【正文】 e 6,000 6,000 6,800 14,480 14,480 5,760 4 Tax 2,100 2,100 2,380 5,068 5,068 2,016 Cash Flow 100,000 23,900 28,100 23,620 20,932 20,932 2,016 NPV (at 8%) = $4,127 b. IRRA = % IRRB = % Effective tax rate = 3 2 . 2 %0 . 3 2 20 . 0 9 4 30 . 0 6 3 91 ??? 10. Marsha Jones, whom you met in the Chapter 3 Minicase, has bought a used Mercedes horse transporter for her Connecticut estate. It cost $35,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $200 per day plus $ per mile. Most of the trips are 40 or 50 miles oneway. Marsha usually gives the driver a $40 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $.45 per mile. Insurance costs for Marsha’s transporter are $1,200 per year. The transporter will probably be worth $15,000 (in real terms) after eight years, when Marsha’s horse Nike will be ready to retire. Is the transporter a positiveNPV investment? Assume a nominal discount rate of 9 percent and a 3 percent forecasted inflation rate. Marsha’s transporter is a personal outlay, not a business or financial investment, so taxes can be ignored. The table below shows the real cash flows. The NPV is puted using the real rate, which is puted as follows: (1 + rnominal) = (1 + rreal) ? (1 + inflation rate) = (1 + rreal) ? () rreal = = % t = 0 t = 1 t = 2 t = 3 t = 4 t = 5 t = 6 t = 7 t = 8 Investment 35, 15, Savings 7, 7, 7, 7, 7, 7, 7, 7, Insurance 1, 1, 1, 1, 1, 1, 1, 1, Fuel Net Cash Flow 35, 5, 5, 5, 5, 5, 5, 5, 20, NPV (at %) = $10, 18. The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs: Year Machine A Machine B 0 $40,000 $50,000 1 10,000 8,000 2 10,000 8,000 3 10,000 + replace 8,000 4 8,000 replace 8,000 These costs are expressed in real terms. a. Suppose you are Borstal’s financial manager. If you had to buy one or the other machine 5 and rent it to the production manager for that machine’s economic life, what annual rental payment would you have to charge? Assume a 6 percent real discount rate and ignore taxes. b. Which machine should Borstal buy? c. Usually the rental payments you derived in part (a) are just hypothetical— a way of calculating and interpreting equivalent annual cost. Suppose you actually do buy one of the machines and rent it to the production manager. How much would you actually have to charge in each future year if there is steady 8 percent per year inflation? (Note: The rental payments calculated in part (a) are real cash flows. You would have to mark up those payments to cover inflation.) a. 32A 1 . 0 61 0 , 0 0 01 . 0 61 0 , 0 0 01 . 0 61 0 , 0 0 04 0 , 0 0 0PV ???? = $66,730 (Note that this is a cost.) 432B 1 . 0 68 , 0 0 01 . 0 68 , 0 0 01 . 0 68 , 0 0 01 . 0 68 , 0 0 05 0 , 0 0 0PV ????? $77,721 (Note that this is a cost.) Equivalent annual cost (EAC) is found by: PVA = EACA ? [annuity factor, 6%, 3 time periods] 66,730 = EACA ? EACA = $24,964 per year rental PVB = EACB ? [annuity factor, 6%, 4 time periods] 77,721 = EACB ? EACB = $22,430 per year rental b. Annual rental is $24,964 for Machine A and $22,430 for Machine B. Borstal should buy Machine B. c. The payments would increase by 8 percent per year. For example, for Machine A, rent for the first year would be $24,964。 thus, the risk premium for the stock is 3%. c. After the refinancing: ???????????????? ?????? Er ED EDr ED DAr = ( ? ) + ( ? rE) rE = = % After the refinancing, the risk premium for the stock is 6%. d. The required return for the debt is 5%, the riskfree rate. e. The required return for the pany remains at 8%. f. Let E be the operating profit of the pany and N the number of shares outstanding before the refinancing. Also, we know that E is (). Thus, the earnings per share before the refinancing is: EPSB = After the refinancing the operating profit is still E and the number of shares is ( ? N). Interest on the debt is 5% of the value of the debt, which is ( ? V). Thus, the earnings per share after the refinancing is: EPSA = [ – ( ? ? V)]/( ? N) = It follows that earnings per share has increased by %. g. Before the refinancing, the P/E ratio is . The price of the mon stock is the same before and after the refinancing, but the earnings per share has increased from () to (). (See Part (f) above.) Thus, the new P/E ratio is . 12 a. Because the firms are identical except for capital structure, and there are no taxes or other market imperfections, the total values of these panies must be the same. Thus, L’s stock is worth: ($500 $400) = $100. b. If you own $20 of U’s mon stock, you own 4% of the outstanding shares and, thus, are entitled to ( ? $150) = $6 if there is a boom and ( ? $50) = $2 if there is a slump. The equivalent investment is to purchase 4% of L’s outstanding stock, which will cost ( ? $100) = $4, and to invest $16 at the riskfree rate. The total amount invested is the same ($20). In a boom, you are entitled to: [( ? $16) + () ? ($150 $40)] = $6, and in a slump you are entitled to: [( ? $16) + () ? ($50 $40)] = $2. c. If you own $20 of L’s mon stock, you own 20% of the outstanding shares and, thus, are entitle