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| Question 1 |
| Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $1,604,680. have a life of five years, and would produce the cash flows shown in the following table. |
| Year Cash Flow |
| 1 $521,567 |
| 2 -242,249 |
| 3 617,354 |
| 4 738,704 |
| 5 755,686 |
| What is the NPV if the discount rate is 14.41 percent? (Enter negative amounts using negative sign e.g. -45.25. Round answer to 2 decimal places, e.g. 15.25.) |
| NPV is $ |
| Question 4 |
| Chip’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 83 percent as high if the price is raised 9 percent. Chip’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 firm’s FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.) |
| At $20 per bottle the Chip’s FCF is $ and at the new price Chip’s FCF is $ . |
| Question 5 |
| Capital Co. has a capital structure, based on current market values, that consists of 38 percent debt, 13 percent preferred stock, and 49 percent common stock. If the returns required by investors are 10 percent, 13 percent, and 17 percent for the debt, preferred stock, and common stock, respectively, what is Capital’s after-tax WACC? Assume that the firm’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 = |
