Category: Uncategorized

Consider the following two projects for Copper Mountain Spor…

Consider the following two projects for Copper Mountain Sports. Both project are projected to produce cash flows for 5 years at which time the equipment will have been technologically obsolete. For these projects calculate the “cross-over rate”.    Year Snow Shoes Snowmobiles 0 -$250,000 -$250,000 1 $25,000 $150,000 2 $80,000 $160,000 3 $200,000 $75,000 4 $190,000 $50,000 5 $150000 $5000 This Problem Counts 3 Points

This Problem Counts 4 Points Charley & Waldo’s World of Wond…

This Problem Counts 4 Points Charley & Waldo’s World of Wonder is a science-oriented children’s museum. The museum has a “free” section where children have unlimited use science oriented exhibits and a premium section where children (or their parents) pay on a per exhibit basis. For example one of the premium exhibits is a narrated demonstration of “Tesla Balls”. Revenue earned on premium exhibits is tracked separately for each exhibit. Charley and Waldo are considering expanding their premium area and are looking at adding a new exhibit. They plan to only add one new exhibit. After viewing a number of ideas suggested by high school science teachers and children psychologists, they have narrowed the list down to two alternatives. The investment required and the anticipated free cash flow for each alternative is shown in the table below. Zip is a demonstration of friction and air resistance; and Catch Air is an inverted wind tunnel that allows children to float in air as if they are flying. If Charley and Waldo believe that the NPV technique is the best in terms of selecting capital projects, which project should they pick. In answering this question assume that the cost of capital is 6.5%. The Zip attraction will have a useful life of 6 years with zero salvage value, Catch Air would have a useful life of 3 years with zero salvage value.   Year Zip Catch Air Investment -600,000 -650,000 1 250,000 300000 2 225,000 300000 3 175,000 250000 4 100,000 ——- 5 100,000 ——- 6 75000 ——-    

The Lenox Feed, a chain of Pet Supply Stores had a free cash…

The Lenox Feed, a chain of Pet Supply Stores had a free cash flow for FY 2021 of $5,250 (all amounts are in $000). Chester Smart , CEO, has developed a four year free cash projection, along with estimated cost of capital during the 4 year period, and terminal growth and cost of capital projections. — a copy of which has been reproduced in the table below.  FY2022-FY2023 FY2024-FY2025 From the end of FY2025  to perpetuity Growth Rate 3.2% 2.5% 1.5% Cost of Capital 4.25% 5.20% 5.00% Considering this forecast he asked his CFO (you) to determine the company’s valuation using the NPV (net present value) method. Choose the best answer from the list of options below. For this question consider FY2022 as Year 1 and FY2025 as Year 4.  (NOTE THAT EXCEL WAS USED TO CALCULATE THE ANSWER TO THIS PROBLEM) Problem Counts 6 Points

Accounting Formulas: Gain/Loss on Equipment (Sale) = Market…

Accounting Formulas: Gain/Loss on Equipment (Sale) = Market Value – Book Value (a positive is a gain, a negative is a loss). A gain is a positive cash flow. Note that the book value of piece of equipment is equal to its original capitalized cost less its accumulated depreciation. Finance Formulas: WACC = (Cost of Debt * (1 -t)) * (Total Debt/(Total Debt + Total Equity)) PLUS  (Cost of Equity* (Total Equity/(Total Debt + Total Equity))) Cost of Debt = Risk Free Rate + Default Risk Premium  Cost of Equity = Risk Free Rate + (Beta * Market Risk Premium) Market Value Added (MVA): Formula not provided. You need to know this one. Stock Valuation Models:             Zero Growth Rate for Dividends into Perpetuity: Price = Div0/r            Constant Growth Rate for Dividends into Perpetuity: Price = Div1/(r-g).   OR. Price = (Div0 * (1+g))/(r-g) Growth Opportunities             P = (EPS/R) + NPVGO Cash Flow Models:             Annual Firm Level Free Cash Flow: FCF = (EBIT * (1-t)) – Capex – Change in WC + Depreciation                OR FCF = (EBITDA – Depreciation expense) * (1-t) + Depreciation – Capex – Change in WC                                                      Firm Terminal Value at year N: = (EBIT (n) * (1+g) * (1-t))/(r-g)                         (note similarity to constant growth dividend model) Net Present Value/Future Value/IRR/Payment Annuities: Use Excel macros Payback Period/ Discount Payback Period: No formulas — use methods shown in class. Profitability Index: PI = PV of Benefit Stream (Free Cash Flows)/Initial Investment NET Debt = Total Debt – Cash (and Cash Equivalents)