Perrault Inc. wants to develop a new boot for the Puss in Boots line.  The boots will sell for $80 per pair and they plan to sell 20 million pairs of boots at the end of each year for 2 years. Variable costs (cost of goods sold) are 40% of same year sales. Fixed costs (selling, general and administrative) are $40,000,000 per year. The project requires an additional machine that costs $240,000,000 to be depreciated on a straight‑line basis to a zero book value over 2 years. The machine has no salvage value.  Net operating working capital (NOWC) is given in the table below. The tax rate is 30%. The interest expense on the project is $18 million. Depreciation and interest expenses are not included in the variable and fixed costs.  This project ends, so there is no horizon value . If the cost of capital is 8%, find the net present value. Should they invest in the project? Explain. Please attach a file showing your work.

QUESTION 2

1.     Three years ago, TriBand Bonds were issued at par with a 8 year maturity. The face value is $1000. The coupon rate is 5.2% and coupons are paid semiannually. If investors now demand a yield of 7% compound semiannually, find the current price of the bond. Answer should be to 2 decimal places and based on $1000 face.

QUESTION 3

1.     First National Bank charges 11.8% compounded monthly on all unsecured loans. Second National Bank charges 12% compounded quarterly. You need to borrow $6000 and plan to repay the loan over 3 years.

a) Determine your monthly payment to First National.

b) Determine your quarterly payment to Second National.

c) Which one has the best effective rate for your loan? Explain.


QUESTION 4

1.     Miss Marble plans to open her bookstore in 5 years. To raise the "seed" money, she puts $98,000 into a mutual fund today. She puts an additional $600 per month (end of each month) into the fund for the next 5 years. How much will she have in 5 years if the interest rate is 3% compound monthly?