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Chapter 6 and 7

Decent Essays

Problems/Answers: FIN 534
I have provided the answers to Chapters 6 and 7, you are to provide the solutions and explanations, namely, how were you able to determine the same answers. I want to see, how you go about solving these problems. I would encourage you to use the MyFinanceLab and go over the previous Chapters. Keep in mind that these responses are due, November 1, 2010. I will use your submission to grade you and not the group work that you did in class, last Thursday. I trust that you will find this helpful. Also, provide all submissions to the dropbox. I am in the process of setting it up. So give me until Monday before you start with your submission. MY QUESTIONS WILL BE IN BOLD CAPS.
Chapter 6:
Problem 3: 6-3. You are …show more content…

g. Interest expense on the debt borrowed to pay the construction costs.
a. No, WHY, EXPLAIN?
b. Yes, WHY, EXPLAIN?
c. Yes, WHY, EXPLAIN?
d. No, WHY, EXPLAIN?
e. This is a capital expenditure associated with opening the new store. WHY, EXPLAIN?
f. Yes, this is an opportunity cost of opening the new store. WHY, EXPLAIN?
g. WHY, EXPLAIN?

Problem 9: 7-9. Elmdale Enterprises is deciding whether to expand its production facilities. Although long-term cash flows are difficult to estimate, management has projected the following cash flows for the first two years (in millions of dollars): a. What are the incremental earnings for this project for years 1 and 2?
b. What are the free cash flows for this project for the first two years?
a.
Year 1 2
Incremental Earnings Forecast ($000s)
1 Sales
2 Costs of good sold and operating expenses other than depreciation
3 Depreciation
4 EBIT
5 Income tax at 35%
6 Unlevered Net Income 39.0 41.6

FILL IN THE NUMERS USED TO DETERMINE UNLEVERED NET INCOME

b.

Free Cash Flow ($000s) 1 2
7 Plus: Depreciation
8 Less: Capital Expenditures
9 Less: Increases in NWC
10 Free Cash Flow 29.0 29.6 FILL IN THE NUMERS USED TO DETERMINE FREE CASH FLOW Problem 15: 7-15. Markov Manufacturing recently spent $15 million to purchase some equipment used in the manufacture of disk drives. The firm expects that this equipment will have a

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