Susmel Inc Is Considering A Project That Has The Following C

Susmel Inc Is Considering A Project That Has The Following Cash Fl

Cleaned assignment instructions:

Susmel Inc. is considering a project that has the following cash flow data. What is the project's payback? Year Cash Flows -$500 $150 $200 $300 a. 2.03 years b. 2.25 years c. 2.50 years d. 2.75 years e. 3.03 years

As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow? Sales Revenues $13,000 Depreciation $4,000 Other operating costs $6,000 Tax rate 35.0% a. $5,950 b. $6,099 c. $6,251 d. $6,407 e. $6,407

Francis Inc.'s stock has a required rate of return of 10.25%, and it sells for $57.50 per share. The dividend is expected to grow at a constant rate of 6.00% per year. What is the expected year-end dividend, D1? a. $2.20 b. $2.44 c. $2.69 d. $2.96 e. $3.00

If a typical company correctly estimates its WACC at a given point in time and then uses that same cost of capital to evaluate all projects for the next 10 years, then the firm will most likely a. become riskier over time, but its intrinsic value will be maximized b. become less risky over time, and this will maximize its intrinsic value c. accept too many low-risk projects and too few high-risk projects d. become more risky and also have an increasing WACC. Its intrinsic value will not be maximized e. continue as before, because there is no reason to expect its risk position or value to change over time as a result of its use of a single cost of capital

Qualcomm Inc.'s stock currently sells for $35.25 per share. The dividend is projected to increase at a constant rate of 4.75% per year. The required rate of return on the stock, rs, is 11.50%. What is the stock's expected price 5 years from now? a. $40.17 b. $41.20 c. $42.26 d. $43.34 e. $44.00

Schnusenberg Corporation just paid a dividend of D0 = $0.75 per share, and that dividend is expected to grow at a constant rate of 6.50% per year in the future. The company's beta is 1.25, the required return on the market is 10.50%, and the risk-free rate is 4.50%. What is the company's current stock price? a. $14.52 b. $14.89 c. $15.26 d. $15.64 e. $16.00

Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? WACC: 10.00% Year Cash Flows -$950 $525 $485 $445 $405 a. 1.61 years b. 1.79 years c. 1.99 years d. 2.22 years e. 2.44 years

Bilulu Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Assume WACC: 8.75% Year CFS -$1,100 $375 $375 $375 $375 CFL -$2,200 $725 $725 $725 $725 a. $32.12 b. $35.33 c. $38.87 d. $40.15 e. $42.00

Assume that Kish Inc. hired you as a consultant to help estimate its cost of common equity. You have obtained the following data: D0 = $0.90; P0 = $27.50; and g = 7.00% (constant). Based on the DCF approach, what is the cost of common from retained earnings? a. 9.29% b. 9.68% c. 10.08% d. 10.50% e. 10.92%

Several years ago the Metalusa Inc. sold a $1,000 par value, noncallable bond that now has 20 years to maturity and a 7.00% annual coupon that is paid semiannually. The bond currently sells for $925 and the company s tax rate is 40%. What is the component cost of debt for use in the WACC calculation? a. 4.28% b. 4.46% c. 4.65% d. 4.83% e. 5.03%

Data Computer Systems is considering a project that has the following cash flow data. What is the project's IRR? Year Cash Flows -$1,100 $450 $470 $490 a. 9.70% b. 10.78% c. 11.98% d. 13.31% e. 14.64%

Desai Industries is analyzing an average-risk project, and the following data have been developed. Unit sales will be constant, but the sales price should increase with inflation. Fixed costs will also be constant, but variable costs should rise with inflation. The project should last for 3 years, it will be depreciated on a straight-line basis, and there will be no salvage value. This is just one of many projects for the firm, so any losses can be used to offset gains on other firm projects. What is the project s expected NPV? WACC 10.0% Net investment cost (depreciable basis) $200,000 Units sold 50,000 Average price per unit, Year 1 $25.00 Fixed op. cost excl. deprec. $150,000 Variable op. cost/unit, Year 1 $20.20 Annual depreciation rate 33.333% Expected inflation rate per year 5.00% Tax rate 40.0% a. $15,925 b. $16,764 c. $17,646 d. $18,528 e. $19,408

If D0 = $1.75, g (which is constant) = 3.6%, and P0 = $32.00, what is the stock s expected total return for the coming year? a. 8.37% b. 8.59% c. 8.81% d. 9.03% e. 9.27%

If a stock s dividend is expected to grow at a constant rate of 5% a year, which of the following statements is CORRECT? The stock is in equilibrium. a. The expected return on the stock is 5% a year. b. The stock s dividend yield is 5%. c. The price of the stock is expected to decline in the future. d. The stock s required return must be equal to or less than 5%. e. The stock s price one year from now is expected to be 5% above the current price.

Mushali Services is now at the end of the final year of a project. The equipment originally cost $22,500, of which 75% has been depreciated. The firm can sell the used equipment today for $6,000, and its tax rate is 40%. What is the equipment s after-tax salvage value for use in a capital budgeting analysis? Note that if the equipment s final market value is less than its book value, the firm will receive a tax credit as a result of the sale. a. $5,558 b. $5,850 c. $6,143 d. $6,450 e. $6,750

If D1 = $1.50, g (which is constant) = 6.5%, and P0 = $56, what is the stock s expected capital gains yield for the coming year? a. 6.50% b. 6.83% c. 7.17% d. 7.52% e. 7.90%

Hindelang Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? WACC 12.25% Year Cash Flows -$850 $300 $320 $340 $360 a. 13.42% b. 14.91% c. 16.56% d. 18.22% e. 20.04%

Rivoli Inc. hired you as a consultant to help estimate its cost of common equity. You have been provided with the following data: D0 = $0.80; P0 = $22.50; and g = 8.00% (constant). Based on the DCF approach, what is the cost of common from retained earnings? a. 10.69% b. 11.25% c. 11.84% d. 12.43% e. 13.05%

Lafarge Inc. estimates that its average-risk projects have a WACC of 10%, its below-average risk projects have a WACC of 8%, and its above-average risk projects have a WACC of 12%. Which of the following projects (A, B, and C) should the company accept? a. Project B, which is of below-average risk and has a return of 8.5%. b. Project C, which is of above-average risk and has a return of 11%. c. Project A, which is of average risk and has a return of 9%. d. None of the projects should be accepted. e. All of the projects should be accepted.

You work for Pitloa Inc., which is considering a new project whose data are shown below. What is the project s Year 1 cash flow? Sales Revenues $62,500 Depreciation $8,000 Other operating costs $25,000 Interest Expense $8,000 Tax rate 35.0% a. $25,816 b. $27,175 c. $28,534 d. $29,960 e. $31,200

Your company, CSUS Inc., is considering a new project whose data are shown below. The required equipment has a 3-year tax life, and the accelerated rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project s 10-year expected operating life. What is the project s Year 4 cash flow? Equipment cost (depreciable basis) $70,000 Sales revenues, each year $42,500 Operating costs (excl. deprec.) $25,000 Tax rate 35.0% a. $11,814 b. $12,436 c. $13,090 d. $13,745 e. $14,382

Carter's preferred stock pays a dividend of $1.00 per quarter. If the price of the stock is $45.00, what is its nominal (not effective) annual rate of return? a. 8.03% b. 8.24% c. 8.45% d. 8.67% e. 8.89%

Tesar Chemicals is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. The CEO believes the IRR is the best selection criterion, while the CFO advocates the NPV. If the decision is made by choosing the project with the higher IRR rather than the one with the higher NPV, how much, if any, value will be forgone? Assume WACC: 7.5% Year CFS $1,100 $550 $600 $100 $100 CFL $2,700 $650 $725 $800 $1,400 a. $138.10 b. $149.21 c. $160.31 d. $171.42 e. $182.52

As a member of UA Corporation’s financial staff, you must estimate the Year 1 cash flow for a proposed project with the following data. What is the Year 1 cash flow? Sales Revenues $42,500 Depreciation $10,000 Other operating costs $17,000 Interest Expense $4,000 Tax rate 35.0% a. $16,351 b. $17,212 c. $18,118 d. $19,071 e. $20,000

Clemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project s 3-year life. What is the project s Year 1 cash flow? Equipment cost (depreciable basis) $65,000 Straight-line depreciation rate 33.333% Sales revenues each year $60,000 Operating costs (excl. deprec.) $25,000 Tax rate 35.0% a. $28,115 b. $28,836 c. $29,575 d. $30,333 e. $31,000

Sample Paper For Above instruction

In evaluating investment opportunities, companies employ various financial metrics to make informed decisions. The payback period is one such critical measure that indicates how long it takes for a project to recover its initial investment from cash inflows. For Susmel Inc., with a cash flow sequence of -$500, $150, $200, and $300 over four years, calculating the payback involves cumulatively summing the cash flows until the initial investment is recovered. After year one, the net is -$350; after year two, it is -$150; after year three, it becomes $50. Since the initial investment is recovered during year three, approximate payback is determined by interpolating between years two and three. Specifically, the cash flow of $200 in year three indicates that the recovery occurs roughly 1.5 years into year three, resulting in a payback period of about 2.5 years, matching answer option c.

When assessing a project’s cash flow, especially for the first year, a comprehensive approach accounts for sales revenues, operating costs, depreciation, and taxes. For Boulder Inc., with sales of $13,000, depreciation of $4,000, operating costs of $6,000, and a tax rate of 35%, the cash flows can be estimated by calculating earnings before tax, subtracting taxes, and adding back depreciation. Earnings before tax are ($13,000 - $6,000 - $4,000) = $3,000. Taxes amount to 35% of this, which is $1,050, leaving net income of $1,950. Adding back depreciation gives a total cash flow of $1,950 + $4,000 = $5,950, aligning with option a.

In stock valuation, estimating the future dividend or stock price involves understanding growth rates and the required rate of return. Given Francis Inc.'s current stock price of $57.50 and a growth rate of 6%, the Year-end dividend D1 is calculated by rearranging the Gordon Growth Model: D1 = P0 (rs - g). Using rs of 10.25% and g of 6%, D1 ≈ $57.50 (0.1025 - 0.06) = approximately $2.44, which corresponds with choice b.

The consistency in using the same WACC for project evaluation over an extended period can lead to suboptimal decision-making. If risk perceptions change over time, relying on a static WACC may cause a firm to accept too many low-risk projects or reject high-risk ones, potentially misallocating resources and affecting intrinsic value. Underestimating risk can inflate project feasibility, while overestimating it can dismiss viable opportunities, influencing the company's valuation negatively.

Project valuation using the dividend discount model (DDM) involves forecasting future dividends. Qualcomm Inc., with current stock price $35.25, a dividend growth rate of 4.75%, and a required rate of return of 11.50%, will have an expected dividend in five years computed as D5 = D1 (1 + g)^4. First, D1 = P0 (rs - g), which yields approximately $2.04. Then, D5 = $2.04 * (1.0475)^4 ≈ $2.55. The stock's price at that time can be estimated accordingly, approximating $41.20, matching answer option b.

Using the Capital Asset Pricing Model (CAPM), the current stock price of Schnusenberg Corporation can be estimated. With beta 1.25, market risk premium 10.50% - 4.50% = 6%, and risk-free rate 4.50%, the required return rs = 4.50% + 1.25 * 6% ≈ 11.25%. The current price P0 and dividend D1 allow for computing the dividend yield and capital gains yield. Since dividends grow at 6.5%, the current dividend D0 of $0.75 escalates to D1 = $0.80. The present value of expected dividends and growth rate inform the valuation, leading to an estimated stock price close to $14.89.

The discounted payback period considers the time when cumulative cash flows turn positive, considering the time value of money at the WACC. For Masulis Inc., with initial outflows of -$950, $525, $485, $445, and $405, the discounted cash flows are calculated at 10%, and cumulative sums are calculated to find when the initial investment is recovered. This yields approximately 1.79 years, matching answer b.

Project evaluation can also involve calculating the Modified Internal Rate of Return (MIRR), which considers the cost of capital and reinvestment rate. For Bilulu Inc., with given cash flows and an 8.75% WACC, the MIRR is