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Homework answers / question archive / 1)Beastley Corp
1)Beastley Corp. founded by Martin and Allen Beastley brothers with registered capital $280,000. All the capital is formed and issued with $1000 par value common stocks. Allen gives his villa in exchange for one hundred stocks. Which of the following is true? *
The villa is valued at $140,000
Allen has 40 percent of Beastley Corp.
Allen has 50 percent of Beastley Corp.
The villa is valued at $100,000
2)A company is trying to determine whether to expand its business by building a new manufacturing plant. The initial cash outflow for the project will be $14,600. The required return is 11 percent. The new plant will generate cash inflows over four years. These cash inflows will be $3,900 for the first year, S5,000 for the second year. $6.400 for the third year, and $7,800 for the fourth year. What is the net present value? Enter your answer as dollars with 2 digits to the right of the decimal point in the box shown below.
1)Par value per share is given as $1,000.
Villa is given as capital in exchange for 100 shares. This amounts to $100,000 of par value of shares.
Therefore, the villa is valued at $100,000.
Answer is the last choice given.
2)
Given:
Initial cash outflow = $14,600
Cash inflow in year 1 (C1) = $3,900
Cash inflow in year 2 (C2) = $5,000
Cash inflow in year 3 (C3) = $6,400
Cash inflow in year 4 (C4) = $7,800
Required rate of return (r) = 11% or 0.11
Calculations of present value of cash inflows of year 1 to 4
PV of cash inflows = {C1 /(1+r)^1} + {C2 / (1+r)^2} + {C3 / (1+r)^3} + {C4 / (1+r)^4}
= {$3,900 /(1+ 0.11)^1} + {$5,000 / (1 + 0.11)^2} + {$6,400 / (1+0.11)^3} + {$7,800 /(1 + 0.11)^4}
= $3513.51351 + $4,058.11217 + $4,679.62484 + $5,138.1016
= $17,389.35
NPV = PV of cash inflow - Initial cash outflow
= $17,389.35 - $14,600
= $2,789.35
