
Problem 11.20
Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $12.00 million. This investment will consist of $2.00 million for land and $10.00 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.00 million, $2.00 million above book value. The farm is expected to produce revenue of $2.00 million each year, and annual cash flow from operations equals $1.80 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)



NPV 

$ 

Problem 11.24
Bell Mountain Vineyards is considering updating its current manual accounting system with a highend 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:
NPV_{0} = $.

Problem 12.24
Chipâ€™s Home Brew Whiskey management forecasts that if the firm sells each bottle of SnakeBite 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 $ (blank) and at the new price Chipâ€™s FCF is $ (blank)

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 aftertax 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] 
% 
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