I need help with questions 1,3&4. If anyone could please show to how to do them by hand and NOT in excel it would be greatly appreciated. Thank you so much.
INTERMEDIATE CORPORATE FINANCE Exam II - Sample Questions 1. (20 pts) A company's free cash flow (FCF) is expected to be $10 million next year, $20 million in the second year, and $30 million in the third year. The FCF is expected to increase at the rate of 4% thereafter. The WACC for the company is 10%. The company's balance sheet shows $20 million in short-term investments that are unrelated to operations. The balance sheet also shows $50 million in accounts payable, $90 million in notes payable, $30 million in long-term debt, $40 million in preferred stock, and $100 million in total common equity. If the company has 10 million shares of stock, what is your best estimate for the stock price per share? ($29.88) 2. (15 pts) There are two mutually exclusive projects with the following cash flows: Time 0 1 2 3 4 5 Project A -$100m $40m $70m $40m $10m $10m Project B -$100m $10m $20m $70m $40m $60m The opportunity cost of capital is 10%. Calculate the NPV (5 points), IRR (3 points), MIRR (5 points) and payback period (2 points) for both projects. Which project should be selected? (NPV IRR MIRR, Payback period Project A (37.3, 27.8, 17.2, 1.86 years Project B (42.8, 22.16, 18.12, 3 years 3. (25 pts) Superserv Inc. intends to acquire new equipment for $10 million and has an estimated life of 5 years and a salvage value of $800K. The new equipment is expected to allow additional annual sales of $5 million over the next 5 years. The associated additional annual operating costs are expected to be $3 million, while the interest on debt issued to finance the project is $1.5 million. In addition, working capital will increase by $1.2 million at the outset. The project's cost of capital is 10%. The firm's tax rate is 40%. The annual depreciation charge on the new machine is $2 million. What is the project's NPV? (S-2.5753m) 4. (20 pts) You are planning on acquiring a machine for a business that you have just started The machine costs $35,000 and you can get a 5 year term loan at 10%; the principal amount will be paid at the end of the five years. The machine will be depreciated at a rate of $6,000 every year. At the end of 5 years, the machine will have a value of $5,000. The manufacturer of the equipment is willing to lease the machine for $8,000 a year, with lease payments due at the end of the year. If the firm leases it will acquire the machine for $5,000 at the end of 5 years. This cost of $5000 already accounts for related future depreciation tax savings. The tax rate for your business is 35%. Should you buy or lease? (Cost of lease = $25,259, Cost of buying = $26,273
