cost you $880,000 to install the equipment essential to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years, this equipment can be salvaged for $71,000. Your fixed production costs will be $326,000 per year, and your variable production costs must be $10.40 per carton. You also require an initial investment in net working capital of $76,000. If your tax rate is 30 percent and your required return is 11 percent on your investment, what bid price should you submit?
problem2. Franks is looking at the new sausage system with an installed cost of $490,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $72,000. The sausage system will save the firm $170,000 per year in pre-tax operating costs, and the system needs an initial investment in net working capital of $31,000. If the tax rate is 30 percent and the discount rate is 8 percent, what is the NPV of this project?
problem3. An analyst has modelled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 6% the expected return on first factor (r1) is 12% and expected return on the second factor (r2) is 8%. If bi1 = 0.7 and bi2 = 0.9 what is Crisp’s required return?