# Fin/571 Essay example

753 Words May 23rd, 2014 4 Pages
Wiley PLUS Week 6 Assignment Fernando Miller
FIN/571
April 15, 2014
Reza Rafi

10.14 Net present value: Briarcrest Condiments is a spice-making firm. Recently, it developed a new process for producing spices. The process requires \$1,968,450, have a life of five years, and would produce the cash flows shown in the following table. What is the NPV if the discount rate is 15.9 percent?

Year Cash Flow
1 \$512,496
2 \$242,637
3 \$814,558
4 \$887,225
5 \$712,642
Source: http://www.investopedia.com/calculator/netpresentvalue.aspx
Net Present Value:
\$10,037.20
PV of Expected Cash flows:
\$1,978,487.20

11.20 FCF and NPV for a project: Archer Daniels Midland Company is considering buying a new farm that it plans to
NPV 3 Year = \$2,554.47 Answer
12.24 Scenario analysis: Chip's Home Brew Whiskey management forecasts that if the firm sells each bottle of Snake-Bite for \$20, then the demand for the product will be 15,000 bottles per year, whereas sales will be 90 percent as high if the price is raised 10 percent. Chip'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 firm's FCF for the year?
Factors: \$20 each, 15K per yr, 90% as high if price raised 10%, \$10 each variable cost, 100K fixed cash cost per year, 20K Depr/Amort, 30% Marginal tax, 3k per year working cap
Effect of price increase on FCF for the year: 1st year = \$38K 2nd year = \$46.4K 1st year 2nd Year
Units Sold 15K 13,500
Price \$20 \$22
VC \$10 \$10

Revenue \$300K \$297K
- VC \$150K \$135K
- FC \$100K \$100K
EBIDA \$50K \$62K
-D/A \$20K \$20K
EBIT \$30K \$42K
-TAX \$9K \$12.6K
NoPAT \$21K \$29.4K
+D/A \$20K \$20K

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