1. ACI Group is evaluating the proposal of a new RMG factory called ACI Exclusive Fabrics. The project will have a life cycle of six years. The Group has forecasted a strong sales growth in RMG business and, therefore, wants to evaluate a new project plan. ACI Group is renting premises of 50,000 Square feet in Savar, and ACI Exclusive Fabrics is planning to use 10,000 Square feet from this facility. The rest of the premise is currently being used by another RMG factory of ACI Group called ACI Fabrics. The ACI Fabrics has already started its production. Using the new machine, ACI Fabrics is selling 50,000 cloth per year at $4 per cloth. The total capital cost for ACI Exclusive Fabrics is USD 80,000 and is depreciated using the straight-line method over six years to a zero-salvage value. The cash flow from assets for ACI Exclusive Fabrics is USD 35000 in the first year, followed by USD 30000 in the second year and USD 25000 in the third year. The annual total rent of 50,000 Square feet premise is USD 35,000. The cash flow from assets for ACI Exclusive Fabrics will be USD 20,000 in the fourth year and USD 15000 in the fifth year. ACI Exclusive Fabrics will need to annually pay USD 6000 as staff's festival bonus. Assume. Initially, ACI Exclusive Fabrics will require USD 5,000 in working capital for this project. However, after the project, they will not receive any amount from the working capital. The monthly salary expense will be USD 3500, whereas the annual utility and other expenses will be USD 3,000. The required rate of return for ACI Exclusive Fabrics is 10%, and for ACI Fabrics is 14 percent. The tax rate is zero percent and cash flow from assets in the final year is USD 10,000. Besides, there are no additional cash inflows and outflows from this project.  Calculate the NPV for ACI Exclusive Fabrics. Show detailed calculation.
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3. Square Group is currently renting a premises of 40,000 Square feet in Savar for operating its RMG business. Square Group has forecasted a strong sales growth in the RMG business and therefore, wants to evaluate a new machine plan. Under this new machine purchase plan, Square fabrics have requested you to determine the initial investment required to replace an old machine with a new machine. Using the new machine, the company will sell 50,000 cloth per year at $4 per cloth. The proposed new machine's purchase price is $390,000, and the firm has found a buyer willing to pay $280,000 for the present machine. Besides, an additional $40,000 will be necessary to install it. The current book value of the existing machine is $69,600. The firm pays taxes at a rate of 40%. Show detailed calculation process.
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5. ACI is considering investing $10,000 in either of two projects—A or B. Project A have a project life of 5 years and project B has a project life of 6 years.  At the end of the year, 5 ACI estimates that project A can be sold to net $1,200 and at the end of year six project B can be sold to net $1,500. For project A, the cash flows over the five-year life of the project will be $2,000 in the first two years, $4,000 in the next two, and $5,000 in the last year. For project B, the cash flows over the six-year life of the project will be $2,500 in the first two years, $3,500 in the next two, and $4,000 in the last two years. ACI feels that although project A has average risk, project B is considerably riskier. Therefore, their team decides that ACI should use a discount rate of 11% for project A and a 2% additional discount rate for project B. What will be your recommendation for ACI? If they have to select just one project, which particular project should be selected? Show detailed calculation.
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7. The ABC Co. has 1.4 million shares of stock outstanding. The stock currently sells for $20 per share. The firm's debt is $4.65 million and the average cost of debt is 11 percent. The risk-free rate is 8 percent, and the market risk premium is 7 percent. You've estimated that the company has a beta of .74. If the corporate tax rate is 34 percent, what is the WACC of this Company? Show detailed calculation

Answer rating: 100% (QA)

1 To find the NPV for ACI Exclusive Fabrics we need to take into account all the costs and revenues The formula for NPV is NPVCFt1rtC0 where CFt is th... View the full answer