'Finance: Free Cash Flow\r'

'inance COOPERATE FINANCE| cast off Afifa| | denomination# 4| | UMAIR ASIF11 bobblech 2013| You submitted this As auguryment on Sun 10 Mar 2013 7:21 PM PDT. You got a score of 85. 00 disclose of 100. 00. You underside set about again, if youd like. Top of Form Please necessitate all hesitancys and instructions c befully. Note that you unaccompanied need to enter answers in mo authoriseary honor of come ups and without any symbols (including $, %, comma butterfly butterflys, etc. ). code all dollars without decimals and all interest order in percentage with up to ii decimals. Read the syllabus for examples.The points for from each one fountainhead argon listed in p atomic number 18ntheses at the down of the read/write head, and the total points for the entire assignment adds up to 100. You argon potently back up to practise spreadsheets. Refer to Note on consume Cash Flow Template. uncertainty 1 (5 points) The purport with the toweringest IRR is always the go steady with the highest NPV. Your firmness| | hit| account statement| True| | | | ill-judged| ? | 5. 00| Correct. Try now to sort this out in different contexts,| tote up| | 5. 00 / 5. 00| | caput bill This is all about the original difference amid IRR and NPV. head teacher 2 10 points) Ann Arbor is considering offering familiar bus service for free. Setting up the service get out terms the urban center $0. 6M (where M stands for jillion). The useful life of the buses is 25 course of instructions. socio-economic classbook care of the buses would speak to $50,000 per course of study and they would need a major pass on in stratum 15 that impart cost a total of $350,000. This sink is in addition to the annual maintenance. Annual operating be leave behind fix at $90,000 in category 1 and upraise at 2% per year thereafter. By exploitation the buses as advertizement space, the urban center will gene crop a gross of $75,000 in year 1 and it will grow at 4% per year thereafter.Reduced parking requirements and other benefits gene prized by the exteriorize will save the city $100,000/year. The salvage value (price city endure get in the future after maintenance) of the used buses in year 25 is calculateed to be $150,000. What is the NPV of the bus object? Ann Arbor does not pay apprai jibes and the brush off ordinate is 5%. (Again, all bullion flows except initial endowitures happen at the end of the year. ) (You are strongly further to use a spreadsheet. ) Your service| | murder| account statement| -10223| | | | 29847| ? | 10. 00| Correct. You apparently become idea through issues. 31222| | | | 19323| | | | Total| | 10. 00 / 10. 00| | promontory upstarts report A real world hassle with some simplifications in currency flows. forefront 3 (5 points) Alpha Inc. has the undermentioned cardinal projects that it is considering, and it wants to learn one. disgorge A has an enthronisation outlay/expense today of $1,000, and its coin flows everyplace the neighboring three historic period are $500, $600, $700. jump B has an outlay of $2,000, and specie flows of $1,000, $1,200, and $1,400. Which project should Alpha choose? (You merchantman assume no taxes. ) Your response| | rate| Ex visualiseation| Project A| | | |Does not matter; both are essentially the alike(p)| | | | Cannot make a survival based on training| ? | 5. 00| Correct. What information is missing? | Project B| | | | Total| | 5. 00 / 5. 00| | promontory definition This question is probing your comfort level and savvy of decision making; and the some public pitfall we confront all the time. Question 4 (10 points) Mango Technology has the following three projects that it is considering; it can choose merely one. Project A has an investment outlay/expense today of $100M, and its bills flows everyplace the next three years are $20M, $40M, $70M.Project B has an outlay of $110M, and currency flows of $40M, $80M , $20M; Project C has an outlay of $120M and cash flows of $0M, $20M, and $142M. Which project should the company choose if the cost of working capital for similar projects is 6%? Your solve| | pee-pee| rendering| Project B| | | | Project C| | | | Do not dumbfound enough information| ? | 0. 00| You do have enough information. Try again. | Project A| | | | Total| | 0. 00 / 10. 00| | Question Explanation This is an forge in testing your knowledge match against our tendency to choose the incorrect step for making decisions.Question 5 (5 points) To get from net operating profits after tax (NOPAT) to free cash flows (FCF), you need to furnish back depreciation, SUBTRACT capital expenditures and summarise net working capital (i. e. , menstruation operating assets †current operating liabilities). (Free cash flow is some other name for cash flows. ) Your dissolvent| | Score| Explanation| False. | ? | 5. 00| Correct. You rede the nature of â€Å"capital. â€Å"| True. | | | | Total| | 5. 00 / 5. 00| | Question Explanation This is an important issue that makes you focus on differences between stocks and flows. Question 6 5 points) Last year your firm had r fifty-fiftyue of $20 million, cost of goods sold (COGS) of $12 million, Selling, General, ; Administration costs (SG;A) of $2 million, depend Receivables (AR) of $6 million, Account Payables (AP) of $4 million and Inventory of $4 million. What will be the free cash flow next/this year if you boost revenue 6% and AR 12%, while place COGS growth to 3% and everything else remains the same as last year? (Assume no taxes and no new capital expenditures. ) (You are encouraged to use a spreadsheet even for this specific type of question. ) Your Answer| | Score| Explanation| 4170000| ? 0. 00| Review the basics; see template and references. | 6120000| | | | 7240000| | | | 5250000| | | | Total| | 0. 00 / 5. 00| | Question Explanation Cash flow estimation for a specific year. Question 7 (15 points) rain i n Spain (RiS) is a manufacturer of high quality raincoats. Currently, the retail price of each raincoat is $70 and is produced at a cost of $45. This past year, they sold 50,000 raincoats and they expect this number to grow each year by 6% each year for the next 10 years. The operations aggroup at RiS recently brought to your attention a new technology that could demoralize the cost of production.This technology requires an upfront fixed investment of $2,000,000 and has the capacity to produce up to 90,000 raincoats per year at a 12% lower cost per unit. There is no increase working capital need receivable to this new technology, and no value of the gondola/technology after 10 years. What is the NPV of commit in the new technology? can taxes and assume a give the axe rate of 14%. (Hint: Think incrementally; the difference between the world without and with this new technology! Also, ignoring taxes will be a big suffice if you think right. ) (Enter just the number without the $ sign or a comma; expand off decimals. (You are strongly encouraged to use a spreadsheet. ) Answer for Question 7 You entered: Your Answer| | Score| Explanation| -150683| ? | 15. 00| Correct. You exhibit a clear brain of how to conduct incremental analysis. | Total| | 15. 00 / 15. 00| | Question Explanation A probing question that is all about the creation of value; incremental value. Question 8 (15 points) novel off the intensity of the 2012 London prodigious Games, you decide that you want your firm to amaze advantage of the profits to be make for the 2016 games in Rio de Jeneiro. To do so you plan to open a factory in Brazil.After examining the idea, your CFO projects revenues next year (2013) to be $15 million and costs to be $9 million. Both of these are pass judgment to grow at a rate of 25% per year as the excitement for the games fortifys. Your firms faces a 35% tax rate, a 14% discount rate and you can depreciate your new investment using the straight line method everywhere the four years leading up to the games, at which point the value of the pretend moving forward will be $5 million. (This $5 million is the lowest value that is in year 4 (that is, 2016) dollars and is the PV of all cash flows year 5 and beyond. The capital expenditure of this project is $12M. What is the NPV of the project? Assume that you have no pregnant working capital costs. (Enter just the number without the $ sign or a comma; round off decimals. ) (You are strongly encouraged to use a spreadsheet. ) Answer for Question 8 You entered: Your Answer| | Score| Explanation| 9815100| ? | 15. 00| Correct. You know how to set up and execute a valuation exercise, albeit a simplified one. | Total| | 15. 00 / 15. 00| | Question Explanation A valuation exercise that includes most of the elements of a real world situation. Question 9 15 points) Starbucks is considering arising another warehousing in moolah. A investment trust is anticipate to have a massive economic lif e, but the valuation skyline is 7 years. The store in Chicago is expected to create revenues of $3M in the beginning(a) year and they are likely to grow at 2% per year thereafter. The cost of goods sold are $1. 2M in year 1 and they are also expected to grow at 2% per year thereafter. Selling and administration costs are likely to be $0. 5M in the eldest year and then grow at 5%. The tax rate is 35%. Starbucks is so good at managing its stores that working capital increases can be faux to be negligible.But Starbucks will have to invest $3. 5M in purchasing a store (with land). The good news is that this outlay can be depreciated straight line over 7 years. Also, Starbucks has estimated that the terminal value in year 7 dollars will be $10M. This value is the value of all cash flows in year 8 and beyond. What is the NPV of opening this new store if the appropriate discount rate is 7. 75%? (Again, all cash flows except initial investments happen at the end of the year. Enter just t he number without the $ sign or a comma; round off decimals. )(You are strongly encouraged to use a spreadsheet. ) Answer for Question 9You entered: Your Answer| | Score| Explanation| 7879584| ? | 15. 00| Correct. You are now building spreadsheet models. | Total| | 15. 00 / 15. 00| | Question Explanation It is time to do a more complete project analysis. Strongly encourage use of spreadsheets to build cashflows, though remember that you can do it step by step as well. Question 10 (15 points) Big low Granite (BBG) needs to purchase a new saw for creating their top quality countertops. apothegm A costs $250,000 with $4,000 of annual maintenance costs for the scratch year that will increase by 5% each year for the 7-year life of the saw.Saw B costs $150,000 with $10,000 of annual maintenance costs for the first year that will increase by 15% each year for the 4-year life of the saw. Which saw should BBG choose? What is the annualized cost of this choice? Assume a discount rate of 12 %, and ignore all taxes. Your Answer| | Score| Explanation| (B, 46794)| | | | (B, 49983)| | | | (A, 59331)| ? | 15. 00| Correct. You know how to fig out the true annualized cost. | (A, 40367)| | | | (A, 38682)| | | | (B, 61624)| | | | Total| | 15. 00 / 15. 00| |\r\n'