Show all of your calculations with appropriate explanation. You won't earn any point without showing all of your calculation work.

MBA618.51FA2016 Final Exam Part II (Available points=50pts) *You are not allowed to do this exam with other people. *You are not allowed to discuss any problems in this exam with other people. *Show all of your work for any possible partial credit. *All necessary calculations should be done on this excel file to show how to get y can figure out the whole process as to how your answers were obtained. Therefore, s numbers as a result does not earn any point. * Be sure to answer exactly what is asked in the problems. * Due by 11:59 p.m. ET, October 21 (Friday) pts I II III IV V 1 2 3 1 2 3 4 1 2 Save your work file in the following format of the file name: Final_Exam_Last Name_ Then, submit it through the link of \"Submit_Final_Part II\" located under the tab of \"F submission through the email will not be accepted. Note that including any special symbol in the file name may cause a trouble in uploadi your file. So, don't use any special symbols, such as $, #, *, &, etc. Absolutely....\"One File Policy!!!\" 4 4 4 9 3 3 3 3 4 4 9 50 You have to pack all your answers into this excel with other people. file to show how to get your outputs. ere obtained. Therefore, simply showing e: Final_Exam_Last Name_First Name.xls located under the tab of \"Final Exam.\" ay cause a trouble in uploading or downloading , &, etc. your answers into this excel file. If you need a 1. The management of Jasper Equipment Company is planning to purchase a new milling machine that will cost $160 old milling machine has been fully depreciated but can be sold for $15,000. The new machine will be depreciated on over its 10-year economic life to an estimated salvage value of $10,000. If this milling machine will save Jasper $20, production expenses, what are the annual net cash flows associated with the purchase of this machine? Assume a mar percent. Show all of your calculations with appropriate explanation. You won't earn any point without showing allof your ca ANS: 2. Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used and the allowed depreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues an costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cash flow? Show all of your calculations with appropriate explanation. You won't earn any point without showing allof your calculation Equipment cost (depreciable basis) Incremental Sales revenues, each year Incremental Operating costs (excl. depreciation) Tax rate $65,000 $60,000 $25,000 35.0% 3. A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset origin was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for $40,000. cost $80,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is ordinary income and capital gains, the initial investment (i.e., Cash flow at time 0) is ________. (As discussed in cla time 0 in the case of a replacement project should consider cash flow from sales of old machine and tax impact on ca page 9, M06L01 Lecture Notes). Show all of your calculations with appropriate explanation. You won't earn any point without showing allof your calculation cost $80,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is ordinary income and capital gains, the initial investment (i.e., Cash flow at time 0) is ________. (As discussed in cla time 0 in the case of a replacement project should consider cash flow from sales of old machine and tax impact on ca page 9, M06L01 Lecture Notes). Show all of your calculations with appropriate explanation. You won't earn any point without showing allof your calculation MACRS Rates (Review M01L02 Lecture Notes ng machine that will cost $160,000 installed. The achine will be depreciated on a straight-line basis machine will save Jasper $20,000 a year in f this machine? Assume a marginal tax rate of 40 nt without showing allof your calculation work. equipment that would be used has a 3-year tax life, Years 1 through 4. Revenues and other operating Year 1 cash flow? ut showing allof your calculation work. s ago, the existing asset originally cost $70,000 and asset can be sold for $40,000. The new asset will riod. If the assumed tax rate is 40 percent on _______. (As discussed in class, the cash flow at machine and tax impact on capital gain or loss. See ut showing allof your calculation work. riod. If the assumed tax rate is 40 percent on _______. (As discussed in class, the cash flow at machine and tax impact on capital gain or loss. See ut showing allof your calculation work. MACRS Rates (Review M01L02 Lecture Notes for MACRS) Zair Electronics can make either of two investments at time 0. Assuming a required rate of return of 14%, determine for eac the net present value, (c) the profitability index, and (d) the internal rate of return. Assume under MACRS the asset falls in the corporate marginal tax rate is 34%. The initial investments required and yearly savings excluding depreciation and taxes Assume that there is no difference in the level of net working capital for both of projects and no salvage value at the end of cash flows that fill the blanks in the template provided below. Make sure to show all of your work! Change EBIT (Excluding Depreciation) Project A Project B Depreciation Rates MACRS 1 $8,000 $5,000 2 $8,000 $5,000 3 $8,000 $6,000 20% 32% 19% 1 2 3 Change in Depreciation Project A Project B Cash Flows Project A Project B NPV of Project A NPV of Project B 0 -$28,000 -$20,000 14%, determine for each project (a) the payback period, (b) ACRS the asset falls in the five-year property class and that g depreciation and taxes (i.e., EBITDA) are shown below: vage value at the end of useful life. You have to calculate net 4 $8,000 $6,000 5 $8,000 $7,000 6 $8,000 $7,000 12% 12% 5% 4 5 6 7 $8,000 $7,000 7 Assume that you have been hired as a consultant by ABC Co., a major producer of chemicals and plastics, includ grocery bags, styrofoam cups, and fertilizers, to estimate the firm's weighted average cost of capital. The balance some other information are provided below. Assets Current assets Net plant, property, and equipment Total assets 38,000,000 101,000,000 139,000,000 Liabilities and Equity Accounts payable Accruals Current liabilities Long-term debt (40,000 bonds, $1,000 par value) Total liabilities Common stock (10,000,000 shares) Retained earnings Total shareholders' equity Total liabilities and shareholders' equity 10,000,000 9,000,000 19,000,000 40,000,000 59,000,000 30,000,000 50,000,000 80,000,000 139,000,000 The stock is currently selling for $15.25 per share, and its noncallable $1,000 par value, 20-year, 7.25% bonds w semiannual payments are selling for $875.00. The beta is 1.25, the yield on a 6-month Treasury bill is 3.50%, an yield on a 20-year Treasury bond is 5.50%. The required return on the stock market (i.e., Rm)is 11.50%. The firm rate is 40%. 1) What is the best estimate of the after-tax cost of debt (%)? i.e, (1-t)*kd? 2) Based on the CAPM, what is the firm's cost of equity (%) ? i.e., ke? 3) Calculate the weights of market value of debt and market value of equity for use in calculating the WACC based in mark values? i.e., Wd (%) and We (%) 4) Calculate ABC's WACC (%) based on your answers to 1), 2), and 3) Show all of your calculations with appropriate explanation. You won't earn any point without showing allof your calcul work. f chemicals and plastics, including plastic age cost of capital. The balance sheet and value, 20-year, 7.25% bonds with onth Treasury bill is 3.50%, and the et (i.e., Rm)is 11.50%. The firm's tax culating the WACC based in market without showing allof your calculation 1. Baker Company is considering an investment in a new metal lathe. If the new lathe is purchased, revenues will i operating costs will decline by $10,000 per year. The depreciation expense of the lathe will be $60,000 and deprec line basis over 10 years to a zero estimated salvage value. Baker's marginal tax rate is 40%. Determine the annual n by the lathe. chased, revenues will increase by $5,000 per year and cash be $60,000 and depreciated on a straightDetermine the annual net cash flows generated Pro-Tecc Coating Co. (Reipsic, OH) considers acquiruing new equipment to be installed in a recently added galv galvanized steel. Mr. Rahulbhai, VP of Finance of the Pro-Tecc is not pretty sure if the new equipment would be department to investigate into this decision problem. Mr. Pavan collects the following information: *Cost of the equipment is $2,000,000. *The equipment has an expected six-year life. *The fixed capital will be depreciated as follows: Year 1: 30 %, Year 2: 35%, Year 3: 20%, Year 4: 10%, Year 5: 5%, Year 6:0 % *Incremental sales attributable to the new equipment are $1,200,000 in Year 1. They grow at a 25 percent annual annual rate for the last three years (i.e., years 4,5, and 6). *Incremental fixed cash operating expenses are $150,000 for Years 1-3 and $130,000 for Years 4-6. *Incremental variable cash operting expenses are 45% of sales in Year 1, 40% of sales in Year 2, and 35% in Year *Pro-Tecc's marginal tax rate is 30 %. *Pro-Tecc will sell the equipment for $150,000 when the project terminates. *WACC= 12% (discount rate) Required: you will have to answer the following questions for Mr. Pavan. *Calculate the cash flows for each year (Year 0-Year 6). Make sure to fill all cells in yellow and show all your ca *Calculate NPV of the equipment. year Step A: Estimating Initial Cash Outflow Cost of "new" equipment Initial Cash Outflow Step B: Calculating Interim Incremental Net Cash Flows (years 1 to 6) Sales Fixed cash operating expenses Variable cash operating expenses Depreciation expenses Interim Incremental Net Cash Flows Step C: Calculating Terminal-year Incremental Net Cash Flow Incremental cash flow from the terminal year before project windup considerations Final salvage value of the equipment Tax due to sale or disposal of the equipment (tax effect of capital gain or loss) Terminal-year Incremental Net Cash Flow 0 0 Incremental Net cash flows Net Present Value (NPV) n a recently added galvanizing line to meet rapidly increasing demand for the high quality w equipment would be profitable. So, Mr. Rahulbhai asks Mr. Pavan, a senior director of finance ormation: at a 25 percent annual rate for the next two years (i.e., years 2& 3) , and then grow at a 10 percent Years 4-6. Year 2, and 35% in Years 3-6. w and show all your calulations within the cells using the excel formula function. 1 1,200,000 (150,000) 2 3 4 5 6 1 End of Year 2 3 4 5 6