1.)Your brother wants to borrow $9,500 from you. He has offered to pay you back $12,000

in a year. If the cost of capital of this investment opportunity is 8%,

what is itsNPV? Should you undertake the investmentopportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.

If the cost of capital of this investment opportunity is

8 %8%,

what is itsNPV?

The NPV of the investment is

$

(Round to the nearestcent.)

2.) You are considering investing in a start up company. The founder asked you for $300,000 today and you expect to get $990,000 in 11 years. Given the riskiness of the investmentopportunity, your cost of capital is 24%.

What is the NPV of the investmentopportunity? Should you undertake the investmentopportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.

What is the NPV of the investmentopportunity?

The NPV of the investment is

$

(Round to the nearestdollar.)

3.) You are considering an investment in a clothes distributer. The company needs $108,000 today and expects to repay you $126,000 in a year from now. What is the IRR of this investmentopportunity? Given the riskiness of the investmentopportunity, your cost of capital is 11%.

What does the IRR rule say about whether you shouldinvest?

What is the IRR of this investmentopportunity?

The IRR of this investment opportunity is

(Round to one decimalplace.)

4.) You are a real estate agent thinking of placing a sign advertising your services at a local bus stop. The sign will cost $10,000 and will be posted for one year. You expect that it will generate additional revenue of $1,800 a month. What is the paybackperiod?

The payback period is

(Round to two decimalplaces.)

5.) You are considering making a movie. The movie is expected to cost $10.9 million upfront and take a year to make. Afterthat, it is expected to make $4.5 million in the first year it is released(end of year2) and $1.9 million for the following four years(end of years 3 through6) . What is the payback period of thisinvestment? If you require a payback period of twoyears, will you make themovie? What is the NPV of the movie if the cost of capital is 10.6%?

According to the NPVrule, should you make thismovie?

What is the payback period of thisinvestment?

The payback period is

(Round up to nearestinteger.)

6.) You are deciding between two mutually exclusive investment opportunities. Both require the same initial investment of $10.5 million. Investment A will generate $2.06 million per year(starting at the end of the firstyear) in perpetuity. Investment B will generate $1.58 million at the end of the firstyear, and its revenues will grow at 2.8% per year for every year after that.

a. Which investment has the higherIRR?

b. Which investment has the higher NPV when the cost of capital is

7.7 %7.7%?

c. In thiscase, for what values of the cost of capital does picking the higher IRR give the correct answer as to which investment is the bestopportunity?

7.) Facebook is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $19 million upfront investment and will generate $20 million in savings for Facebook each year for the next 3 years. The second bid from Cisco requires a $91 million upfront investment and will generate $60 million in savings each year for the next 3 years.

a. What is the IRR for Facebook associated with eachbid?

b. If the cost of capital for each investment is 18%, what is the net present value (NPV) for Facebook of eachbid?

Suppose Cisco modifies its bid by offering a lease contract instead. Under the terms of thelease, Facebook will pay

$22 millionupfront, and $35 million per year for the next 3 years.Facebook's savings will be the same as withCisco's original bid.

c. Including itssavings, what areFacebook's net cash flow under the leasecontract? What is the IRR of the Cisco bidnow?

d. Is this new bid a better deal for Facebook thanCisco's originalbid? Explain.

8.) PisaPizza, a seller of frozenpizza, is considering introducing a healthier version of its pizza that will be low in cholesterol and contain no trans fats. The firm expects that sales of the new pizza will be $18 million per year. While many of these sales will be to newcustomers, Pisa Pizza estimates that 37% will come from customers who switch to thenew, healthier pizza instead of buying the original version.

a. Assume customers will spend the same amount on either version. What level of incremental sales is associated with introducing the newpizza?

b. Suppose that 47% of the customers who will switch from PisaPizza's original pizza to its healthier pizza will switch to another brand if Pisa Pizza does not introduce a healthier pizza. What level of incremental sales is associated with introducing the new pizza in thiscase?

9.) Cellular AccessInc., is a cellular telephone service provider that reported net operating profit after tax(NOPAT) of $256 million for the most recent fiscal year. The firm had depreciation expenses of $116 million, capital expenditures of $154 million, and no interest expenses. Working capital increased by $13 million. Calculate the free cash flow for Cellular Access for the most recent fiscal year.

The free cash flow is

$ (Round to the nearestinteger.)

10.)

A bicycle manufacturer currently produces 229,000 units a year and expects output levels to remain steady in the future. It buys chains from an outside supplier at a price of $1.90 a chain. The plant manager believes that it would be cheaper to make these chains rather than buy them. Directin-house production costs are estimated to be only $1.60 per chain. The necessary machinery would cost $208,000 and would be obsolete after ten years. This investment could be depreciated to zero for tax purposes using aten-year straight-line depreciation schedule. The plant manager estimates that the operation would require $46,000 of inventory and other working capital upfront(year 0), but argues that this sum can be ignored since it is recoverable at the end of the ten years. Expected proceeds from scrapping the machinery after ten years are $15,600. If the company pays tax at a rate of 35% and the opportunity cost of capital is 15%, what is the net present value of the decision to produce the chainsin-house instead of purchasing them from thesupplier? Project the annual free cash flows (FCF) of buying the chains.The annual free cash flows for years 1 to 10 of buying the chains is

$

(Round to the nearest dollar. Enter a free cash outflow as a negativenumber.)