1. Consider the following cash flows of two mutually exclusive projects for Spartan Rubber Company. Assume the discount rate for Spartan Rubber Company is 11 percent. Year Dry Prepreg Solvent Prepreg 0 $ 1,790,000 $ 795,000 1 1,109,000 420,000 2 918,000 690,000 3 759,000 408,000 ________________________________________ a. What is the payback period for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) Payback period Dry Prepreg years Solvent Prepreg years ________________________________________ b. What is the NPV for each project? (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).) NPV Dry Prepreg $ Solvent Prepreg $ ________________________________________ c. What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).) IRR Dry Prepreg % Solvent Prepreg % ________________________________________ d. Calculate the incremental IRR for the cash flows. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Incremental IRR % 2. Mario Brothers, a game manufacturer, has a new idea for an adventure game. It can market the game as a traditional board game or as an interactive CD-ROM, but not both. Consider the following cash flows of the two mutually exclusive projects for Mario Brothers. Assume the discount rate for Mario Brothers is 8 percent. Year Board Game CD-ROM 0 $ 1,750 $ 3,800 1 800 2,300 2 1,500 1,680 3 320 1,350 ________________________________________ a. What is the payback period for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places (e.g., 32.16).) Payback period Board game years CD-ROM years ________________________________________ b. What is the NPV for each project? (Do not round intermediate calculations and round your final answers to 2 decimal places (e.g., 32.16).) NPV Board game $ CD-ROM $ ________________________________________ c. What is the IRR for each project? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places (e.g., 32.16).) IRR Board game % CD-ROM % ________________________________________ d. What is the incremental IRR? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Incremental IRR % 3. Suppose you are offered a project with the following payments: Year Cash Flows 0 $ 8,700 1 ?4,700 2 ?3,400 3 ?2,500 4 ?1,000 ________________________________________ a. What is the IRR of this offer? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) IRR % b. If the appropriate discount rate is 11 percent, should you accept this offer? Reject Accept c. If the appropriate discount rate is 24 percent, should you accept this offer? Accept Reject d-1. What is the NPV of the offer if the appropriate discount rate is 11 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places (e.g., 32.16).) NPV $ d-2. What is the NPV of the offer if the appropriate discount rate is 24 percent? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places (e.g., 32.16).) NPV $ 4. Sanborn Corp. is comparing two different capital structures. Plan I would result in 9,000 shares of stock and $80,000 in debt. Plan II would result in 7,500 shares of stock and $120,000 in debt. The interest rate on the debt is 8 percent. a. Ignoring taxes, compare both of these plans to an all-equity plan assuming that EBIT will be $50,000. The all-equity plan would result in 12,000 shares of stock outstanding. What is the EPS for each of these plans? (Do not ro…
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