Reference no: EM132288655
Question 1 A small bridge project is being set up by Bridge Tech Corp to connect six islands in the Florida Keys that are now only accessible by boat. Bridge Tech Corp will turn over their bridges to Monroe County in five years. In return, Monroe County is prepaying them $ 4,000,000. The construction cost of the project is $12,000,000. The project will be operational in one year. Once operational, Bridge Teck will receive $3,000,000 annually from Sunpass instead of charging tolls.Sunpass will keep the difference of the tolls charged. Bridge Tech has a 6% cost of capital. Calculate NPV .
Question 2 Calculate IRR using the information from question 1.
Question 3 Continue using the information from Question 1. Bridge Teckis thinking of keeping the $1.00 per vehicle tolls, instead of exchanging the tolls for an annual lumpsum from Sunpass.What would be Break Even in A) units and B) dollars, if the variable cost per car is $.25 (25 cents) per toll?
Question 4 FLIP FLOP HOUSE is a limited period franchise that sells sandals for a 1 year period, also known as a POP UP STORE. The set-up cost(build out) of each store is $50,000.00 and requires and initial inventory investment of $125,000. Goodwill industries will give them $25,000 for their year-end inventory. The monthly rent is $5000.00, but the year must be paid upfront to get the location and price. The sandals sell for $5.00 a pair. The sandals have cost of $1.25 per pair. The overhead costincluding salaries and utilities is calculated at $.50 (50 cents) per pair. Calculated annual Break Even in A) units and B) dollars? C)How many sandals must be sold in the first year to make $600,000 profit? How much will the new store make if they sell 750,000 pairs of sandals?
Question 5 FLIP FLOP HOUSE has a cost of capital of 8%. A) What is the NPV of this project using the information in question 4, if the store sells 750,000 pairs? B) What is the IRR if the store sells the 750,000 pairs?
Question 6 A factory is being set up in Haiti to supply all the sandals sold by FLIP FLOP HOUSE. The sandals sell for $1.25 (wholesale). The pair of sandals have a material cost of $.30 ( 30 cents per pair), plus a $.20 (20 cents per pair) of over-head cost including salaries. The factory will cost $750,000 to purchase plus $600,000 in machinery, equipment, and training set up. What is the Break Even point of the factory in A) dollars and B) units?
Question 7 If all 16 FLIP FLOP HOUSE stores buy 500,000 pairs each from the factory calculate the following. The factory also has a cost of capital of 8%. A) How much profit will the factory generate selling 500,000 pairs to each of the 16 stores? What would the B) IRR and C) NPV of the factory be at the sales level of 500,000 pairs per store?
Question 8 JUMBO CORP has a tax rate of just 25 %. The company is financed an equity position of $45 million with a cost of 6%. It also has a line of credit with Bank of Toronto at 5% for up to $60,000,000 and a preferred equity position of $10 million owned by the Rothchild Family. The preferred shares are worth $30 each and pay an annual dividend of $2.50 each. JUMBO CORP will set up an $80,000,000 sandal factory and purchase supplies and equipment for an additional $15 million. A) Create a Balance Sheet for the new factory set up. B) Calculate WACC.
Question 9 Balance Sheet, Pepito Inc as of December 31, 2018
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cash
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1,500,000
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Loan Bank of America
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1,200,000
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Account receivable
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500,000
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Loan BB&T
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800,000
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Land and real estate
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1,000,000
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Pref Equity
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500,000
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equipment
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500,000
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Common Equity
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1,000,000
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Total asset
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3,500,000
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Total Debt and equity
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3,500,000
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Income Statement, Pepito Inc for the year ending December 31, 2018
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Sales
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$6,000,000
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Cost of goods sold
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$2,500,000
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expenses
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$1,000,000
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Earnings before interest and taxes
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$2,500,000
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Interest
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$ 175,000
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Earnings before taxes
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$2,325,000
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taxes
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$ 581,250
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Income before preferred dividends
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$1,743,000
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Preferred dividends paid
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$ 40,000
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Earnings available to common shareholders.
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$1,703,000
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Calculate WACC with a common equity cost of 4.5%
Question 10 Calculate Break Even. Juanito Homes is buying a piece of land to build 12 houses. The land cost per home is $80,000, the building cost per home is $175,000, the overhead cost of the entire project is $60,000. The houses will be built and sold in one year. A) What is the Break Even cost per home? B) How many homes must be sold for the project to be at Break Even if he homes sell for $350,000 each.
Extra credit question
How much profit will Juanito Homes make, if all the homes sell for $375,000 each?
What is the A) IRR and B) NPV of the project in question 10 if all the homes sell for $350,000 each and Juanito Homes' WACC is 6%?