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Question1 : Archer daniels midland company is considering buying a new farm that it plans to operate for 10years. the farm will require an initial of $12.00 million. this investment will consist $2.50 million for land and $9.50 million for trucks and other equipment. the land, all trucks equipment is expected to be sold at the end of 10 years at a price of $5.17 million,$2.16 million above book value. The farm is expected to produce revenue of $2.05 million each year, and annual cash flow from operations equals $1.85 million. the marginal tax rate is 35 percent, and the appropriate discount rate is 9 percent. calculate the NPV of this investment.

  

Question 2: 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 mountain’s opportunity cost of the capital is 17.6 percent, and the costs and values of investments made at different times in the future are as follows:

 

Year              cost                                             value of future saings (at time of purchase)

0                     $5,000                                           $7,000

1                      4,200                                             7,000

2                       3,400                                            7,000

3                        2,600                                           7,000

4                         1,800                                          7,000

5                          1,000                                         7,000

 

calculate the NPV of each choice.

  

Question3:  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 84 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 amoritization charges are $20,000, and then 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.

At $20 per bottle the chip’s FCF is ______________________________ and at the new price chip’s FCF is ________________

 

Question4:Capital co. has a capital structure, based on current market values, that consists of 38 percent debt, 4 percent preferred stock, and 58 percent common stock. if the returns required by investors are 12 percent, 13 percent, and 19 percent for the debt, preferred stock, and a 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