STR581 STR/581 Final Exam Part 2 Week 4

Free cash flows of the project for next five years can be calculated by adding depreciation values and subtracting changes in working capital from net income. In 2010, there will be a cash outflow of $2.2 million as capital expenditure. In 2011, there will be an additional one time cash outflow of $300,000 as an advertising expense. Using net free cash flow values for next five years and discount rate for discounting, NPV for the project comes out to be $2907, 100. The rate of return at which net present value becomes zero i.e.

Before moving forward to compute the present value of these cash flows, a terminal value is required to forecast the long term value of the company after 5 years. . Following formula is used to calculate the terminal value.

2. Use the projections provided in the case to compute the incremental cash flows for the PCB project. Provide a reasonable estimate for cash flows after 2009 as well.

You can earn 5% per year compounded annually for the next 4 years, followed by 8% per year compounded quarterly for 5 years. What is the average annual compounded rate of return over the 9 year period?

13. What is the formula for the Present Value (PV) for a finite stream of cash flows (1 per year) that lasts for 10 years?

The comptroller currently finds the weights for the weighted average cost of capital (WACC) from information from the balance sheet shown in Table 2. Compute the book value weights that the comp­trol­ler currently uses for the company’s capital structure.

Given that the total profit over 8 years is $1.2375B (or $155M per year for 8 years), we will now compute the Present Value of this amount using the following formula:

9. You want to purchase a business with the following cash flows. How much would you pay for this business today assuming you needed a 14% return to make this deal?

-Jensen's Travel Agency has 9 percent preferred stock outstanding that is currently selling for $49 a share. The market rate of return is 15 percent and the firm's tax rate is 34 percent. What is Jensen's cost of

The current year is 1979, so from Exhibit 3 the 1980 dividend is forecasted to be $1.70, and the stock price in 1979 is $22.50. This gives a dividend yield of 7.56%, which is added to g. There are four ways to solve for g:

23) Danroy Inc has announced a $5 dividend. If Danroy's last price while trading cum-dividend is $65, what should its first ex-dividend price be (assuming perfect capital markets)?

The present value of all these cash inflows and outflows can be calculated by discounting them at 12.19%. This rate is calculated by assuming that the purchasing power parity holds in this scenario. The company can do the feasibility analysis by looking at both from the subsidiary’s and parent’s perspective by assuming that the purchasing power parity holds. Hence, this rate can be regarded as opportunity cost of investment because it is the second best alternative for the company for investment purposes.

24. For the following cash flows suppose the firm uses the NPV decision rule. At a required return of II percent, should the firm accept this project? What if the required return was 27 percent

(Future Value) Reggie Jackson, formerly of the New York Yankees, hit 41 home runs in 1980. If his home-run output grew at a rate of 12% per year, what would it have been over the following 5 years?

1.1 This project has been prepared to cover the requirements of the Internal Control and Accounting Systems unit, for the Level 4 Stage for the Association of Accounting Technicians.