1. Farfetched, Inc. thinks it can save $12,000 per year, after tax, over a four-year period if it starts using direct email instead of direct snail mail. A consultant that they've been working with will set up the spam email process for them for a fee of $40,000. There will be no changes in any of the capital asset or current accounts. Farfetched requires a return of 9%. Should they make the investment? 2. An analyst at Squirtle Corp. is working on a capital project proposal. The project is expected to require purchasing long-term assets with an installed cost of $600,000. It will also require an increase in Net Working Capital of $75,000. At the end of the 5th year, the project will be terminated, at an after-tax cost of $15,000. The project is expected to generate annual after-tax operating cash flows of $150,000 each year for 5 years. Squirtle requires a return on capital projects of 10%. Should they make the investment? 3. Hyper Mega Awesome Value Inc. is evaluating a project proposal. The project is expected to require purchasing long-term assets with an installed cost of $400,000. It will also require an increase in Net Working Capital of $25,000. At the end of the 4 year, the project will be terminated. Selling the assets will result in an after-tax gain of $15,000. The project is expected to generate annual after-tax operating cash flows of $160,000 each year for 4 years. Hyper Mega Awesome Value Inc requires a return on capital projects of 11% Should they make the investment? Conogal bolig ott lovagor bolortonoos nogobrowd hou rupe to selona na s 4. Refer to problem 4 in "3.5 Identifying Cash Flows - Solutions." Assume the operating cash flows remain constant for 10 years. The project requires an initial investment of $1,500,000, and there is no terminal cash flow. Given a WACC of 11%, what is the NPV? Should the company implement the project? Why or why not? 3.6 Pro Val 5. Refer to problem 5 in "3.5 Identifying Cash Flows - Solutions." Assume the operating cash flows remain unchanged for 5 years. Also assume that there is no terminal cash flow. If 5% is the company's WACC, what is the project's NPV? Should the company implement the project? Why or why not? 6. Refer to problem 6 in "3.5 Identifying Cash Flows - Solutions." You assume this will be an all cash operation, meaning there will be no change in the current accounts. In addition, there is no known terminal cash flow. The current owners of the business are seeking $120,000 as the purchase price. a) Using the five-year cash flow projection from the 3.5 solutions, and a discount rate of 15%, what is the Net Present Value of the business? b) Should you buy it? If you buy it for the asking price, how much will you earn (or lose)
