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**Problem 10.14**

Briarcrest Condiments is a spice-making firm. Recently, itdeveloped a new process for producing spices. The process requiresnew machinery that would cost $2,309,189. have a life of fiveyears, and would produce the cash flows shown in the followingtable.

Year Cash Flow

1 $484,309

2 -290,218

3 849,177

4 1,048,611

5 766,304

What is the NPV if the discount rate is 12.47 percent? (Enternegative amounts using negative sign e.g. -45.25. Round answer to 2decimal places, e.g. 15.25.)

NPV is $

**Problem 11.20**

Archer Daniels Midland Company is considering buying a new farmthat it plans to operate for 10 years. The farm will require aninitial investment of $12.10 million. This investment will consistof $2.30 million for land and $9.80 million for trucks and otherequipment. The land, all trucks, and all other equipment isexpected to be sold at the end of 10 years at a price of $5.29million, $2.30 million above book value. The farm is expected toproduce revenue of $2.06 million each year, and annual cash flowfrom operations equals $1.90 million. The marginal tax rate is 35percent, and the appropriate discount rate is 10 percent. Calculatethe NPV of this investment. (Round intermediate calculations andfinal answer to 2 decimal places, e.g. 15.25.)

NPV $

The project should be

.

**Problem 11.24**

Bell Mountain Vineyards is considering updating its current manualaccounting system with a high-end electronic system. While the newaccounting system would save the company money, the cost of thesystem continues to decline. The Bell Mountain’s opportunity costof capital is 15.3 percent, and the costs and values of investmentsmade at different times in the future are as follows:

Year Cost Value of Future Savings

(at time of purchase)

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 nearestwhole dollar, e.g. 5,275.)

The NPV of each choice is:

NPV0 = $

NPV1 = $

NPV2 = $

NPV3 = $

NPV4 = $

NPV5 = $

Suggest when should Bell Mountain buy the new accountingsystem?

Bell Mountain should purchase the system in .

**Problem 12.24**

Chip’s Home Brew Whiskey management forecasts that if the firmsells each bottle of Snake-Bite for $20, then the demand for theproduct will be 15,000 bottles per year, whereas sales will be 84percent as high if the price is raised 18 percent. Chip’s variablecost per bottle is $10, and the total fixed cash cost for the yearis $100,000. Depreciation and amortization charges are $20,000, andthe firm has a 30 percent marginal tax rate. Management anticipatesan increased working capital need of $3,000 for the year. What willbe the effect of the price increase on the firm’s FCF for the year?(Round answers to nearest whole dollar, e.g. 5,275.)

At $20 per bottle the Chip’s FCF is $ and at the new price Chip’sFCF is $ .

**Problem 13.11**

Capital Co. has a capital structure, based on current marketvalues, that consists of 37 percent debt, 16 percent preferredstock, and 47 percent common stock. If the returns required byinvestors are 11 percent, 11 percent, and 15 percent for the debt,preferred stock, and common stock, respectively, what is Capital’safter-tax WACC? Assume that the firm’s marginal tax rate is 40percent. (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 =

%