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Amalfi is considering investing in a new project. The project will generate revenues of $30 million in its first year of operation, and these revenues

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Amalfi is considering investing in a new project. The project will generate revenues of $30 million in its first year of operation, and these revenues will grow at the rate of 8% per year thereafter. The project also entails R&D expenditures of $14 million in the first year of operation and these expenditures are expected to grow at the rate of 11% per year. If the company decides to undertake the project now, it will become operational next year. The CFO recommends that the project be undertaken, but that it be pursued only as long as it yields a positive net cash flow. That is, it will be terminated when R&D expenditures are larger than revenues. The weighted average cost of capital is 11%. The firm must invest $ 150 million up front, and also disburse $40 million for clean-up costs during the last year of the project. If undertaken, the project will be pursued for years, will have a net present value of and the firm will a) 41 years; $5.486 million, invest ite b) 21 years; -$4.312 million, not invest on c) 28 years: $14.685 million; invest ins d) 48 years; -$14.354 million, not invest Med Com, a medical equipment producer is currently looking into acquiring Alto, which also produces medical equipment and is one of its closest competitors. Alto has a book value of debt of $100 million selling at 85% of par value, book equity of $90 million, 150 million shares selling at $5 per share, and $300 million in cash. MecCom will need to issue new debt and equity to finance the acquisition and Med Com estimates that the issuance costs of new debt and equity will be $10 million. Since MedCom will still maintain the same debt to equity ratio as before and since MedCom and Alto have the same beta, its weighted average cost of capital (WACC) will remain at 12% If the acquisition goes through this year, it will generate a free cash flow of $30 million next year, i.e., in its first year of operation. This cash flow is expected to grow at an annual rate of 15% for 5 years and then grow at a lower rate of 5% forever. What is the net present value of this acquisition project for Med Com? (Hint: Start by calculating the total acquisition cost in year of the project.) Draw the time-lines. a) $79.344 million Ob) $114.370 million c) $42.88 million d) $170.50 million Oe) $134.76 million A biotechnology firm is currently developing a new vaccine using mRNA technology. This product will take 3 years to develop and will cost $600 million per year during the development stage. During the fourth year, the new product is expected to generate revenues of $250 million with an expected growth rate of 15% per year until the end of the tenth year. After the first 10-year period, revenues are expected to grow at the rate of only 4% and continue at that rate forever. However, after 10 years of operation, the firm will incur new R&D expenditures of $45 million per year forever in order to adjust the vaccine against the emergence of virus variants. The cost of capital is estimated to be 10%. The net present value (NPV) of the project is: O a) $2,514.73 million Ob) -$435.23 million c) $2844 million d) $3569.98 million Oe) - $38.64 million Alexandra is 30 years old today, and she is planning to retire at age 65. Her current salary is $65,000 and she expects her salary to increase at a rate of 5% per year as long as she works. To save for her retirement, she plans on making annual contributions to a retirement account. Her first contribution will be made next year on her 31st birthday and it will be 10% of her salary. She will also deposit 10% of her salary each year until she reaches age 65. If the rate of interest on her retirement saving account is 8%, how much will Alexandra have in her retirement account when she reaches the age of 65? a) $252,625.85 b) $2,108,772.30 c) $1,968,600.20 Od) $925,067.00 Oe) $1,567,923.12 Alex and Steve bought their current house 10 years ago for $355,000 and made a down payment of $45,000. They obtained a 25-year mortgage for the remaining amount at 6% APR with quarterly compounding and constant monthly payments. They just sold their house for $550,000. They will now buy a new house. How much of a down payment can they afford to make on their new house? a) $244,012.30 b) $288,000.44 Oc) $314.187.30 d) $450,000.00 e) $374,562.62

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