Question

1. You are thinking of buying a miniature golf course to operate. It is expected to generate cash flows of $45,000 per year in years one through three and $55,000 per year in years four through eight. If the appropriate discount rate is 12%, what is the most you would pay for this golf course? Show calculations

2.

2. Your team is evaluating two mutually exclusive projects. The initial cost of each investment is $50,000. The probability of the cash flows is shown below. If the project will have a 5 year life and the appropriate cost of capital is 9% calculate the following:

Probability	CF(A)	CF(B)
10%	(34,000)	(13,500)
25%	(8,500)	2,125
30%	17,000	19,000
25%	42,500	31,875
10%	68,000	46,750

1.Expected value

2. NPV

3.Standard deviation

4. IRR

5. MIRR

Use the information below for the next problem

Depreciation	34,000
EBIT	179,000
Investment in Operating Assets	69,000
Tax Rate	34%
Find the free cash flow

3. Calculate the free cash flow

Use the following information for the next problem

The Security Market Line
	Security X	Market
Beta	0.76	1
Expected Return	?	12%
If the risk free rate is	2.80%
Find the expected return on security X

4. What is the expected return for Security X?

Answer 1

Jake that realeld ol Calculation of pay for Maximum the golf amount course Maximum Smount to be paid for golf Course is the Present Value of Expected Cashflow's from it discounted Using Appropriate discount Rate. Discount Rate = 12% Pu: Castillow (1t Discaunt Rate ) year Year Cashflaw's (ind) Present Value @ 12% Griven (1+ Discount 45,000 (1+.12)') 45000 (1+122) 45,000 3) Lt.12 S5.000 4 C t .12 % N- 45,000 45.000 45,000 55.000 55.000 55.000 55.000 55.000 oo Hans WIN 40, 178.57 35.873.72 32,630.11 34.953.50 31,208.48 27.864.71 24.879. 20 22.213.58 155.000 T+.127 _SS.OOO 17:12) 55,000 7 It.12) $5.00 g 7+12) Present Solus of Annual Conflan - $ 22 249, 201.87 Most we Wold pay for golf course is $249,201.87 249,201.87