Question 4 (question 2 amd 3 and both completed and included for reference)

H 1 Question 4 (5 Marks) 2 Refer to Questions 2 and 3. The land for the factory will cost $1,080,000 3 The factory will cost $1,070,000 to build and construction will take two 4 years with construction costs payable in equal installments at the start of each 5 year. The factory will operate for 20 years. At the end of its 20 year lifespan, the land can be resold for $700,000 8 There is a 70% probability that the factory's net operating cash flows will be 9 $254,556 ; however, there is a 30% chance that net cash flows will only be 10 $85,469 . You may assume that net operating cash flows are received at the 11 end of each year. 6 2 12 14 Enter Answer 13 a) What are the Expected net operating cash flows per year? (1 Mark(Round your answer to 2 decimal places) 15 b) What is the Internal Rate of Return for the project? 16 (1 Mark)(Round your answer to one one-hundreth of a percent) 17 c) What is the Net Present Value of the project? 18 (1 mark)(Round your answer to 2 decimal places) Enter Answer Enter Answer 19 20 d) Should Anna recommend that the J Corporation build the factory? (2 Marks) 21 22 23 Yes No = Title Page Enter your Final Ans Question 1 Question 2 Question 3 Question 4 Question 5 + Calculation Mode: Automatic Workbook Statice H 1 Question 2 (3 Marks) 2 Anna is a Vice President at the J Corporation. The company is considering 3 investing in a new factory and Anna must decide whether it is a feasible 4 project. In order to assess the viability of the project, Anna must first calculate s the rate of return that equity holders expect from the company stock. The 6 annual returns for J Corp. and for a market index are given below. Currently, 7 the risk-free rate of return is 1.4% and the market risk-premium is 3.0%. 8 0.80 3.77% Enter your Final Ans 9. a) What is the beta of J Corp.'s stock? 10 (1 Mark (Round your answer to two decimal places) b) Using the CAPM model, what is the expected rate of return on J Corp. 11 stock for the coming year? 12 (2 Marks/Round your answer to one one-hundreth of a percent) J Corp Market Retum Return 13 Year (%) (%) 14 1 -5.94 -7.80 15 2 8.32 10.02 16 3 10.12 12.27 17 4 5.32 6.27 18 5 -11.94 -15.30 19 6 12.86 15.70 20 7 7.66 9.20 21 8 10.75 13.06 22 9 8.94 10.80 23 10 9.12 11.02 24 11 -3.68 -4.98 25 12 -5.54 -7.30 26 Complete your rough work in the space below 27 ANNIS & 4 6 F Cost of Capital (WACC). There are currently 56.0 Million 5 J Corp. common shares outstanding. Each share is currently priced at $17.88 . As well, the firm has 2,000 bonds outstanding and each 7 bond has a face value of $10,000, a yield to maturity of 3.02% and a 8 quoted price of $10,302.70 . J Corp.'s tax rate is 30%. J Corp. has no preferred shares outstanding. 11 What is J Corp.'s WACC? 7.99% 12 (Round your answer to one one-hundredth of a percent) 1 Enter your Final Answer Here 14 Complete your rough work in the space below 9 10 13 15 16