As a group: Answer the following questions providing all work. It is best to do these problems in Excel and then to paste them into this document. This is a detailed and important project in this course. The answers should be carefully verified before submission. Start early and take the time to do a good job. This assignment is worth what any one exam is worth.

1) An investment project requires a net investment of $100,000. The project is expected to generate annual net cash flows of $28,000 for the next 5 years. The firm's cost of capital is 12%. Part 1 - Determine the payback period for the project.

Part 2 - Determine the payback period accounting for the present value of future cash flow (ie. Present value calculations) Should the project be done? After considering present value is the 100,000 investment recovered in 3-4 years, 4-5 years or over 5 years?

2) What is the IRR for a project that has a net investment of $14,600 and a single net cash flow of $25,750 in 5 years?

3) Red Lake Mines, Inc. is considering adoption of a new project requiring a net investment of $10 million. The project is expected to generate 5 years of net cash inflows of $5 million per year. In the project's sixth, and final, year it is expected to have a net cash outflow of $1 million. What is the project NPV, using a discount rate of 12%?

4) Zimmer, a manufacturer of modular rooms, plans to expand its operations in Landshut, Germany. The expansion will cost $14.5 million and is expected to generate annual net cash flows of €2.15 million for a period of 12 years and then the operation will be sold for €1 million (net of taxes). The cost of capital for the project is 14%. Using a spot exchange rate of $1.25/€ as the forecast FX rate for the euro for the term of the project, compute the NPV of this expansion project.

5) Dupree Funds is considering the fees charged by two banks. First America charges a flat rate of $0.11 per payment and First Western requires a balance of $500,000 (that does not pay interest to Dupree foods), plus $.05 per payment. What is the number of payments per year where the costs of the two banks will be equal? Assume Dupree's cost of funds is 9%.

6) What is the annual tax shield to a firm that has total assets of $80 million and a net worth of $55 million, if the average interest rate on debt is 8.5% and the marginal tax rate is 35%?

7) Jason is interested in finding the breakeven point for a new pump it plans to produce. The price of the pump is $250 and the variable cost ratio is 50% of the price. Jason calculated that the fixed costs will be about $400,000. What is the breakeven point of operations?

8) Crown Honda purchased one of its most popular motorcycle models for 965,000 yen. The FX rate for the yen was 142 yen per dollar at the time of purchase, but then rose to 171.8 yen by the time payment was made. What was the dealer's gain or loss on the change in rates?

9) Seduak has estimated the costs of debt and equity capital for various proportions of debt in its capital structure.

            % Debt           After-tax cost of debt                        Cost of equity

            0%                              -                                               13.0%

            10                                5.4%                                       13.3

            20                                5.4                                           13.8

            30                                5.8                                           14.4

            40                                6.3                                           15.2    

            50                                7.0                                           16.0

            60                                8.2                                           17.0

Based on these estimates, determine Seduak's optimal capital structure