part A

part B

part C

The Sorensen Supplies Company recently purchased a new delivery truck. The initial cash outflow for the new truck is $21.500, and it is expected to generate after tax cash flows of $6,825 per year. The truck has a 5-year expected Ife. The expected year-end abandonment values (after-tax salvage values) for the truck are given below. The company's WACC is 7%. Year Annual After Tax Cash Flow Abandonment Value 0 ($21,500) 1 6,825 2 6,825 3 6,825 4 6,825 6,825 a. What is the truck's optimal economice? Round your answer to the nearest whole number year(s) $16,500 14,000 12,000 8,000 0 b. Would the introduction of abandonment values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project? Hampton Manufacturing estimates that its WACC is 12.3%. The company is considering the following seven Investment projects: Project Size IRR A $ 650,000 13.7% 1,300,000 13.2 C 1,300,000 12.9 D 1,250,000 12.7 E 700,000 12.6 F 700,000 12.0 850,000 a. Assume that each of these projects is independent and that each is just as risky as the firm's existing assets. Which set of projects should be accepted? Project A -Select- Project B 1-Stect- Project - Select Project Project -Select- Project Project G -Select What is the firm's optimal capital budget? Write out your answer completely. For example, 13 milion should be entered as 13,000,000. Round your answer to the nearest dolar. $ b. Now, assume that Projects C and D are mutually exclusive Project D has an NPV of $350,000, whereas Project C has an NPV of $400,000. Which set of projects should be accepted? -Select Project A Project B Project C v v b. Now, assume that Projects C and D are mutually exclusive. Project D has an NPV of $350,000, whereas Project C has an NPV of $400,000. Which set of projects should be accepted? Project A -Select- Project B -Select- Project -Select Project D -Select- Project E -Select v Project F -Select Project G -Select- What is the firm's optimal capital budget in this case? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar. $ c. Ignore previous part, and now assume that each of the projects is independent but that management decides to incorporate project risk differentials Management judges Projects B, C, D, and E to have average risk, Project A to have high risk, and Projects F and G to have low risk. The company adds 2% to the WACC of those projects that are significantly more risky than average, and it subtracts 2% from the WACC for those that are substantially less risky than average. Which set of projects should be accepted? Project A -Select- Project B -Select- Project C -Select- Project D -Select Project E -Select- Project F -Select- Project G -Select v V What is the firm's optimal capital budget in this case? Write out your answer completely. For example, 13 million should be entered as 13,000,000. Round your answer to the nearest dollar. $