Corporate Finance
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 $1. (Do not round intermediate calculations. Round your answers to 3 decimal places.)Present ValueFive yearSeven year2. The following table tracks the main components of working capital over the life of a four-year project.20102011201220132014Accounts receivable0150,000225,000190,0000Inventory75,000130,000130,00095,0000Accounts payable25,00050,00050,00035,0000Calculate net working capital and the cash inflows and outflows due to investment in working capital. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter 0 wherever required.)20102011201220132014Working capitalCash flows3. Machines A and B are mutually exclusive and are expected to produce the following real cash flows:Cash Flows ($ thousands)MachineC0C1C2C3A–100+110+121B–120+110+121+133The 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.)MachineNPVA$B$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.)MachineCash flowA$B$c.Which machine should you buy?Machine AMachine B4. 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.ProbabilityPayoffNet Profit0.10$500$4000.5010000.400–100a-1.What is the expected cash payoff?Expected cash payoff$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.)Varianceb-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%A0+20B–20+20C–300D+15+15E+10–10What 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.)StockBetaABCDE
