Reference no: EM133722871

Question 1. What is the net present value of the flier project, which is a 3-year project where Dispersion would spread fliers all over Fairfax? The project would involve an initial investment in equipment of $570,000 today. To finance the project, Dispersion would borrow $570,000. The firm would receive $570,000 from the bank today and would pay the bank $640,000 in 3 years (consisting of an interest payment of $70,000 and a principal payment of $570,000). Cash flows from capital spending would be $0 in year 1, $0 in year 2, and $184,000 in year 3. Operating cash flows are expected to be $215,000 in year 1, -$60,000 in year 2, and ­$321,000 in year 3. The cash flow effects from the change in net working capital are expected to be -$40,000 at time 0; $30,000 in year 1; -$10,000 in year 2, and $20,000 in year 3. The tax rate is 15 percent. The cost of capital is 5.08 percent and the interest rate on the loan would be 3.94 percent.

Question 2. What is the NPV of the mall project? The project would require an initial investment in equipment of $600,000 and would last for either 3 years or 4 years (the date when the project ends will not be known until it happens and that will be when the equipment stops working in either 3 years from today or 4 years from today). The first annual operating cash flow of $238,000 is expected in 1 year, and annual operating cash flows of $238,000 per year are expected each year until the project ends in either 3 years or 4 years. In 1 year, the project is expected to have an after-tax terminal value of $377,000. The cost of capital for this project is 6.82 percent.

Question 3. Tripp Industries is considering buying a new recycling system. The new recycling system would be purchased today for $70,000. It would be depreciated straight-line to $10,000 over 2 years. In 2 years, the recycling system would be sold and the after-tax cash flow from capital spending in year 2 would be $30,000. The system is expected to reduce costs by $74,000 in year 1 and by $18,000 in year 2. If the tax rate is 50% and the cost of capital is 12.7%, what is the net present value of the new recycling system project?

Question 4. A stock had returns of 31.40% (1 year ago), 12.60% (2 years ago), X (3 years ago), and -8.70% (4 years ago) in each of the past 4 years. Over the past 4 years, the geometric average annual return for the stock was 9.23%. What was the arithmetic average annual return for the stock over the past 4 years? Answer in decimal format, rounded to the nearest hundredth of a percent (for example, 1.23% would be entered as 0.0123).

Question 5. What was the real rate of return over the past year (from one year ago to today) for a stock if the inflation rate over the past year was 4.14%, the risk-free return over the past year was 5.26%, the stock is currently priced at $128.70, the stock was priced at $120.00 one year ago, and the stock just paid a dividend of $5.65? Answer in decimal format, rounded to the nearest hundredth of a percent (for example, 1.23% would be entered as 0.0123).