1. What is the Internal Rate of Return on the project? 2. What is the Net Present Value of the project if the required rate of return (Weighted Average Cost of Capital) is equal to 3.8 percent? 3. By how much would the Net Present Value of the project change if unit sales were 30 per cent less than expected (round down toward zero the number of units; the WACC is still 3.8%)?

Exercise 4 Discuss the two key activities of the financial manager as related to the firm's balance sheet and explain the major differences between accounting and finance with respect to emphasis on cash flows and decision making.

1. An independent contractor for a transportation company needs to determine whether she should upgrade the vehicle she currently owns or trade her vehicle in to lease a new vehicle. If she keeps her vehicle, she will need to invest in immediate upgrades that cost $5,000 and it will cost $1,500 per year to operate at the end of year that follows. She will keep the vehicle for 4 years; at the end of this period, the upgraded vehicle will have a salvage value of $4,000. Alternatively, she could trade in her vehicle to lease a new vehicle. She estimates that her current vehicle has a trade-in value of $10,000 and that there will be $4,500 due at lease signing. She further estimates that it will cost $3,000 per year to lease and operate the vehicle. The independent contractor's MARR is 12%. Compute the EUAC of both the upgrade and lease alternatives using the insider perspective.

2. A commercial 3D printer is purchased for $340,000. The salvage value of the printer decreases by 50% each year that it is held. The cost to operate and maintain the machine the first year it is used is $13,000; these costs increase by $6,000 each year. What is the optimal replacement interval and minimum EUAC for the printer, assuming a MARR of 15% is used?

The ratios that you should do an analysis (trend analysis as well as cross-sectional) of are listed below. You are welcome to analyze more ratios, but these should be included in the report. A. LIQUIDITY ------- Current ratio, Quick ratio, B. TURNOVER -------- Total Asset Turnover, Fixed Asset Turnover, Inventory Turnover C. PROFITABILITY -------- Net Profit margin, Basic Earning Power ratio, Return on total assets, Return on Common equity D. DEBT--------- Debt-to-Assets ratio, Debt-to-equity ratio, Times Interest earned ratio E. MARKET VALUE ----- P/E ratio, Price/Cash Flow ratio, MB ratio 1. If you are using a stable growth model, the g cannot be greater than the WACC. If you find that the growth rate (g) of the FCFS is higher than the WACC, you will have to reexamine your numbers (the excerpts below from Damodaran's text can be helpful). You also have the option of going with a variable growth rate scenario rather than assuming a constant growth rate throughout. 2. Make sure to provide appropriate assumptions and rationale in your report to back your forecasting/valuation exercise. 3. Please include the sources from where you obtain data for the risk-free rate, the market risk premium and the beta if you use the CAPM to arrive at the cost of equity.

Question 1 Consider the two mutually exclusive projects described in the table below. (Note: Each part of the question requires a written answer.) a) Assuming 9% minimum attractive rate of return (MARR), should either of the two projects be accepted? Why? b) Assuming 16% MARR, should either of the two projects be accepted? Why? c) For any positive value of the MARR, divide the possible MARR values into ranges with different decisions; describe and discuss what decision would be made in each range and why. You will need to calculate the crossover rate to determine the precise MARR where the decision changes. Include an NPV profile table and chart to illustrate your answer.

Question 3 A new machine will cost $200,000. Its maximum useful life is 8 years. The expected market value (MV) of the machine at the end of year 1 is $100,000, and it is expected to decline by $15,000 each year afterwards. The annual operating cost (AOC) is projected to be $75,000 during the first year of operation, and it is expected to rise by 15% every year afterwards. Assuming 11% minimum attractive rate of return, calculate the economic service life of the machine. Your calculations need to include a table with the following columns: Year, MV, AOC, Capital Recovery, Annual Worth (AW) of AOC, and Total AW. Illustrate your analysis with a properly labeled chart, featuring the number of years of service on the horizontal axis, and capital recovery, annual worth of the AOC, and total annual worth on the vertical axis (click to format the vertical axis and check the box "Values in reverse order" so that the axis displays rising cost as movement up). Please provide a written statement clearly stating the length of the economic service life of the machine.

1 List name of payer. If any interest is from a seller-financed mortgage and the buyer used the property as a personal residence, see the instructions and list this interest first. Also, show that buyer's social security number and address ► 2 Add the amounts on line 1. 3 Excludable interest on series EE and I U.S. savings bonds issued after 1989. Attach Form 8815. 4 Subtract line 3 from line 2. Enter the result here and on Form 1040 or 1040-SR, line 2b.

Question 4 RC Sport assembles and sells low-end hockey goals, designed for youth and recreational hockey. At the moment, the company is buying all of the components required to assemble each hockey goal from an external supplier: the goal frame for $50, padding for $15, and netting for $10. The company employs part-time labor, paid $5 to assemble one goal. The annual fixed cost, consisting of insurance, property taxes, and rent is $20,000. The selling price of one goal is $125. Ignore taxes, and other possibly relevant information not given. (Note: Please include a written answer with part d.) Page 2 of 3 a) Calculate the contribution margin per unit. b) Calculate the annual number of soccer goals that RC Sport needs to sell to break even. c) Construct a table with Number of Units sold, Fixed Cost, Variable Cost, Total Cost, Total Revenue, and Profit in the columns. Fill the units sold column with the following values: 0, 100, 200, 300, 400, 500, 600, 700, 800, 900, and 1000. Fill in the remaining columns with formulas and cell references, as necessary. Insert two Excel Charts, one showing Number of Units (x) and Profit (y), the other showing Number of Units (x), Total Revenue (y1), and Total Cost (y2). Use labels in your charts and make them look good for full credit! d) RC Sport is considering producing the goal frame in its existing facility, instead of buying it from an external supplier. In order to make the goal frames, it would need to buy a new machine. The machine would be expected to last 7 years, and sold for $8,000 at the end of year 7. Its annual maintenance and operating cost would be $50,000. RC would also need to buy $30 worth of material to produce each goal frame. The padding and netting would continue to be purchased from the same external supplier for the same price, and it would still cost $5 in labor cost to assemble one goal. Assuming RC Sport is able to produce and sell 10,000 hockey goals annually, what is the maximum purchase price of the machine that would make it economical for RC Sport to make the hockey goal frames internally? Use the annual worth method, assuming 15% MARR, and the Excel Goal Seek function to find the answer. Please make sure you save your Excel file after running Goal Seek, so that I can verify your file to make sure that you did use the Goal Seek function to arrive at your answer. (Do not use the "trial and error", or another method.) Provide a written statement indicating the maximum economical price of the machine. Note: You will need to make up a purchase price of the machine to start with, which you can then override with the Goal Seek function.

Question 5 Angola Superheros, Inc. is considering launching a production of a new superhero toy. The production and sales are expected to last 4 years. The project would require a new machine, with a cost of $1,000,000. The machine is expected to be sold for $300,000 at the end of the project. The company estimates that 40,000 toys would be sold annually, with a $15 contribution margin per unit (the difference between the selling price and the variable cost per unit). In addition, the company will have to pay fixed costs equal to $35,000 each year. The minimum attractive rate of return is 13%. (Note: You will need to provide a written answer for part a, and written comments discussing the results of your analysis in part b.) (Note: Do not include the selling price or the variable cost per unit in your analysis. Also, you will need to work with the total contribution to profits for all units, and fixed costs, instead of Revenues and Costs.) a) Compute the project's cash flows for years 0-4, calculate the present worth, annual worth, and the rate of return of the project, and determine whether the project should be accepted, based on the information given (disregarding any sensitivity analysis). Explain your answer. b) Conduct the following sensitivity analysis, using the project's ANNUAL WORTH. Create a table where you vary the following variables, one at a time: the contribution margin per unit, the annual number of units sold, the annual fixed cost, and the machine's salvage value at the end of the project. Create a table, starting with a Percent Change in its first column, with the following values: -50%, -40%, -30%, -20%, -10%, 0, 10%, 20%, 30%, 40%, and 50%. Follow with each variable and an Annual Worth column, corresponding to each of the variables you vary. You can use the Excel example file posted under Week 7 as your guide (your tables and set up will be slightly different, but similar). Vary each of the variables ranging from -50% to 50%, one at a time, while keeping all of the other variables at their baseline values, recomputing the project's annual worth each time. Insert a chart with the percent change on the horizontal axis, and the contribution margin, number of units, fixed cost, and salvage value on the vertical axis. Comment on the sensitivity of the project's annual worth to changes in each of the four variables, and the implications for accepting or rejecting the project.