Question 1 (a) HBV Incorporated is deciding whether to purchase equipment costing $754 000 that will enable it to reduce its labour costs by $137 000 per year for 13 years. The company expects to be able to salvage the equipment for $66 000 at the end, even though it will have been depreciated straight-line to zero over the first 6 years. The company tax rate is 30%. All payments occur at the end of each year. Complete the table below (or as many lines as you need) to determine the free cash flows each year. Item Year 0 Years 1 to 6 Years 7 to 12 Year 13 TOTAL FREE CASH FLOW (b) Suppose instead the cash flows per year turned out to be: Item Year 0 Years 1 to 6 Years 7 to 12 Year 13 TOTAL FREE CASH FLOW $-685 000 $143 000 $88 000 $117 000 Determine the internal rate of return (IRR) of those cash flows. There are several ways you can do this, besides trial and error, for example by using an Excel spreadsheet and the IRR function. Show how you did it. 21283043 (c) Sketch the NPV as a function of discount rate for the figures in (b) and label the significant points on the curve. This can be a hand sketch constructed using the significant points, or it can be a plot from Excel or similar. 21283043 Question 2 2 years ago you bought a mobile phone on a 3-year contract which cost you $0 up front and requires monthly payments of $69 at the end of each month. Today your friend Elizabeth Williams tells you she just bought a similar phone from another company for $126 up front and payments of only $50 at the end of each month. Furthermore, on the new plan, she can continue to pay the same $126 every 3 years to get a new handset. (a) If your friend stays on the new plan for ever, and continues to buy a new handset every 3 years, what is the NPV of her decision to sign up? Both you and Elizabeth have a discount rate of 1.04% per month. (b) You are wondering whether to break your contract and switch to the new provider to get the lower monthly rate. Your current provider has a break clause which means you have to pay a fee of $410 to terminate the contract today. Meanwhile the new phone company is so keen to attract new business they are offering financial incentives for customers from other providers. They are willing to pay you an amount today towards your costs of breaking your old contract if you sign up for 3 years. You would also have to bring your own handset initially (which the old company will unlock as part of the break fee) but then every 3 years you can pay the $126 to get a new handset. If you don’t switch now, your contract expires in 1 year and you can take up the fresh offer at that date like Elizabeth has today. How much would the incentive need to be for it to be worthwhile for you to break the old contract today? Assume used mobile phones have no salvage value. 21283043 Question 3 A 15-year project is expected to earn $312 700 after tax in its first year, and the annual amount is expected to grow through the life of the project at the inflation rate of 1.7% per annum. Your discount rate is 6.89% per annum. (a) Calculate the PV of this project using real cash flows. (b) Calculate the PV of this project using nominal cash flows. You should get the same present value. (Hint: This is a growing annuity. Either look up a formula for that, or recognise the growing annuity is the difference between two growing perpetuties and use the Gordon growth model for the growing perpetutities.) 21283043 Question 4 SJV Corporation is considering purchasing a machine for $827 000 which can produce green gizmos. The machine has a life of 7 years and then would have to be scrapped for no residual value. SJV will exit the green gizmo market whenever the machine is scrapped. The profit on each green gizmo is $2.74. SJV estimates there is a 66% probability that sales will be 16000 green gizmos per year, and 34% probability the sales will be 62000 green gizmos per year. The sales figures will become known during the first year, and will stay constant from then on, throughout the project. At the end of the 3rd year, SJV has an option to spend $185 000 on the machine to extend its life by a further 7 years, so it would have a total life of 14 years. There is no inflation and no tax. (a) Draw a decision tree. 21283043 (b) Determine the NPV of this project if SJV’s cost of capital is 10% per annum. 21283043
Why Hire a Professional Essay Writer from essayprohire
The quality of an essay is important
If you want to be successful in the essay writing world, it’s important to make sure that the quality of your work is high. A professional essay writer from us will be able to provide you with high-quality papers, and they will also have the experience necessary to write effective essays. This means that you won’t have to worry about any errors or problems with your essays – they will be perfect.
Our Customer service is top-notch
If you have a problem with your essay, or if you just need a little help writing it, then you should contact our customer service. Our customer service is always available to help you with whatever you need – from getting your essay correct to helping you with the grammar and punctuation. We’re here to help, so don’t hesitate to call us today!
Our offer on Unlimited Revisions
If you're looking for essaywriting help, then you should definitely consider getting help from a essaywritinghelpnow. However, if you're not sure what you need or whether you have the time or resources to do the research yourself, then you might want to consider getting unlimited revisions done by our team of experts. O
Our guarantee to Confidentiality
We understand the importance of confidentiality, and we will never share your personal information with anyone without your permission. That’s why we offer a one-year guarantee that your essays will remain confidential. If you decide that you no longer want us to write your essays, we will still respect your privacy and will destroy all the evidence that we had of your work.
We believe that it is important to have a reliable and trustworthy essaywriter. That’s why we offer a 100% satisfaction guarantee on all of our essays. We take the time to get to know our clients, and we will always make sure that our essays are of the highest quality. We understand that not everyone is happy with their first essay, so we want to make sure that you’re always satisfied with the results of our work.
Our punctuality and quality
At our company, we pride ourselves on our punctuality and quality. We understand that it can be difficult to get essays written on time, and we’re here to help you out! Our writers are always available to help you with your essay, and we guarantee that you’ll receive the best possible product. We also have a strict no-nonsense policy when it comes to plagiarism, so you can be sure that your essay will be of the highest quality.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
So much stress and so little time? Take care of yourself: let us help you with your tasks. We offer all kinds of writing services.
No matter what kind of academic paper you need and how urgent you need it, you are welcome to choose your academic level and the type of your paper at an affordable price. We take care of all your paper needs and give a 24/7 customer care support system.
Admission and Business Papers
An admission essay is an essay or other written statement by a candidate, often a potential student enrolling in a college, university, or graduate school. You can be rest assurred that through our service we will write the best admission essay for you.
Editing and Proofreading
Our academic writers and editors make the necessary changes to your paper so that it is polished. We also format your document by correctly quoting the sources and creating reference lists in the formats APA, Harvard, MLA, Chicago / Turabian.
If you think your paper could be improved, you can request a review. In this case, your paper will be checked by the writer or assigned to an editor. You can use this option as many times as you see fit. This is free because we want you to be completely satisfied with the service offered.