Use the following information for Questions 6 through 8: Thestaff of Porter Manu

Use the following information for Questions 6 through 8: Thestaff of Porter Manufacturing has estimated the following netafter-tax cash flows and probabilities for a new manufacturingprocess: Line 0 gives the cost of the process Lines 1 through 5give operating cash flows and Line 5* contains the estimatedsalvage values. Porters cost of capital for an average-riskproject is 10%. Net After-Tax Cash Flows Year P = 0.2 P = 0.6 P =0.2 0 $100000 $100000 $100000 1 20000 30000 40000 2 2000030000 40000 3 20000 30000 40000 4 20000 30000 40000 520000 30000 40000 5* 0 20000 30000 6. Assume that the projecthas average risk. Find the projects expected NPV. (Hint: Useexpected values for the net cash flow in each year.) 7. Find thebest-case and worst-case NPVs. What is the probability ofoccurrence of the worst case if the cash flows are perfectlydependent (perfectly positively correlated) over time? 8. Assumethat all the cash flows are perfectly positively correlated. Thatis assume there are only three possible cash flow streams overtimethe worst case the most likely (or base) case and the bestcasewith respective probabilities of 0.2 0.6 and 0.2. Thesecases are represented by each of the columns in the table. Find theexpected NPV its standard deviation and its coefficient ofvariation for each probability. Use the following information forQuestion 9: At year-end 2013 Wallace Landscapings total assetswere $2.17 million and its accounts payable were $560000. Saleswhich in 2013 were $3.5 million are expected to increase by 35% in2014. Total assets and accounts payable are proportional to salesand that relationship will be maintained. Wallace typically uses nocurrent liabilities other than accounts payable. Common stockamounted to $625000 in 2013 and retained earnings were $395000.Wallace has arranged to sell $195000 of new common stock in 2014to meet some of its financing needs. The remainder of its financingneeds will be met by issuing new long-term debt at the end of 2014.(Because the debt is added at the end of the year there will be noadditional interest expense due to the new debt.) Its net profitmargin on sales is 5% and 45% of earnings will be paid out asdividends. 9. What were Wallaces total long-term debt and totalliabilities in 2013?

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