Fin 571
1. Briarcrest Condiments is a spicemaking firm. Recently, it developed a new process for producing spices. The process requires new machinery that would cost $2,442,650. have a life of five years, and would produce the cash flows shown in the following table.
Year 
Cash Flow 
1 
$631,805 
2 
284,880 
3 
1,011,681 
4 
1,001,588 
5 
685,490 
What is the NPV if the discount rate is 13.30 percent? (Enter negative amounts using negative sign e.g. 45.25. Round answer to 2 decimal places, e.g. 15.25.)
NPV is 
2. Archer Daniels Midland Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of $11.80 million. This investment will consist of $2.80 million for land and $9.00 million for trucks and other equipment. The land, all trucks, and all other equipment is expected to be sold at the end of 10 years at a price of $5.22 million, $2.44 million above book value. The farm is expected to produce revenue of $2.06 million each year, and annual cash flow from operations equals $1.88 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Round intermediate calculations and final answer to 2 decimal places, e.g. 15.25.)
NPV 
The project should be (Accepted or Rejected?)
3. Bell Mountain Vineyards is considering updating its current manual accounting system with a highend electronic system. While the new accounting system would save the company money, the cost of the system continues to decline. The Bell Mountainâ€™s opportunity cost of capital is 12.9 percent, and the costs and values of investments made at different times in the future are as follows:
Year 
Cost 
Value of Future Savings 

0 
$5,000 
$7,000 

1 
4,700 
7,000 

2 
4,400 
7,000 

3 
4,100 
7,000 

4 
3,800 
7,000 

5 
3,500 
7,000 
Calculate the NPV of each choice. (Round answers to the nearest whole dollar, e.g. 5,275.)
The NPV of each choice is:
NPV_{0} =
NPV_{1} =
NPV_{2} =
NPV_{3} =
NPV_{4} =
NPV_{5} =
Suggest when should Bell Mountain buy the new accounting system?
Bell Mountain should purchase the system in 
(year 1, 2, 3, 4, 5?)
4. Chipâ€™s Home Brew Whiskey management forecasts that if the firm sells each bottle of SnakeBite for $20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 84 percent as high if the price is raised 9 percent. Chipâ€™s variable cost per bottle is $10, and the total fixed cash cost for the year is $100,000. Depreciation and amortization charges are $20,000, and the firm has a 30 percent marginal tax rate. Management anticipates an increased working capital need of $3,000 for the year. What will be the effect of the price increase on the firmâ€™s FCF for the year? (Round answers to nearest whole dollar, e.g. 5,275.)
At $20 per bottle the Chipâ€™s FCF is $ 
and at the new price Chipâ€™s FCF is $
5. Capital Co. has a capital structure, based on current market values, that consists of 30 percent debt, 9 percent preferred stock, and 61 percent common stock. If the returns required by investors are 8 percent, 10 percent, and 16 percent for the debt, preferred stock, and common stock, respectively, what is Capitalâ€™s aftertax WACC? Assume that the firmâ€™s marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)
After tax WACC 
= 