WACC, IRR, NPV, AND BREAK-EVEN TEST
Q1. What is the a) NPV and b) IRR of this project? Land was purchased for $650,000 and six homes were built at a cost of $220,000 each. The homes sold for $400,000 each. It took two years to build and sell. The project has a cost of capital of 12%.
Q2. A bridge has a cost to build of $2,000,000, has a cost of capital of 10% and will take 3 years to build. The present value of the tolls that the bridge will collect has been calculated at $3,500,000. a) What is the NPV? b) What is the IRR?
Q3. Calculate the Break-Even of Delightful Doughnuts in a) units and b) dollars? The new factory was retro-fitted a cost of $2,000,000 and the new machinery cost $800,000. The material costs per year are $.04/unit , labor costs per year are $.03/unit, and annual overhead is $.05/ per unit. Each doughnut sells wholesale for $.25. This factory can produce a maximum of 4,500 dozen doughnuts a day and is open every day of the year, 24 hours a day.
c) How many doughnuts would we need to sell to break even, if we became a retail operation selling doughnuts at $.50 each. Our only additional expense would be $.05 per unit for the salaries of the sales staff?
EXTRA CREDIT - How much profit will Delightful Doughnuts make if they ran the factory at capacity, and the sales were split evenly between wholesale and retail?
EXTRA CREDIT - What is the contribution margin of retail doughnuts sold at Delightful Doughnuts?
Q4. a) Calculate NPV. A mine will produce 2 million pounds of tin a year for 5 years. The factory will then be closed and turned into a landfill for the State of Arizona. The State of Arizona will contribute $1,000,000 today to the creation of the mine to reduce the initial costs. The mine will cost a total of $8,000,000 to set up and has a cost of capital of 8 percent. All the tin produced will sell for $ 2.15 a pound under contract to a local foundry, and will be paid annually.
b) How will the NPV react if the production is increased by 25%?
Q5 a) Calculate the IRR with the provided information in question 4.
b) Calculate the IRR of this project if the total production is prepaid by the State of Arizona instead of them contributing the $1,000,000 to the reduction of set up cost.
Q6. Calculate WACC.
ALFA Bottling Co. just purchased a soft drink operation in Hialeah for $45,000,000. The down payment or common equity was $15,000,000 with a cost of 3%. The seller's kept 100,000 shares of a preferred equity with a price of $50 a share and a $5 annual dividend. The remainder of the asset were financed by a SBA loan with an annual expense of $2,000,000. ALFA Bottling Co. has a tax rate of 30%.
Q7. a) Calculate WACC
Fort Antonia Construction is building the New Temple for a cost of $180,000,000 and has a tax rate of 40%. The entire balance of the project will be financed through World Bank at a rate of 6%. The State of Israel and The Vatican with lend the project a total of $40,000,000 each on a preferred equity basis for 4 percent. The New Temple project has also received $20,000,000 in gifts toward the building. The New Temple project site is a non-profit World Heritage Site and will pay no taxes on its financing or revenues. The project is expected to pay off the loans with additional gifts upon completion of the New Temple in 2 years. b) Whom's WACC are you calculating?