Q1:

Pappys Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappys paid $130,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $585,000 per year. The fixed costs associated with this will be $189,000 per year, and variable costs will amount to 20 percent of sales. The equipment necessary for production of the Potato Pet will cost $640,000 and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt the sales will end quickly). This is the only initial cost for the production. Pappys is in a 34 percent tax bracket and has a required return of 15 percent.

Required:

Calculate the Time 0 cash flow for this project. (Do not round intermediate calculations. Enter a negative sign when necessary. Round your answer to the nearest whole number (e.g., 32).)

Time 0 cash flow: $

Calculate the annual OCF for this project. (Do not round intermediate calculations. Round your answer to the nearest whole number (e.g., 32).)

OCF:$ 238540

Calculate the payback period for this project. (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Payback period: years

Calculate the NPV for this project. (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

NPV: $

Calculate the IRR for this project. (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

IRR: %

Q2:

McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $737 per set and have a variable cost of $367 per set. The company has spent $157,000 for a marketing study that determined the company will sell 75,700 sets per year for seven years. The marketing study also determined that the company will lose sales of 9,200 sets per year of its high-priced clubs. The high-priced clubs sell at $1,270 and have variable costs of $610. The company will also increase sales of its cheap clubs by 11,700 sets per year. The cheap clubs sell for $347 and have variable costs of $132 per set. The fixed costs each year will be $11,270,000. The company has also spent $1,070,000 on research and development for the new clubs. The plant and equipment required will cost $24,990,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,570,000 that will be returned at the end of the project. The tax rate is 30 percent, and the cost of capital is 16 percent.

Required:

Calculate the Time 0 cash flow. (Enter your answer as a positive value. Do not round intermediate calculations. Round your answer to the nearest whole number (e.g., 32).)

Time 0 cash flow: $

Required:

Construct the pro forma income statement. (Do not round intermediate calculations. Round your answers to the nearest whole number (e.g., 32).)

Calculate the OCF. (Do not round intermediate calculations. Round your answers to the nearest whole number (e.g., 32).)

OCF: $

Calculate the payback period, the NPV, and the IRR. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)

Payback period: years

Net present value: $

Internal rate of return: %

Q3:

Aguilera Acoustics, Inc., (AAI) projects unit sales for a new seven-octave voice emulation implant as follows:

Production of the implants will require $1,800,000 in net working capital to start and additional net working capital investments each year equal to 20 percent of the projected sales increase for the following year. Total fixed costs are $1,360,000 per year, variable production costs are $226 per unit, and the units are priced at $346 each. The equipment needed to begin production has an installed cost of $23,500,000. Because the implants are intended for professional singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS (MACRS Table) property. In five years, this equipment can be sold for about 10 percent of its acquisition cost. AAI is in the 34 percent marginal tax bracket and has a required return on all its projects of 17 percent.

Required:

What are operating cash flows, change in net working capital, capital spending, and total cash flow for each year of the project? (Do not round intermediate calculations. Enter a minus sign to indicate a cash outflow. Enter a zero where required. Round your answer to the nearest whole number (e.g., 32)

What is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Net present value: $

What is the IRR? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

Internal rate of return: %

Q4:

You are considering a new product launch. The project will cost $1,192,500, have a five-year life, and have no salvage value; depreciation is straight-line to zero. Sales are projected at 230 units per year; price per unit will be $18,500, variable cost per unit will be $15,000, and fixed costs will be $321,000 per year. The required return on the project is 13 percent, and the relevant tax rate is 30 percent.

Requirement 1:

Based on your experience, you think the unit sales, variable cost, and fixed cost projections given here are probably accurate to within 10 percent.

(a)

What are the best and worst case NPVs with these projections? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Round your answers to 2 decimal places (e.g., 32.16).)

NPV_best: $

NPV_worst: $

(b)

What is the base-case NPV? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

NPV_base $

Requirement 2:

What is the sensitivity of the NPV to changes in fixed costs? (Input the amount as a positive value. Round your answer to 2 decimal places (e.g., 32.16).)

For every dollar FC increase, NPV falls by? $

Q5:

Youve observed the following returns on Doyscher Corporations stock over the past five years: 25.2 percent, 13.8 percent, 30.6 percent, 2.4 percent, and 21.4 percent.

Requirement 1:

What was the arithmetic average return on the stock over this five-year period? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Arithmetic average return: 8.60 % I know this one..

Requirement 2:

(a)

What was the variance of the returns over this period? (Do not round intermediate calculations. Round your answer to 6 decimal places (e.g., 32.161616).)

Variance:

(b)

What was the standard deviation of the returns over this period? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Standard deviation %

Q6:

You purchased a zero-coupon bond one year ago for $281.33. The market interest rate is now 7 percent.

Required:

If the bond had 19 years to maturity when you originally purchased it, what was your total return for the past year? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Total return for the past year %