Ch 10 Advanced Problem 2\tChapter 13 Problem 18\tChapter 12 Problem 17\tCh 11 Advanced problem 1\t\u00a0\tADVANCED PROBLEMS FOR SPREADSHEET APPLICATION\tThese problems are available in\u00a0MyFinanceLab.\t1.\tErosion costs. Ice Cream City plans to introduce a new flavor, wild berry, to its current set of five flavors, which include vanilla, French vanilla, strawberry, chocolate, and mint chocolate. The new sales of wild berry are projected as follows:\tThe expected sales will come from both new customers and current customers who switch flavors. The current projected sales for the existing flavors (assuming no introduction of the new flavor) are\tProjected Sales\tHowever, if the company introduces wild berry, it will cut into the sales of the original flavors based on the following estimates:\tPercentage of Sales Erosion\tHere are the revenue and cost per unit of ice cream for Ice Cream City:\tVanilla: current revenue of $3.05 per unit and cost of $1.22 per unit\tFrench vanilla: current revenue of $3.15 per unit and cost of $1.38 per unit\tStrawberry: current revenue of $3.25 per unit and cost of $1.41 per unit\tChocolate: current revenue of $3.25 per unit and cost of $1.57 per unit\tMint chocolate: current revenue of $3.25 per unit and cost of $1.63 per unit\tWild berry: projected revenue of $3.25 per unit and cost of $1.44 per unit\tFind the annual erosion of revenue, the cost savings, and the net cash flow with the new ice cream.\t\u00a0\tCh 11 Advanced problem 1\t\u00a0\tChanging WACC and optimal choice. Austin Enterprises is currently an all-equity firm. The firm is considering selling debt (bonds) and retiring some of the equity. However, at each level of debt, debt becomes more\u00a0expensive (cost of debt is rising), and the riskiness of the equity also rises with more and more debt. Using a spreadsheet, determine the best combination of debt and equity for Austin Enterprises if\t\u00b7 \ufffd\u00a0\u00a0\u00a0 The current beta of Austin Enterprises is 0.85.\t\u00b7 \ufffd\u00a0\u00a0\u00a0 The current market return is 12%.\t\u00b7 \ufffd\u00a0\u00a0\u00a0 The current risk-free rate is 3%.\t\u00b7 \ufffd\u00a0\u00a0\u00a0 The total equity is 20,000,000 shares at $25 per share.\t\u00b7 \ufffd\u00a0\u00a0\u00a0 Debt is sold in units of $2,000,000.\t\u00b7 \ufffd\u00a0\u00a0\u00a0 The first unit of debt has a cost of 7.5%.\t\u00b7 \ufffd\u00a0\u00a0\u00a0 The tax rate of Austin Enterprises is 40%.\t\u00b7 \ufffd\u00a0\u00a0\u00a0 For each additional unit of debt (each additional $2,000,000), the cost of debt rises by 0.85%, and the beta of Austin Enterprises rises by 0.025.\tWhere is the WACC the lowest? Graph the results of the changing WACC\tChapter 12 Problem 17\tWorking capital and capital budgeting. Farbuck’s Tea Shops is thinking about opening another tea shop. The incremental cash flow for the first five years is as follows:\t\u00b7 \ufffd\u00a0\u00a0\u00a0 Initial capital cost = $3,500,000\u00a0Operating cash flow for each year = $1,000,000\u00a0Recovery of capital assets after five years = $250,000\tThe hurdle rate for this project is 12%. If the initial cost of working capital is $500,000 for items such as teapots, teacups, saucers, and napkins, should Farbuck’s open this new shop if it will be in business for only five years? What is the most it can invest in working capital and still have a positive net present value?\t\u00a0\tChapter 13 Problem 18\tWorking capital and capital budgeting. Working capital investment is 25% of the anticipated first year sales for Wally’s Waffle House. The first-year sales are currently projected at $4,300,000. The incremental cash flow (not including working capital investment) is\t\u00b7 \ufffd\u00a0\u00a0\u00a0 Initial cash flow = $13,700,000 outflow\u00a0Cash flow years 1 through 10 = $2,850,000\tWhat is the internal rate of return of the ten-year project with working capital factored into the cash flow? What is the net present value at a 15% weighted average cost of capital? What is the maximum investment in working capital for an acceptable project with a 15% weighted average cost of capital?<\/p>\n","protected":false},"excerpt":{"rendered":"
Ch 10 Advanced Problem 2 Chapter 13 Problem 18 Chapter 12 Problem 17 Ch 11 Advanced problem 1 \u00a0 ADVANCED PROBLEMS FOR SPREADSHEET APPLICATION These problems are available in\u00a0MyFinanceLab. 1. Erosion costs. Ice Cream City plans to introduce a new Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-216697","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/216697","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=216697"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/216697\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=216697"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=216697"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=216697"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}