FIN 3085

N
Problem: 13-9 MODIFIED O

Note: Inputs in Blue

shares outstanding 10000000
market price per share 20
short term investments 25000000

Value of operations= (shares outstanding x market price)- short-term

invstments

Value of operations $ 175,000,000

(2,200)

     

(11,910) 3,876

NPV

sales in 2012
2012 year end assets
total current iabillities
notes payable
accounts payable
accrurals
Liabilities

FIN
308
5

1 Note:
Pro 3 Modificatio
ble - ns in
m: 9 MODIFIED Orange

FIN
3085

1
3 Note:
Probl - MODIF Modifications in
em: 9 IED Orange

Note:
Inputs in
Blue
BO OL NE
TH D W
Cost of
new 14,
machine 000

BV old 3,9
machine 00

Salvage Value (sale) 4,5

- today 00
Salvage Value
(sale) - end of useful 1,5
life 800 00
Useful life
remaining 6 6

Sales increase new 2,0

machine 00

Reduction 1,9
in OPEX 00
Working
Capital
impact:

Increase in 2,9
inventories 00
Incre
ase in
A/P 700
35.
Tax 00
rate %
12.
WAC 00
C %
Depreciati
on: 1 2 3
20. 32. 19.
Depn rate new 00 00 20
machine % % %
Depn
- new
machi 2,8 4,4 2,6 1,6
ne 00 80 88 13
Depn
- old
machi
ne 650 650 650 650
Chan
ge in 2,1 3,8 2,0
Depn 50 30 38 963

Change in Depn (2,1 (3,8 (2,0 (96

(new vs. old) 50) 30) 38) 3)
Change in
Operating 1,7 1,8 2,9
Income 50 70 62 37
Taxes
613 25 652 1,0
 28
Change in After-
Tax Operating 1,1 1,2 1,9
Income 38 46 10 09

Add back: Change in 2,1 3,8 2,0

Depn 50 30 38 963

Change in Working (2,20

Capital 0)

Sale (salvage value)

of new machine

Tax on sale of new

machine
Opportunity cost of
not selling old
machine YR 6
Tax effect of
opportunity cost of
not selling old
machine YR 6          

Incremental Free (11,9 3,2 3,8 3,2 2,8

Cash Flow 10) 88 76 48 72

$2,53
NPV 8.85

Note:
Inputs
in Blue
B
O O N
T L E
H D W
Cost of
new 14
machin ,0
e 00

BV old 3,
machin 90
e 0

4,
50
Salvage Value (sale) - today 0
Salvage Value (sale) - end of useful life
 1,
80 50
0 0
Useful
life
remaini
ng 6 6

2,
00
Sales increase new machine 0

Reducti 1,
on in 90
OPEX 0
Working
Capital
impact:

2,
90
Increase in inventories 0
Incre
ase
in 70
A/P 0
35
.0
Tax 0
rate %
12
.0
WA 0
CC %
Depreci
ation: 1 2 3 4 5 6
20 32 19 11 11 5.
.0 .0 .2 .5 .5 7
0 0 0 2 2 6
Depn rate new machine % % % % % %
Dep
n-
new 2, 4, 2, 1, 1, 8
mac 80 48 68 61 61 0
hine 0 0 8 3 3 6
Dep
n-
old 6
mac 65 65 65 65 65 5
hine 0 0 0 0 0 0
Cha
 nge
in 2, 3, 2, 1
Dep 15 83 03 96 96 5
n 0 0 8 3 3 6

Incremental FCF after replacement of old machine:

0 1 2 3 4 5 6

New (14
Machin ,00
e Cost 0)
Sale of
old
Machin 4,5
e 00

(21
Tax on sale of old machine 0)

2,
2, 2, 2, 2, 2, 0
00 00 00 00 00 0
Increased Sales Revenues 0 0 0 0 0 0

1,
Decreas 1, 1, 1, 1, 1, 9
ed 90 90 90 90 90 0
OPEX 0 0 0 0 0 0

(2, (3, (2, (9 (9 (1

15 83 03 63 63 5
Change in Depn (new vs. old) 0) 0) 8) ) ) 6)

3,
1, 1, 2, 2, 7
75 86 93 93 4
Change in Operating Income 0 70 2 7 7 4

1,
1, 1, 3
Tax 61 65 02 02 1
es 3 25 2 8 8 0

(8
0
Opportunity cost of not selling old machine YR 6 0)

2
8
Tax effect of opportunity cost of not selling old machine YR 6             0
 5,
(11 3, 3, 3, 2, 2, 2
,91 28 87 24 87 87 4
Incremental Free Cash Flow 0) 8 6 8 2 2 5

$2,
NP 538
V .85

Assuming a payback period of 2.5 years project B should be undertaken because it

will be paid in a year and a half while project a should be rejected even though both
have positive NPV and IRRs over the cost of capital because it fails the payback
C period criteria

Cost
of
capita
l 5%
D
NPV $18,243,813.02
IRR 27%

If the cost of capital is 5% while both projects would be accaptable because both NPVS are
positive and because both IRRs are over the cost of capital, project A should be accepted
because it has the higher NPV and will maximize value

Cost
of
capita
l 15%
E
NPV $8,207,071
IRR 27%
If the cost of capital is 5% while both projects would be accaptable because both NPVS are
positive and because both IRRs are over the cost of capital, project A should be accepted
 because it has the higher NPV and will maximize value

F
Year Project A
0 $ (25,000,000) $ (25,000,000) 0
1 $ 5,000,000 $ 20,000,000 $ 15,000,000
2 $ 10,000,000 $ 10,000,000 0
3 $ 15,000,000 $ 8,000,000 $ (7,000,000)
4 $ 20,000,000 $ 6,000,000 $ (14,000,000)

IRR 13.53%

G
MIRR 21.93%

Total Liabilities and Equity

 profit margin
payout ratio

self-supporting growth= (profit margin(1- payout ratio))(sales)

Self- Supprting growth rate

Sales Increase =sales amount * supporting growht rate

Sales Increase
The War of 1812 (18 June 1812 – 17 February 1815) was fought by the United States of
America and its indigenous allies against the United Kingdom and its allies in British North America,
with limited participation by Spain in Florida. It began when the US declared war on 18 June 1812
and, although peace terms were agreed upon in the December 1814 Treaty of Ghent, did not
officially end until the peace treaty was ratified by Congress on 17 February 1815.[12][13]
(A)
(A)
372,00 223,000 (A)
0
4,049,400 964,000

(525,000 (224,000)
)
(62,50
0)
(682,375 (200,000) (S)
)
(1,311,625) (70,000 (S)
)
(1,467,900) (470,000) (S)
(4,049,400) (964,000)
itish concessions made in an attempt to avoid war did not reach the US until late July, by which time
the conflict was already underway.
At sea, the far larger Royal Navy imposed an effective blockade on US maritime trade, while
between 1812 to 1814 British regulars and colonial militia defeated a series of American attacks
on Upper Canada.[16] This was balanced by the US winning control of the Northwest Territory with
victories at Lake Erie and the Thames in 1813. The abdication of Napoleon in early 1814 allowed the
British to send additional troops to North America and the Royal Navy to reinforce their blockade,
crippling the American economy.[17] In August 1814, negotiations began in Ghent, with both sides
wanting peace; the British economy had been severely impacted by the trade embargo, while the
Federalists convened the Hartford Convention in December to formalise their opposition to the war.
In August 1814, British troops burned Washington, before American victories
at Baltimore and Plattsburgh in September ended fighting in the north. It continued in
the Southeastern United States, where in late 1813 a civil war had broken out between
a Creek faction supported by Spanish and British traders and those backed by the US. Supported by
American militia under General Andrew Jackson, they won a series of victories, culminating in the
capture of Pensacola in November 1814.[18] In early 1815, Jackson defeated a British attack on New
Orleans, catapulting him to national celebrity and later victory in the 1828 United States presidential
election.[19] News of this success arrived in Washington at the same time as that of the signing of the
Treaty of Ghent, which essentially restored the position to that prevailing before the war. While
Britain insisted this included lands belonging to their Native American allies prior to 1811, Congress
did not recognize them as independent nations and neither side sought to enforce this requirement.