1)You purchased 150 shares of stock in an oil company, Wildhorse Energy, Inc., at $45 per share. The company has 1.40 million shares outstanding. Ten days later, Wildhorse Energy announced an investment in an oil field in east Texas. The probability that the investment will be successful and generate an NPV of $10 million is 0.20; the probability that the investment will be a failure and generate an NPV of negative $1 million is 0.80. How would you expect the stock price to change upon the company's announcement of the investment? (Round answer to 2 decimal places, e.g. 2.75.)

Change in stock price

$

/share

2)A division of Manufacturing is considering purchasing for $ a machine that automates the process of inserting electronic components onto computer motherboards. The annual cost of operating the machine will be $, but it will save the company $ in labor costs each year. The machine will have a useful life of 10 years, and its salvage value in 10 years is estimated to be $. Straight-line depreciation will be used in calculating taxes for this project, and the marginal corporate tax rate is percent. If the appropriate discount rate is percent, what is the NPV of this project? (Do not round discount factor. Round intermediate calculations and final answer to the nearest whole dollar, e.g. 5,275.)

NPV of the project

$

3)After examining the NPV analysis for a potential project that would increase the firm's output by 5 percent, an analyst's manager tells the analyst to increase the initial fixed capital outlay in the analysis by $444,000. The initial fixed capital outlay would be fully depreciated on a straight-line basis over a 12-year life, regardless of whether it is increased. If the firm's average tax rate is 28 percent, its marginal tax rate is 35 percent, and the required rate of return is 10 percent, what is the effect of the adjustment on the project NPV? (Do not round discount factor. Round intermediate calculations and final answer to the nearest whole dollar, e.g. 5,275.)

Project NPV will be

by $

.

4)Managers of Lily Embroidery have decided to purchase a new monogram machine and are considering two alternative machines. The first machine costs $106,000 and is expected to last five years. The second machine costs $170,000 and is expected to last eight years. Assume that the opportunity cost of capital is 8 percent. What is the equivalent annual cost for each system? (Do not round intermediate calculations. Round final answers to 2 decimal places, e.g. 2.75.)

Equivalent Annual Cost

First machine

$

Second machine

$

Which machine should Lily Embroidery purchase?

Lily Embroidery should purchase the

machine.

5)You have inherited an apple orchard and want to sell it in the next four years. An expert in apple orchard valuation has estimated the after-tax cash flow you would receive if you sold at the end of each of the next four years as follows: $1,200,000 if you sell in one year; $1,600,000 if you sell in two years; $1,900,000 if you sell in three years; and $2,000,000 if you sell in four years. Your opportunity cost of capital is 8 percent. Calculate the NPV of each alternative. (Round intermediate calculations and final answers to the nearest whole dollar, e.g. 5,275.)

NPV₁

$

NPV₂

$

NPV₃

$

NPV₄

$

When should you sell the orchard?

You should sell the orchard after

.