FIN 215 NVCC Investment Project Financial Management Solving Problems below is the case study, please answer all questions and show all the work. …. Assi

FIN 215 NVCC Investment Project Financial Management Solving Problems below is the case study, please answer all questions and show all the work. …. Assignment for Course:
Finance 215 – Financial Management
Submitted to:
Submitted by:
Date of Submission: MM/DD/YYYY
Title of Assignment: Second Assignment – problems (updated 4 May 2011)
Instructions: Read the questions very carefully because the requirements for each
are specific. Each group should turn in one copy of this WORD document (email to
me) with the names of the participating group members typed on the bottom of this
cover page. Answer all questions fully on this document only. That is, I want to see the
question below followed by your answer so I do not have to guess what you are
answering. This project is worth 100 points.
CERTIFICATION OF AUTHORSHIP: I certify that the group named above equally
contributed to the assignment that is attached. Any assistance received in its
preparation is fully acknowledged and disclosed in the paper. Any sources from which
the group used data, ideas or words, either quoted directly or paraphrased is also
disclosed. Please type names below.
Student’s Signature: ______________________________________
Student’s Signature: ______________________________________
Student’s Signature: ______________________________________
Student’s Signature: ______________________________________
Student’s Signature: ______________________________________
Student’s Signature: ______________________________________
Student’s Signature: ______________________________________
Student’s Signature: ______________________________________
Northern Virginia Community College – FIN 215 – for Dr. Mark DAntonio
Finance 215 – NVCC – 2nd Problem set
1
As a group: Answer the following questions providing all work. It is best to do
these problems in Excel and then to paste them into this document. This is a
detailed and important project in this course. The answers should be carefully
verified before submission. Start early and take the time to do a good job. This
assignment is worth what any one exam is worth.
1) An investment project requires a net investment of $100,000. The project is
expected to generate annual net cash flows of $28,000 for the next 5 years. The
firm’s cost of capital is 12%.
Part 1 – Determine the payback period for the project.
Part 2 – Determine the payback period accounting for the present value of
future cash flow (ie. Present value calculations) Should the project be done?
After considering present value is the 100,000 investment recovered in 3-4
years, 4-5 years or over 5 years?
2) What is the IRR for a project that has a net investment of $14,600 and a single
net cash flow of $25,750 in 5 years?
3) Red Lake Mines, Inc. is considering adoption of a new project requiring a net
investment of $10 million. The project is expected to generate 5 years of net
cash inflows of $5 million per year. In the project’s sixth, and final, year it is
expected to have a net cash outflow of $1 million. What is the project NPV,
using a discount rate of 12%?
4) Zimmer, a manufacturer of modular rooms, plans to expand its operations in
Landshut, Germany. The expansion will cost $14.5 million and is expected to
generate annual net cash flows of €2.15 million for a period of 12 years and
then the operation will be sold for €1 million (net of taxes). The cost of capital
for the project is 14%. Using a spot exchange rate of $1.25/€ as the forecast FX
rate for the euro for the term of the project, compute the NPV of this
expansion project.
Finance 215 – NVCC – 2nd Problem set
2
5) Dupree Funds is considering the fees charged by two banks. First America
charges a flat rate of $0.11 per payment and First Western requires a balance
of $500,000 (that does not pay interest to Dupree foods), plus $.05 per payment.
What is the number of payments per year where the costs of the two banks will
be equal? Assume Dupree’s cost of funds is 9%.
6) What is the annual tax shield to a firm that has total assets of $80 million and a
net worth of $55 million, if the average interest rate on debt is 8.5% and the
marginal tax rate is 35%?
7) Jason is interested in finding the breakeven point for a new pump it plans to
produce. The price of the pump is $250 and the variable cost ratio is 50% of
the price. Jason calculated that the fixed costs will be about $400,000. What is
the breakeven point of operations?
8) Crown Honda purchased one of its most popular motorcycle models for
965,000 yen. The FX rate for the yen was 142 yen per dollar at the time of
purchase, but then rose to 171.8 yen by the time payment was made. What
was the dealer’s gain or loss on the change in rates?
Finance 215 – NVCC – 2nd Problem set
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9) Seduak has estimated the costs of debt and equity capital for various
proportions of debt in its capital structure.
% Debt
0%
10
20
30
40
50
60
After-tax cost of debt
5.4%
5.4
5.8
6.3
7.0
8.2
Cost of equity
13.0%
13.3
13.8
14.4
15.2
16.0
17.0
Based on these estimates, determine Seduak’s optimal capital structure
Finance 215 – NVCC – 2nd Problem set
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