Wiley 6 Assignment!! Week 6!

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 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 \$    (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 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] %

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