# Fin 571 Week 6 Assignment

Problem 10.14

Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost \$1,968,450. have a life of five years, and would produce the cash flows shown in the following table.

 Year Cash Flow 1 \$512,496 2 -242,637 3 814,558 4 887,225 5 712,642

What is the NPV if the discount rate is 15.9 percent?
(Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.)

 NPV is \$ .

accepted or rejected?

Problem 11.24

Bell Mountain Vineyards is considering updating its current manual accounting system with a high-end electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountainâ€™s opportunity cost of capital is 10 percent, and the costs and values of investments made at different times in the future are as follows:

 Year Cost Value of Future Savings (at time of purchase) 0 \$5,000 \$7,000 1 4,500 7,000 2 4,000 7,000 3 3,600 7,000 4 3,300 7,000 5 3,100 7,000

Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.)

The NPV of each choice is:

NPV0 = \$.

Problem 12.24

Chipâ€™s Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for \$20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 90 percent as high if the price is raised 10 percent. Chipâ€™s variable cost per bottle is \$10, and the total fixed cash cost for the year is \$100,000. Depreciation and amortization charges are \$20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of \$3,000 for the year. What will be the effect of the price increase on the firmâ€™s FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.)

 At \$20 per bottle the Chipâ€™s FCF is \$[removed] and at the new price Chipâ€™s FCF is \$[removed].

Problem 13.11

Capital Co. has a capital structure, based on current market values, that consists of 50 percent debt, 10 percent preferred stock, and 40 percent common stock. If the returns required by investors are 8 percent, 10 percent, and 15 percent for the debt, preferred stock, and common stock, respectively, what is Capitalâ€™s after-tax WACC? Assume that the firmâ€™s marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

 After tax WACC = [removed] %