+1 862 207 3288 1. Calculate the PVs of depreciation tax shields in the five-year and seven-year classes shown in Table 6.4. Assume the tax rate is 35% and the discount rate is 10%. Lastly, assume the asset in question costs $1. (Do not round intermediate calculations. Round your answers to 3 decimal places.)
Present Value
Five year
Seven year
2. The following table tracks the main components of working capital over the life of a four-year project.
2010
2011
2012
2013
2014
Accounts receivable
0
150,000
225,000
190,000
0
Inventory
75,000
130,000
130,000
95,000
0
Accounts payable
25,000
50,000
50,000
35,000
0
Calculate net working capital and the cash inflows and outflows due to investment in working capital. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter 0 wherever required.)
2010
2011
2012
2013
2014
Working capital
Cash flows
3. Machines A and B are mutually exclusive and are expected to produce the following real cash flows:
Cash Flows ($ thousands)
Machine
C0
C1
C2
C3
A
–100
+110
+121
B
–120
+110
+121
+133
The real opportunity cost of capital is 10%. (Use PV table.)
a.
Calculate the NPV of each machine. (Do not round intermediate calculations. Round your answers to the nearest thousand.)
Machine
NPV
A
$
B
$
b.
Calculate the equivalent annual cash flow from each machine. (Do not round intermediate calculations. Round “PV Factor” to 3 decimal places and final answers to the nearest thousand.)
Machine
Cash flow
A
$
B
$
c.
Which machine should you buy?
Machine A
Machine B
4. A game of chance offers the following odds and payoffs. Each play of the game costs $100, so the net profit per play is the payoff less $100.
Probability
Payoff
Net Profit
0.10
$500
$400
0.50
100
0
0.40
0
–100
a-1.
What is the expected cash payoff?
Expected cash payoff
$
a-2.
What is the expected rate of return?
Expected rate of return
%
b-1.
Calculate the variance of this rate of return. (Ignore the technical point referred to in footnote 16).(Round your answer to the nearest whole number.)
Variance
b-2.
Calculate the standard deviation of this rate of return. (Ignore the technical point referred to in footnote 16). (Round your answer to the nearest whole percent.)
Standard deviation
%
5. Consider the following information:
Stock Return if Market Return Is:
Stock
–10%
+10%
A
0
+20
B
–20
+20
C
–30
0
D
+15
+15
E
+10
–10
What is the beta of each of the stocks? (Leave no cells blank – be certain to enter “0” wherever required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place.)
Stock
Beta
A
B
C
D
E
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