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Question 1 40 / 40 pts Jobs R Us, Inc
Question 1
40 / 40 pts
Jobs R Us, Inc. is a recruiting firm that specializes in post – college placement in the finance industry. Its clients are currently concentrated in the North-Eastern United States. It is contemplating expanding into the Mid-West and accesses the risk of the new venture to be similar to that of the existing company.
Your RBS summer intern created a summary for Jobs R Us, Inc. potential in the Midwest market over the next 5 years:
- Revenue is expected to be $7,500,000 in the first year and grow 8% per year for the next 4 years.
- Variable cost is expected to be 45% of revenue.
- Fixed cost (including depreciation) is expected to be $1,250,000 of revenue each year.
- Depreciation expense is expected to be $75,000 each year.
- Maintenance capex is expected to be $150,000 each year.
- Change in Net working capital is expected to be $100,000 in year 1, growing at the same percentage as revenue thereafter.
- Taxes are 40%.
- Initial investment today is estimated to be $2,500,000.
- After tax cost of capital is 12%
What is the NPV?
(answer in millions. round to 1 decimal)
20 / 20 pts
Harley-Davidson Inc. produces motorcycles, motorcycle parts and related accessories and merchandise in the United States and internationally. It is headquartered in Milwaukee, Wisconsin.
Use the following information on Harley-Davidson and five other similar companies to value Harley-Davidson as of December 31, 2004.(answer in billions. round to 1 decimal)
| Harley-Davidson Inc. 2004 ($ millions) | Price/earnings (x) | ||||
| Net income | $ 889.77 | Arctic Cat | 16.9 | ||
| Number of common shares, millions | 294.31 | Brunswick | 17.8 | ||
| Earnings before interest and tax | $ 1,506.16 | Polaris Industries | 27.8 | ||
| Tax rate | 35.0% | Marine Products | 28.6 | ||
| Book value of equity | $ 3,218.47 | Winnebago Industries | 18.6 | ||
| Book value interest-bearing debt | $ 1,295.44 | ||||
| Total Sales | $ 5,320.45 | ||||
| Total Assets | $ 5,483.29 |
15 / 15 pts
Consider the following cash flows:
| CF0 | CF1 | CF2 |
| $(6,750) | $4,500 | $18,000 |
Calculate the net present value of the above project for discount rate of 15%.
(round answer to nearest whole dollar)
15 / 15 pts
Consider the following cash flows:
| CF0 | CF1 | CF2 |
| $(6,750) | $4,500 | $18,000 |
Calculate the IRR of the above project for discount rate of 15%. (answer in %)
10 / 10 pts
Consider the following cash flows:
| CF0 | CF1 | CF2 |
| $(6,750) | $4,500 | $18,000 |
Calculate the payback of the above project for discount rate of 15%.
(round to 2 decimal points)
Expert Solution
Question 1
40 / 40 pts
Jobs R Us, Inc. is a recruiting firm that specializes in post – college placement in the finance industry. Its clients are currently concentrated in the North-Eastern United States. It is contemplating expanding into the Mid-West and accesses the risk of the new venture to be similar to that of the existing company.
Your RBS summer intern created a summary for Jobs R Us, Inc. potential in the Midwest market over the next 5 years:
- Revenue is expected to be $7,500,000 in the first year and grow 8% per year for the next 4 years.
- Variable cost is expected to be 45% of revenue.
- Fixed cost (including depreciation) is expected to be $1,250,000 of revenue each year.
- Depreciation expense is expected to be $75,000 each year.
- Maintenance capex is expected to be $150,000 each year.
- Change in Net working capital is expected to be $100,000 in year 1, growing at the same percentage as revenue thereafter.
- Taxes are 40%.
- Initial investment today is estimated to be $2,500,000.
- After tax cost of capital is 12%
What is the NPV?
(answer in millions. round to 1 decimal)
Correct!
Correct Answers
4.4 (with margin: 0.5)
Correct
20 / 20 pts
Harley-Davidson Inc. produces motorcycles, motorcycle parts and related accessories and merchandise in the United States and internationally. It is headquartered in Milwaukee, Wisconsin.
Use the following information on Harley-Davidson and five other similar companies to value Harley-Davidson as of December 31, 2004.(answer in billions. round to 1 decimal)
| Harley-Davidson Inc. 2004 ($ millions) | Price/earnings (x) | ||||
| Net income | $ 889.77 | Arctic Cat | 16.9 | ||
| Number of common shares, millions | 294.31 | Brunswick | 17.8 | ||
| Earnings before interest and tax | $ 1,506.16 | Polaris Industries | 27.8 | ||
| Tax rate | 35.0% | Marine Products | 28.6 | ||
| Book value of equity | $ 3,218.47 | Winnebago Industries | 18.6 | ||
| Book value interest-bearing debt | $ 1,295.44 | ||||
| Total Sales | $ 5,320.45 | ||||
| Total Assets | $ 5,483.29 |
Correct!
Correct Answers
20.8 (with margin: 1)
Correct
15 / 15 pts
Consider the following cash flows:
| CF0 | CF1 | CF2 |
| $(6,750) | $4,500 | $18,000 |
Calculate the net present value of the above project for discount rate of 15%.
(round answer to nearest whole dollar)
Correct!
Correct Answers
10,774 (with margin: 1)
Correct.
15 / 15 pts
Consider the following cash flows:
| CF0 | CF1 | CF2 |
| $(6,750) | $4,500 | $18,000 |
Calculate the IRR of the above project for discount rate of 15%. (answer in %)
Correct!
Correct Answers
100 (with margin: 1)
Correct
10 / 10 pts
Consider the following cash flows:
| CF0 | CF1 | CF2 |
| $(6,750) | $4,500 | $18,000 |
Calculate the payback of the above project for discount rate of 15%.
(round to 2 decimal points)
Correct!
Correct Answers
1.13 (with margin: 0.01)
Correct
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