Please provider answers to the following attached.

9/18/2016 4-3 MyFinanceLab: Module Four Problems-o Student: Date: 9/18/16 Instructor: Course: Assignment: 43 MyFinanceLab: Module Four Problems 1. Your company has been doing well, reaching $1.16 million in earnings, and is considering launching a new product. Designing the new product has already cost $530,000. The company estimates that it will sell 797,000 units per year for $2.97 per unit and variable nonlabor costs will be $1.05 per unit. Production will end after year 3. New equipment costing $1.05 million will be required. The equipment will be depreciated to zero using the 7year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $302,000. The new product will require the working capital to increase to a level of $379,000 immediately, then to $409,000 in year 1, $352,000 in year 2, and finally return to $302,000. Your tax rate is 35%. The discount rate for this project is 9.5%. Do the capital budgeting analysis for this project and calculate its NPV. Complete the capital budgeting analysis for this project below: (Round to the nearest dollar.) Year 0 Year 1 Year 2 Year 3 Sales $ $ $ $ Cost of Goods Sold $ $ $ $ Gross Profit $ $ $ $ Depreciation $ $ $ $ EBIT $ $ $ $ Tax $ $ $ $ Incremental Earnings $ $ $ $ + Depreciation $ $ $ $ Incremental Working Capital $ $ $ $ Capital Investment $ $ $ $ Incremental Free Cash Flow $ $ $ $ The NPV of the project is $ https://xlitemprod.pearsoncmg.com/api/v1/print/en-usance . (Round to the nearest dollar.) 1/4 9/18/2016 4-3 MyFinanceLab: Module Four Problems-Asael Delgado 2. You work for Apple. After toiling away on $9.9 million worth of prototypes, you have finally produced your answer to Google Glasses: iGlasses (the name alone is genius). iGlasses will instantly transport the wearer into the world as Apple wants him to experience it: iTunes with the wink of an eye and apps that can be activated just by looking at them. You think that these will sell for four years until the next big thing comes along (or until users are unable to interact with actual human beings). Revenues are projected to be $448.5 million per year along with expenses of $350.1 million. You will need to spend $59.3 million immediately on additional equipment that will be depreciated using the 5year MACRS schedule. Additionally, you will use some fully depreciated existing equipment that has a market value of $10.8 million. As the iGlasses are an outcome of the R&D center, Apple plans to charge $5.1 million of the annual costs of the center to the iGlasses product for four years. Finally, Apple's working capital levels will increase from their current level of $123.4 million to $137.1 million immediately. They will remain at the elevated level until year 4, when they will return to $123.4 million. Apple's discount rate for this project is 15.3% and its tax rate is 35%. Calculate the free cash flows and determine the NPV of this project. (*) The opportunity cost must be aftertax. Calculate the free cash flows below: (Round to two decimal places.) ($ million) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Sales $ 0.00 $ $ $ $ $ Cost of Goods Sold $ 0.00 $ $ $ $ $ Gross Profit $ 0.00 $ $ $ $ $ Annual Charge $ 0.00 $ Depreciation $ $ $ $ $ $ EBIT $ $ $ $ $ $ Tax $ $ $ $ $ $ Incremental Earnings $ $ $ $ $ $ + Depreciation $ $ $ $ $ $ Incremental Working Capital $ $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ Capital Investment $ $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Opportunity Cost (*) $ $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 Incremental Free Cash Flow $ $ The NPV of the project is $ 0.00 $ 0.00 $ $ 0.00 $ $ $ 0.00 $ 0.00 $ million. (Round to two decimal places.) 3. Your firm needs to pay its French supplier 537,000. If the exchange rate is 0.64 / $, how many dollars will you need to make the exchange? The number of U.S. dollars you will need is $ https://xlitemprod.pearsoncmg.com/api/v1/print/en-usance . (Round to the nearest cent.) 2/4 9/18/2016 4-3 MyFinanceLab: Module Four Problems-Asael Delgado 4. Etemadi Amalgamated, a U.S. manufacturing firm, is considering a new project in Portugal. You are in Etemadi's corporate finance department and are responsible for deciding whether to undertake the project. The expected free cash flows, in euros, are shown here: Year Free Cash Flow ( million) 0 27.1 1 14.1 2 9.2 3 11.3 4 8.3 You know that the spot exchange rate is S = $1.1278 / . In addition, the riskfree interest rate on dollars is 5.9% and the riskfree interest rate on euros is 5.5%. Assume that these markets are internationally integrated and the uncertainty in the FCFs is not correlated with uncertainty in the exchange rate. You determine that the dollar WACC for these cash flows is 8.2%. What is the dollar present value of the project? Should Etemadi Amalgamated undertake the project? The dollar net present value of the project is $ Based on the NPV, Etemadi Amalgamated (1) (1) million. (Round to three decimal places.) undertake the project. (Select from the dropdown menu.) should should not https://xlitemprod.pearsoncmg.com/api/v1/print/en-usance 3/4 9/18/2016 4-3 MyFinanceLab: Module Four Problems-Asael Delgado 5. Etemadi Amalgamated, a U.S. manufacturing firm, is considering a new project in Portugal. You are in Etemadi's corporate finance department and are responsible for deciding whether to undertake the project. The expected free cash flows, in euros, are shown here: Year Free Cash Flow ( million) 0 15.3 1 9.5 2 10.3 3 10.7 4 12.2 You know that the spot exchange rate is $0.92 / . In addition, the riskfree interest rate on dollars is 3.7% and the riskfree interest rate on euros is 5.9%. Assume that these markets are internationally integrated and the uncertainty in the free cash flows is not correlated with uncertainty in the exchange rate. You determine that the dollar WACC for these cash flows is 8.9%. What is the dollar present value of the project? Should Etemadi Amalgamated undertake the project? (Enter all outflows of cash as negative numbers.) The forward rate for period 1 is $ / . (Round to five decimal places.) The forward rate for period 2 is $ / . (Round to five decimal places.) The forward rate for period 3 is $ / . (Round to five decimal places.) The forward rate for period 4 is $ / . (Round to five decimal places.) The cash flow in dollars for period 0 is $ million. (Round to three decimal places.) The cash flow in dollars for period 1 is $ million. (Round to three decimal places.) The cash flow in dollars for period 2 is $ million. (Round to three decimal places.) The cash flow in dollars for period 3 is $ million. (Round to three decimal places.) The cash flow in dollars for period 4 is $ million. (Round to three decimal places.) The net present value is $ million. (Round to three decimal places.) Based on the NPV, Etemadi Amalgamated (1) (1) undertake the project. (Select from the dropdown menu.) should not should https://xlitemprod.pearsoncmg.com/api/v1/print/en-usance 4/4 Year 0 Sales Cost Of Goods Sold Gross Profit Depreciation EBIT TAX Incremental Earnings Add Depreciation Incremental Working Capital Capital Investment Incremental Free Cash Flow PV Factor 9.5% Present Value The NPV of the project is Year 1 -77000 -1050000 -1127000 1 -1127000 1,948,425 Year 2 2367090 836850 1530240 150,045 1,380,195 483068 897,127 150,045 -30000 2367090 836850 1530240 257,145 1,273,095 445583 827,512 257,145 57000 1,017,172 0.9132 928924 1,141,657 0.8340 952154 Year 3 2367090 836850 1530240 183,645 1,346,595 471308 875,287 183,645 50000 459,165 1,568,097 0.7617 1194347