33. Eastman's vice president for strategic planning, together with members from the business team and manufacturing, are exploring the possibility of building a greeneld plant through a joint venture in Brazil. Eastman would operate the plant and maintain a 51 percent controlling interest. The plant would support a mature business, and the technology to be used is an existing technology already employed by Eastman. No allocated capital or venture capital would be used. In anticipation of synergies among the joint owners of the business, it is estimated that 20 percent of the benets would result from cost savings, and 80 percent would result from new revenue. Based on the Eastman hurdle rate calculator and a base rate of 9 percent, what discount rate should be used for this project? 5. Three alternatives are being considered to attract new clients to a health club. A jogging track has an expected useful life of 8 years; a stationary bike 4 years, and a treadmill 6 years. What is the length of the planning horizon for each of the following approaches? a. Leastcommonmultiple planning horizon b. Shortest life planning horizon c. Longest life planning horizon 7. Alternatives 1, 2, and 3 have lives of 3, 4, and 6 years, respectively. Their net cash ow (NCF) and salvage value (SV) proles are as follows: NCFI NCF2 NCF3 _ $20,000 $40,000 $40,000 $70,000 $70,000 _ $8,000 $20,000 $30,000 $30,000 $50,000 ______ ______ _______ _______ _______ Additional explanation is necessary: the NCF prole of Alternative 1 that is shown above is the net result of a $20,000/year lease payment payable at the beginning of each year, plus an endofyear net revenue of $28,000. This lease arrangement may be renewed in 37year increments; however, premature cancellation of the lease results in a lease termination penalty (cost) of $10,000 at the time of cancellation. The NCFs of all other alternatives are expected to repeat indenitely as shown. a. If a leastcommonmultipleoflives approach is to be used, specify the planning horizon and the complete set of cash ows for each alternative. b. Repeat (a) using the shortest life approach. C. Repeat (a) using the longest life approach. d. Repeat (a) using a standard planning horizon of 2 years. e. Repeat (a) using a standard planning horizon of 5 years.10. Consider the two oneshot investment alternatives shown in the table below. Neither alternative is expected to be available again in the future, but it is expected that investment options returning MARR will always be available. mulln 7 $70,000 Determine the following. a. What is the length of the planning horizon? b. What measure of worth is preferred? 0. What measure of worth should be avoided? (1. Which alternative is preferred if MARR is 8 percent? 17. Thumbtack's capital structure is shown in table below. If taxes are paid annually and Thumbtack's combined tax rate is 36 percent, determine the weighted average cost of capital. Loans 12%lyrlsemi $3,000,000 Bonds 8%lyrlqtr $4,500,000 Common Stock $721share price; $2,000,000 $81shrlyr dividend; 1%)'yr share price growth Retained Earnings $1,500,000 23. Lahoma Enterprises, Inc., needs $15 million to nance a major product development. The project will be nanced from the following sources: Loans $2,600,000 14%lyr with semiannual compounding Bonds $4,100,000 12% bond interest rate, quarterly premiums Stock $5,000,000 $6.50 dividend on selling price of $65/share Retained Earnings $3,300,000 Lahoma Enterprises' effective tax rate is 34 percent with taxes paid annually. The stock price is stable. Management determines MARR based on the weighted average cost of capital plus 8 percent (i.e., if the weight average cost of capital is 12 percent, MARR is 20 percent). Determine the appropriate value of MARR for evaluating this project