WACC#1Exercise (From the Cost of Capital Workbook Pratt, Shannon .docx

WACC#1Exercise: (From the Cost of Capital Workbook Pratt,
Shannon 2nd edition)A1The required return on debt is 8%, the
required return on equity is 14% and the marginal tax rate is
40%. If the firm is financed 70% equity and 30% debt , what is
the WACC?Definitions:L=LeverageL=the market value
proportion of debt financingD= DebtT=marginal corporate tax
rate of income from the projectrsub e = required return for
equityrsub d = required return for debtSet up the
problem:D=0.3E=0.7rsub e =0.07rsub d=0.09T=0.4L=0.3
Solution
:L = D / (D + E) = 30% / (30% + 70%) = 0.30WACC = (1 - L)re
+ L(1 - T)rdExcel solution:WACC = (1 - 0.30) x 14% + 0.30(1 -
0.40) x 8% = 11.24%WACC=0.0652
Shannon 2nd edition)The following are known about public
Company XYZ4,000,000million shares of common stock issued
and outstanding$10Closing common stock price per
share2,000,000shares of preferred stock issued and
outstanding$16Closing preferred stock price per
share$10,000,000Face value of bonds issued and
outstanding$80Closing Bond Price (80% of face value)25%Cost
of common equity for XYZ$2.40Cumulative, non-participating
dividend on preferred stock every year10%Cost of debt before
tax effect40%Combined federal/state income tax ratePreferred

Equity Cost?15%Because the market price is $16.00 and its
dividend per share is $2.40 the cost is:$2.40/$16.00 = 0.15 or
15%Excel solution:0.15The after -tax cost of debt for Company
XYZ is: 6%In the return to debt component, interest is a tax-
deductable expenseto a corporate taxpayer. One way to
approximate the cost of debt aftertaxes or net of the tax effect is
to multiply the cost of debtbefore tax by (1-tax rate): 10% x (1-
0.40) = 0.10 x 0.60 = 6%Excel solution: 0.06Compute the
market value of invested capital (MVIC) and the weightsfor
each capital structure component of
XYZ.ComponentAmountPriceComponent TotalWeightCommon
Stock 4000000$10$40,000,00050%Preferred
Stock2000000$16$32,000,00040%Debt$10,000,0000.8$8,000,00
010%MVIC$80,000,000100%What is the
WACC?WACC==(25% x 0.50) + (15% x 0.40) + [10%(1-0.40) x
0.10]=12.5% + 6% + 0.6%=19.10%Or in tab form:Put our
scenario here (calculate the Common Stock cost using the DCF
calculation): ComponentCostWeightWeighted
CostComponentCostWeightWeighted CostCommon Stock
25%0.512.50%Common Stock 1%0.40.40%Preferred
Stock15%0.46.00%Preferred
Stock0%00.00%Debt6%0.10.60%Debt1%0.60.60%WACC19.10
%WACC1.00%
Shannon 2nd edition)Given the following:Pretax cost of

debt10%Ignore cells in PinkCost of preferred stock9%Cost of
common equity20%Use this sheet for problem 13.11Shares of
common stock1,000,000Price per share of common
stock$7.00Input the data from problem 13.11 in green
cells.Shares of preferred stock500,000Price per share of
preferred stock$4.50Put the tax rate for problem 13.11 in the
orange cellsFace value of debt (same as market
value)$3,000,000tax rate30%Change the formula in cell C25 to
match our tax rate. Compute the WACC…The answer should
then be automatically calculated.
ComponentAmountPriceComponent TotalWeightCommon Stock
1,000,000$7$7,000,00057.1%Preferred
Stock500,000$5$2,250,00018.4%Debt$3,000,00024.5%Total:$1
2,250,000100%ComponentCostWeightWeighted CostCommon
Stock0.20x57.1%=0.1142857143Preferred
stock0.09x18.4%=0.0165306122Debt 0.10 x (1-
0.30)=0.07x24.5%=0.0171428571100.0%0.1479591837=14.80%
WACC = 14.80%You could also use the formula from the
textbook and not use this excel spreadsheet.
DCFDiscounted Cash Flow Model for Cost of Capital DataPut
the Guillermo Scenario Information here:Given the following
assumptions on ABC Company: Dividend latest 12 months
$1.00 per year$1Dividend latest 12 months $01Analysts' growth
Est.5 percent5%Analysts' growth Est.1%1%Stock Price:$10.00
per share$10Stock Price:$11Estimate ABC's Cost of Equity

Capital using the single-stage DCF modelEstimate Guillermo's
Cost of Equity Capital using the single-stage DCF modelk =
(NCF0(1 + g)/PV) + 0.05k=($1.0(1.0.05))/$10 + 0.05k =
($1.05/$10.00) + 0.05k = 0.105 + 0.05 k = 0.155 or 15.5%Excel
solution0.155 or 15%Excel solution1.02
1
SEE METHOD SECTION
Sample Template
[Please note: This template assists you with style and format of
your Final Project for PSYC 8579: Job Attitudes, Measurement,
and Change. All components of the Final Project must follow
APA format, per the 6th edition of the APA Publication
Manual.]

[Project Title]
by
[your name]

Submitted in Partial Fulfillment
of the Requirements for the course
Job Attitudes, Measurement, and Change
Walden University
As part of the requirements for the assignment, you construct an
executive summary and introduction. The introduction includes
background, a literature review, a problem statement, and a
purpose statement. Using the information provided, consider the
necessary information for an executive summary and
introduction.
Executive Summary
Summarize problems with job attitudes within the fictional
organization Walden Sports, Inc.; the methods that might be
used to measure job attitudes, and your recommendations to the
organization to improve job attitudes. Be sure to include the
following:
· A few statements related to the specific nature of the problem
or opportunity for change targeted in this project. Be sure to

present a brief overview of the organization; discuss what
problem or opportunity your project addresses and examples of
symptoms observed.· A statement or two summarizing your
literature review and what your review revealed to you in terms
of the important factors, antecedents, consequences, and issues
related to the problem/opportunity your project addresses,
including how it may have been addressed by others, within
your organization and elsewhere).· A clear statement as to the
purpose of the project. Please be specific and to the point. · One
or two statements regarding the methodology used in conducting
your analysis, including participants, instruments, procedures,
etc. · A brief summary of your findings and recommendations.·
One or two statements regarding the implications for the
organization and social change initiatives. That is, based on
what you learned about your organization, what implications
exist for other organizations.
Introduction
The introduction should provide an overview of the organization
and problem or opportunity associated with the organization. It
should also include some background on the organization,
including previous attempts at organizational change.
Background on the Organization
Here, indicate the name of the organization you will be working
with and provide some background information about the

organization, including its size, history, structure, products
and/or services offered, et cetera, as well as the mission/vision
of the organization, current priorities and strategic goals.
Problem (or Opportunity for Change) and Purpose Statement
Here, describe the nature of the problem or opportunity. What is
not working or could use improvement? What are they key
symptoms of the problem? What are the consequences for not
“solving” the problem? What are the potential and real costs of
the problem? What are the potential benefits of the opportunity
for improvement? This section should also include a brief
statement as to the purpose of the project. Please be specific
and to the point. For example, “The purpose of this project is to
identify the factors that are influencing absenteeism and
turnover so as to offer recommendations on how to reduce
absenteeism and turnover in [company name].”
Literature Search Strategy
After you have introduced the topic or issue, the next section
incorporates a search on relevant literature in the field. With a
literature search strategy, discuss exactly how you conducted
your search of the literature. That is, very specifically, describe
your search strategy. What keywords did you use to conduct
your search? What databases did you search? What additional
methods did you use to uncover relevant articles, books, et

cetera? (For example, did you examine the reference section of
the articles you located for additional articles?)
A Literature Search Strategy Includes:
· A description of accessed library databases and search engines
used
· A description of key search terms and combinations of search
terms (with more detailed search terms located in an appendix if
appropriate)
· A description of the scope of literature review (years searched,
types of literature and sources searched, including seminal and
current peer-reviewed)
· A description of additional search methods in cases where
there is limited current research, dissertations, conference
proceedings, etc.
Literature Review
Here, you present your literature review.Your review of the
literature should include both theoretical and empirical articles
from peer-reviewed journals. Your review should also
demonstrate your knowledge of the material. It is with this
review that you demonstrate that you are both a scientist and a
practitioner and that the manner in which you will conduct your
analysis/diagnosis of your organization will be based on solid
scientific principles and drawn from the vast body of literature
that is relevant for your proposed project. For example, suppose

you are interested in examining factors that are contributing to
job satisfaction. If so, you will need to learn more about both
theories of job satisfaction and empirical research examining
job satisfaction. By reading all of the theoretical perspectives
and empirical studies, you will learn that there are many factors
that influence job satisfaction, ranging from poor working
conditions and low pay to a lack of top management support to
goals that are misaligned with one another to bad hiring
decisions, et cetera. In addition, you also become aware of the
many consequences of low job satisfaction, including increased
absenteeism, turnover, low productivity, et cetera.
A literature review includes:
· A discussion of relevant theory or theories that form the basis
for your literature review
· A description of major theoretical propositions and/or major
hypotheses of those theories
· A review of the literature that describes studies related to the
topic and/or theory of your choosing
· A review and synthesis of studies related to the key
independent, dependent, and covariate variables to produce a
description and explanation of what is known about the
variables, what is controversial (i.e., mixed findings by
researchers), and what remains to be studied
Methods Section

Participants
Describe all of your participants from whom you collected data.
Include information such as number of participants, age, race,
tenure with organization, organizational level, job title, et
cetera. If you used focus groups, what was the size of the
groups?
Measures
Here, describe and list, in detail, all of the quantitative
measuring instruments and data collection tools (e.g., survey
instruments) and/or qualitative forms and data collection tools
(e.g., interview and focus group questions). Please include all
forms used in an Appendix. Please be sure to also provide an
explanation and justification of these instruments. Finally, be
sure to properly cite any sources for your instruments and
questions.
· Summarize the three instruments you used to measure job
satisfaction, organizational commitment, and job involvement in
the organization as well as the diagnostic instruments you
selected.
· Please describe the items and scoring method from each

instrument you used as part of your diagnostic survey.
· Provide an example item from each scale you selected and
describe the scale anchors used to score the instrument.
· Describe the psychometric properties (reliability and validity)
of the instrument.
· Justify your use of these instruments.
· Summarize the psychometric properties of the instruments.
Procedures
Here, describe exactly how the data were collected.
Data Analysis
Here, describe how you analyzed your data. If you collected
quantitative data, how were scores on items computed? Did you
aggregate scores on specific items to create a variable score
(e.g., a score for job satisfaction)? Did you compute means and
standard deviations? Did you compute frequencies of responses?
For qualitative data, how did you generate themes and did you
use specific software to do so?

Results Section
For Week 8, you developed the Results section for your Final
Project, which was a statistical analysis. Here you submit a
summary of data results; include a narrative of findings
(descriptive statistics and correlations). Your analysis should
include the following:
· Computation of coefficient alpha estimates of reliability of the
items within each of the instruments
· Computation of overall scores based on individuals’ responses
to the specific items from a specific instrument (compute the
mean rather than the sum of the set of items)
· Computation of the mean and standard deviation associated
with each instrument’s overall score (and subscales, if
appropriate)
· Computation of frequency distributions of each item from each
of the selected instruments
· Computation of Pearson’s Product Moment correlations all of
your variables (each instruments’ overall score and/or subscales
[if appropriate])
Include a narrative of your findings (descriptive statistics and
correlations). Include two tables in APA style: Table 1 includes

the overall means and standard deviations for each instrument, a
correlation matrix showing the correlation coefficients between
each pair of instruments, and the coefficient alpha estimates of
reliability (on the diagonal). Table 2 includes the frequency
data associated with each item from each scale that you
analyzed.
In Week 10, you write the Executive Summary and Introduction
for your Final Project. See the descriptions provided above
regarding the content of each. Your Final Project should be
about 20–25 pages (excluding title page and references). You
also complete the Recommendations and References sections
(see below).Recommendations to Walden Sports Inc.Provide
your recommendations to Walden Sports Inc. Recommendations
should also be based on your findings and be supported with
citations. Include the following:· A summary of your findings·
A set of recommendations for improving the job attitudes at
Walden Sports. · For example, you may list each key finding
separately, followed by appropriate recommendations.· The
rationale for each recommendation, which should be clear and
linked to the findings and supported by the empirical literature
(provide citations)For example, if the results show that Person-
Job fit correlates positively with job satisfaction, but that P-O

fit does not, then when presenting the recommendations (for
example, hire people with the knowledge, skills, abilities, and
other characteristics that are suited for the job), the link
between the findings and the recommendation should be clear
and be supported by the literature.References
In this section, you cite the work of scholars in the field that
contributed to your paper. Additionally, this section allows for
the retrieval of information. For a detailed guide on
constructing citations, refer to the APA Publication Manual (6th
edition).
For the Final Project, the References section (1–2 pages)
includes the following:
· Title of the section (e.g., References)
· Each scholarly journal or scholarly resource used in your
research or preparation of your research.
Page
Page
2010 U.S. Dist. LEXIS 55985, *

1 of 998 DOCUMENTS
WEBB CANDY, INC., and LICENSED SPORTS MARKETING,
LLC, Plaintiffs, v. WALMART STORES, INC., Defendant.
Case No. 09-CV-2056 (PJS/JJK)
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MINNESOTA
2010 U.S. Dist. LEXIS 55985
June 7, 2010, Decided
June 7, 2010, Filed
CORE TERMS: supplier, expired, merchandise, forum-
selection, delivery, expiration, vendor, vendor-identification,
new contract, implied-in-fact, survive, expire, survival, matter
of law, venue, termination, non-moving, convenient, intend,
joint venture, written contract, manufacturer, drives, selling,
forever, assured, interest of justice, continuous, lawsuit, waived

COUNSEL: [*1] Steven C. Moore and Galen E. Watje, WATJE
& MOORE, LTD, for plaintiffs.
Richard D. Snyder and Sarah C. S. McLaren, FREDRICKSON &
BYRON, PA, for defendant.
JUDGES: Patrick J. Schiltz, United States District Judge.
OPINION BY: Patrick J. Schiltz
OPINION
ORDER
Plaintiffs Webb Candy, Inc. ("Webb Candy") and Licensed
Sports Marketing, LLC ("LSM") bring this action against
defendant Walmart Stores, Inc. ("Walmart"), alleging that they
were not paid for merchandise that they supplied to Walmart
stores. Walmart moves to dismiss this lawsuit -- or, in the
alternative, to transfer this lawsuit to Arkansas -- on the basis
of a forum-selection clause in a contract between Walmart and
LSM. Walmart also moves (again in the alternative) to transfer
this action to Arkansas pursuant to 28 U.S.C. § 1404(a). For the
reasons that follow, Walmart's motions are denied.
I. BACKGROUND 1

1 The relevant facts are largely undisputed. To the extent that
they are disputed, the Court resolves the dispute in favor of
plaintiffs, as explained below.
A. Webb Candy's Business
Webb Candy is a Minnesota wholesaler that specializes in
distributing products that bear the names and logos of high
schools and colleges. Walmart is an Arkansas retailer that
operates [*2] hundreds of stores in the United States. In the fall
of 2008, Webb Candy approached the manager of a Walmart
store in Minnesota about selling Webb Candy's products at that
location. The manager informed Webb Candy that, if Webb
Candy obtained a vendor-identification number from Walmart,
individual stores could order products directly from Webb
Candy, eliminating the need for Webb Candy to go through
Walmart's corporate office in Arkansas. The procedure by which
individual stores can order products directly from wholesalers is
known within Walmart as the "70-type" ordering process.
Webb Candy learned that some companies who have obtained
vendor-identification numbers from Walmart will in effect lease
the use of their numbers to third parties in return for a fee.
Webb Candy entered into such an arrangement with Little i, Inc.
("Little i") in the fall of 2008. Pursuant to that arrangement,

Webb Candy marketed and shipped its products directly to
individual Walmart stores using the 70-type ordering process
and then invoiced Walmart using Little i's name and vendor-
identification number. Walmart issued payments to Little i, and
Little i apparently forwarded the payments to Webb Candy. In
[*3] return, Webb Candy presumably paid a fee to Little i.
On November 4, 2008, Webb Candy contacted Seth Malley, a
buyer at Walmart's corporate headquarters, and informed him of
its arrangement with Little i. Webb Candy asked Malley for
help in securing its own vendor-identification number from
Walmart so that it would not have to pay Little i to use its
number. Malley did not respond.
On November 25, 2008, Webb Candy discontinued its
arrangement with Little i and embarked on a joint venture with
LSM, a company that (like Little i) had a Walmart vendor-
identification number. Compl. at P 13. Pursuant to this joint
venture, Webb Candy marketed and sold both its products and
LSM's products directly to Walmart stores using the 70-type
ordering process. Sales of both companies' products were
invoiced using LSM's vendor-identification number. Walmart
made payments to LSM, and LSM apparently forwarded part of
the payments to Webb Candy.
On January 20, 2009, Webb Candy informed Malley that it was
now selling products directly to Walmart stores under LSM's
vendor-identification number and that it was in the process of

acquiring LSM's assets. As of that date, Webb Candy had
already delivered over $ [*4] 1.25 million of its products
directly to individual Walmart stores. Walmart issued payment
for at least one shipment of products directly to Webb Candy
rather than LSM. Complaint at P 16.
In February 2009, Walmart informed Webb Candy that
individual stores were not authorized to order merchandise from
Webb Candy because the company did not have its own vendor-
identification number. Individual Walmart stores nevertheless
continued to order items directly from Webb Candy until March
2009, when Walmart informed Webb Candy that its stores
would no longer carry Webb Candy merchandise. Walmart
promised to return all unsold merchandise to Webb Candy.
According to plaintiffs, however, Walmart has neither returned
the unsold merchandise nor paid for it. Plaintiffs contend that
they are owed over $ 600,000 for merchandise delivered to
individual stores and not returned by Walmart. At oral
argument, Webb Candy clarified that it is owed money both for
products delivered during the arrangement with Little i and for
products delivered during the joint venture with LSM.
Webb Candy and LSM sued Walmart in Minnesota state court,
asserting claims for breach of contract, unjust enrichment, and
violations [*5] of the Uniform Commercial Code ("UCC").
Walmart removed the action to federal court. Citing a forum-
selection clause in its contracts with Little i and LSM, Walmart

now asks this Court either to dismiss this action or to transfer it
to Arkansas. Walmart also contends that a transfer to Arkansas
is warranted "[f]or the convenience of parties and witnesses"
and "in the interest of justice" under 28 U.S.C. § 1404(a).
B. Walmart's Contracts with Little i and LSM
Walmart never entered into a written contract with Webb
Candy. Walmart did, however, enter into separate written
contracts -- known as the "Supplier Agreements" -- with Little i
and LSM. 2 The opening paragraph of the Supplier Agreement
provides that "all sales and deliveries of all Merchandise . . .
and all Orders . . . will be covered by and subject to the terms
of this Agreement." Supplier Agreement at 1. The agreement
defines "Merchandise" to include all products or goods
delivered to Walmart by Little i or LSM and defines "Order" as
"any written or electronic purchase order issued by [Walmart]."
Supplier Agreement at P 1(d) and (h). The agreement also
contains a forum-selection clause, which reads in pertinent part:
This Agreement, [*6] any and all Orders, and any and all
disputes arising thereunder or relating thereto, whether
sounding in contract or tort, shall be governed by and construed
in accordance with the laws of the State of Arkansas . . . and the
federal and/or state courts of Benton and Washington County,
Arkansas, shall have exclusive jurisdiction over any actions or

suits relating thereto. The parties mutually acknowledge and
agree that they shall not raise, and hereby waive, any defenses
based upon venue, inconvenience of forum or lack of personal
jurisdiction in any action or suit brought in accordance with the
foregoing.
Supplier Agreement at P 24.
2 Except as noted below, the material portions of those
agreements are identical. The Court will generally cite to the
"Supplier Agreement" when referring to provisions that appear
in both the Little i and LSM agreements.
The Supplier Agreement provides that it will expire one year
after the "Effective Date" of the contract and that it "may only
be renewed or extended by an agreement signed by an
authorized officer of" both Walmart and the supplier. Supplier
Agreement at P 27. The Effective Date of the Little i contract is
July 17, 2006, and the Effective Date [*7] of the LSM contract
is December 21, 2005. Little i Supplier Agreement at 1; LSM
Supplier Agreement at 1. Thus, Walmart's agreement with Little
i expired on July 17, 2007, and Walmart's agreement with LSM
expired on December 21, 2006. In other words, both Supplier
Agreements expired long before Webb Candy delivered any

merchandise to any Walmart store. No extension of either the
Little i agreement or the LSM agreement was ever signed.
The Supplier Agreement also contains a survival clause, which
provides, among other things, that some provisions of the
agreement survive the agreement's expiration. Specifically, the
survival clause provides:
The provisions of this Agreement which by their nature are
intended to survive termination of this Agreement (including
but not limited to . . . forum selection . . .) shall survive its
termination . . . .
. . . Any changes in this Agreement shall be in writing and
executed by both parties. . . .
. . . No [Walmart] representative has authority to renew or
extend this Agreement except in a writing signed by an
authorized officer of [Walmart]. . . .
Supplier Agreement at P 29. The contract also requires that any
waiver of contractual terms be made in writing. [*8] Supplier
Agreement at P 23.
Plaintiffs concede that if a Supplier Agreement governs Webb
Candy's delivery of merchandise to Walmart stores, then
plaintiffs must sue Walmart in Arkansas pursuant to the forum-
selection clause. Plaintiffs contend, however, that the Supplier
Agreement does not apply to the transactions that are the

subject of this lawsuit. Plaintiffs point out that Webb Candy
never signed a Supplier Agreement and that the Supplier
Agreements signed by Little i and LSM expired long before
Webb Candy delivered any merchandise to any Walmart store.
In response, Walmart argues that, even though Webb Candy was
not a party to a Supplier Agreement, Webb Candy is
nevertheless bound by the Supplier Agreements signed by Little
i and LSM because its claims are closely related to those
contracts. And Walmart offers three theories for why the Little i
and LSM contracts apply to the deliveries made by Webb Candy
long after those contracts expired: First, Walmart argues that its
Supplier Agreements last forever -- that is, they apply to any
sale that a vendor ever makes to Walmart, even if that sale
occurs decades after the vendor's Supplier Agreement expired.
Second, Walmart argues that, [*9] by continuing to do business
with Walmart after their respective Supplier Agreements
expired, Little i and LSM waived the agreement's expiration
date through course of performance. Finally, Walmart argues
that, by continuing to do business with Walmart after their
Supplier Agreements expired, Little i and LSM created a new
contract that contained the same terms and conditions as the old
contracts and that applied to the Webb Candy deliveries.
II. ANALYSIS

A. Standard of Review
Walmart has asked this Court to dismiss plaintiffs' complaint
both for improper venue under Fed. R. Civ. P. 12(b)(3) and for
failure to state a claim under Fed. R. Civ. P. 12(b)(6). There is a
split of authority regarding whether a defendant seeking to
dismiss a complaint based on a forum-selection clause should
bring its motion under Rule 12(b)(3) or Rule 12(b)(6), and the
Eighth Circuit does not appear to have taken a position. See
Rainforest Cafe, Inc. v. EklecCo, LLC, 340 F.3d 544, 546 n.5
(8th Cir. 2003).
If Rule 12(b)(6) applies, then this Court can make quick work
of Walmart's motion. In ruling on a Rule 12(b)(6) motion, a
court may ordinarily consider only the pleadings and "materials
that are necessarily [*10] embraced by the pleadings and
exhibits attached to the complaint." Mattes v. ABC Plastics,
Inc., 323 F.3d 695, 697 n. 4 (8th Cir. 2003). Walmart bases its
dismissal motion entirely on the forum-selection clause in the
Supplier Agreement. But the Supplier Agreement is not
mentioned or relied upon in plaintiffs' complaint. If this Court
cannot look to the Supplier Agreement, then this Court must
deny Walmart's motion to dismiss. Fortunately for Walmart,
though, this Court agrees with the circuit courts 3 and district
courts 4 that have held that a motion to dismiss on the basis of a
forum-selection clause is properly brought as a motion to
dismiss for improper venue under Rule 12(b)(3), and not as a

motion to dismiss for failure to state a claim under Rule
12(b)(6) (or as a motion to dismiss for lack of subject-matter
jurisdiction under Rule 12(b)(1)).
3 See, e.g., Sucampo Pharms., Inc. v. Astellas Pharma, Inc., 471
F.3d 544, 548-50 (4th Cir. 2006); Lipcon v. Underwriters at
Lloyd's, London, 148 F.3d 1285, 1289-90 (11th Cir. 1998);
Argueta v. Banco Mexicano, 87 F.3d 320, 324 (9th Cir. 1996).
4 CFMOTO Powersports Inc. v. NNR Global Logistics USA,
Inc., No. 09-2202 (JRT/JJK), 2009 U.S. Dist. LEXIS 113058,
2009 WL 4730330 at *2 (D. Minn. Dec. 4, 2009);
[*11]Tockstein v. Spoeneman, No. 4:07CV00020 ERW, 2007
U.S. Dist. LEXIS 82849, 2007 WL 3352362, at *2 (E.D. Mo.
Nov. 7, 2007).
When moving to dismiss under Rule 12(b)(3), a defendant must
demonstrate that the plaintiff's choice of venue is improper,
generally by submitting affidavits or other evidence. 5B Wright,
Miller & Cooper, Federal Practice & Procedure: Civil 3d § 1352
at 320 (3rd ed. 2004). Obviously, then, a court may consider
matters beyond the pleadings when ruling on a Rule 12(b)(3)
motion. See, e.g., Doe 1 v. AOL LLC, 552 F. 3d 1077, 1081
(9th Cir. 2009); Sucampo Pharms., Inc. v. Astellas Pharma, Inc.,

471 F.3d 544, 550 (4th Cir. 2006); Pierce v. Shorty Small's of
Branson Inc., 137 F.3d 1190, 1192 (10th Cir. 1998); Home Ins.
Co. v. Thomas Indus., Inc., 896 F.2d 1352, 1355 (11th Cir.
1990). In this case, the Court may consider, among other things,
the Supplier Agreements on which Walmart relies. 5
5 Walmart filed complete copies of the Little i and LSM
Supplier Agreements under seal with its reply brief [Docket No.
17-1], and plaintiffs have not disputed the authenticity of those
documents.
A court addressing a Rule 12(b)(3) motion "must draw all
reasonable inferences in favor of the non-moving party and
resolve [*12] all factual conflicts in favor of the non-moving
party." Murphy v. Schneider Nat'l, Inc., 362 F.3d 1133, 1138
(9th Cir. 2004). "[I]f the facts asserted by the non-moving party
are sufficient to preclude enforcement of the forum selection
clause, the non-moving party is entitled to remain in the forum
it chose for suit unless and until the district court has resolved
any material factual issues that are in genuine dispute." Id. at
1139. Because Rule 12(b)(3) motions are often filed before the
factual record is developed, "in many cases the non-moving
party will survive the Rule 12(b)(3) motion." Id.

B. Motion to Dismiss or Transfer Under Forum-Selection
Clause
Courts generally enforce forum-selection clauses unless the
clauses are unreasonable. See M/S Bremen v. Zapata Off-Shore
Co., 407 U.S. 1, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972). When
an action subject to a forum-selection clause is initiated in a
forum other than that which was contemplated by agreement,
dismissal is appropriate. See, e.g., M.B. Restaurants, Inc. v.
CKE Restaurants, Inc., 183 F.3d 750, 753 (8th Cir. 1999);
Hauenstein & Bermeister, Inc. v. Met-Fab Indus., Inc., 320
N.W.2d 886, 889 (Minn. 1982).
The Court agrees with Walmart that, if the Little i [*13] or
LSM Supplier Agreements had not expired before Webb Candy
delivered its merchandise to Walmart stores, this action would
have to be litigated in Arkansas pursuant to the forum-selection
clause. LSM, of course, would be bound by its Supplier
Agreement. And although Webb Candy was not a signatory to
either the Little i or LSM agreements, the Eighth Circuit has
made clear that a nonparty to an agreement containing a forum-
selection clause can be bound by that clause when the nonparty
is "closely related to the dispute[] arising out of the
agreement[]." Marano Enterprises of Kansas v. Z-Teca
Restaurants, 254 F.3d 753, 757 (8th Cir. 2001) (internal
citations omitted). Webb Candy could hardly be more "closely
related" to the deliveries that are the subject matter of this

dispute. Webb Candy made those deliveries -- and it was able to
do so only because it rented Little i's vendor-identification
number and then entered a joint venture with LSM. Complaint
at P 13. If, then, the Supplier Agreements had not expired
before Webb Candy delivered merchandise to Walmart stores,
this Court would readily hold that Webb Candy was bound by
the forum-selection clause in the agreements.
Unfortunately [*14] for Walmart, though, both the Little i and
LSM Supplier Agreements did expire long before Webb Candy
delivered any products to any Walmart store. On first glance,
then, it is hard to imagine how Webb Candy could be bound by
a forum-selection clause contained in agreements that had
expired months before Webb Candy even approached a Walmart
store or considered leasing a vendor-identification number.
As described above, Walmart makes three arguments that the
forum-selection clause does indeed apply to the Webb Candy
sales. The Court will address each argument in turn.
1. The Evergreen Clause
Walmart first argues, albeit halfheartedly, that the forum-
selection clause -- and necessarily the rest of the Supplier
Agreement -- never expire. In other words, Walmart contends
that its Supplier Agreement is eternal and applies to all sales
ever made to a Walmart store by the vendor, even if those sales
are made decades after the Supplier Agreement expired. In
support of this implausible argument, Walmart points to the

opening paragraph of the Supplier Agreement, which provides
that the contract:
sets forth . . . the general terms of the business relationship
between Company and Supplier. The parties [*15] agree that all
sales and deliveries of all Merchandise . . . and all Orders . . .
will be covered by and subject to the terms of this Agreement. .
. . This Agreement becomes effective on the date shown above
and remains effective for the term set forth herein.
Supplier Agreement at 1. Walmart seizes on the reference to "all
sales and deliveries of all Merchandise" and "all Orders" to
argue that the forum-selection clause governs even sales,
deliveries, and orders that are made many years after the
Supplier Agreement expires. In making this argument, Walmart
focuses on the forum-selection clause, but its argument, if
correct, would necessarily apply to the remainder of the
Supplier Agreement.
The obvious problem with Walmart's argument is that the
Supplier Agreement contains an expiration clause. In the first
paragraph of the Supplier Agreement -- the same paragraph on
which Walmart relies -- the agreement unambiguously provides
that it "remains effective for the [one-year] term set forth
herein." Id. Likewise, the Supplier Agreement provides in
paragraph 27 that it lasts for only one year and further that the

contract may not be extended beyond that one-year term except
by a writing [*16] signed by both parties. Supplier Agreement
at P 27. The limited duration of the Supplier Agreement is again
emphasized in paragraph 29, which warns the vendor that the
vendor should "never . . . assume that this Agreement will be
renewed or extended" and emphasizes again that the agreement
can be extended beyond one year only "in a writing signed by
an authorized officer of [Walmart]." Supplier Agreement at P
29.
When interpreting contracts, a court must, to the extent
possible, give effect to every provision. See, e.g., Boat Dealers'
Alliance, Inc. v. Outboard Marine Corp., 182 F.3d 619, 621 (8th
Cir. 1999). If, as Walmart contends, the Supplier Agreement is
meant to last into eternity, then many of its clauses would be
rendered useless, including the clauses providing that the
agreement expires in one year, and the clauses providing that
the agreement cannot be extended past one year except by a
written instrument signed by both parties. Walmart's reading of
the contract is entirely implausible.
Indeed, Walmart's reading of the contract is rejected by the
other clause on which Walmart relies: the survival clause,
which provides that "[t]he provisions of this Agreement which
by their [*17] nature are intended to survive the termination of
this Agreement (including . . . forum selection . . .) shall
survive its termination." Supplier Agreement at P 29. If the

entire agreement lasted forever, then there would be no reason
for any survival clause. Moreover, this survival clause makes
clear that only some provisions of the Supplier Agreement
extend beyond the agreement's expiration, which cannot be
reconciled with Walmart's suggestion that all provisions of the
agreement are eternal.
Citing the survival clause, Walmart argues that, even if the
entire agreement does not last forever, then at least "[t]he
provisions of this Agreement which by their nature are intended
to survive the termination of this Agreement (including . . .
forum selection . . .)" last forever. But Walmart's argument begs
the question of which provisions "are intended to survive" and
which transactions those surviving provisions are intended to
apply to. As Walmart would have it, the forum-selection clause
and certain unspecified other clauses (Walmart is unable to
identify those clauses) would apply not just to transactions
made while the agreement was still in effect, but to transactions
made years, [*18] decades, or even centuries after the
agreement expired. It seems highly unlikely that Walmart and a
vendor would enter into such an agreement -- at least without
being much clearer that some provisions of the contract would
apply to sales made many years after the contract expired. More
importantly, Walmart's reading of the Supplier Agreement
cannot be reconciled with the agreement's repeated and
emphatic statements that it will expire in one year and that it

cannot be extended except by a formal, signed document.
A much more plausible reading of the survival clause is
apparent -- a reading that not only makes sense from a business
perspective, but gives effect to every word of the Supplier
Agreement. Under this reading, certain provisions of the
agreement continue to apply after the agreement expires, but
only to merchandise that was delivered while the agreement was
still in effect. Such a provision would make sense for both
parties. Suppose that a vendor delivered merchandise to
Walmart under a Supplier Agreement and that agreement
expired the following day. If, a few weeks later, a dispute arose
regarding that merchandise or Walmart's obligation to pay for
that merchandise, it would [*19] be natural for the parties to
look to the Supplier Agreement that applied when the
merchandise was delivered. If, for example, a Walmart customer
who was injured by the merchandise brought suit against
Walmart, Walmart would naturally assume that it was protected
by the indemnification provisions in the Supplier Agreement.
Supplier Agreement at P 14. It is eminently reasonable for the
Supplier Agreement to provide that terms that applied at the
time merchandise was delivered would continue to apply to that
merchandise after the contract expires. This is the only sensible
way to understand the survival clause's reference to "provisions
of this Agreement which by their nature are intended to survive
the termination of this Agreement."

The Court therefore rejects Walmart's contention that, under the
terms of the Supplier Agreement, the forum-selection clause
applies to sales of merchandise made long after the agreement
expires. The Court holds instead that, although the forum-
selection clause does indeed survive the expiration of the
Supplier Agreement, it does so only with respect to transactions
that occurred before the agreement expired.
2. Waiver
Walmart next argues that the Little i [*20] and LSM Supplier
Agreements never expired because the vendors and Walmart
extended the agreements by their course of performance.
According to Walmart, when Walmart stores continued to place
orders under the Little i and LSM agreements, and those orders
continued to be filled by Little i and LSM (through Webb
Candy, their business partner), Walmart and the vendors waived
the requirement in the Supplier Agreement that any extension of
the one-year term be made in a writing signed by a Walmart
officer and the vendor.
Under § 2-209(4) of the Uniform Commercial Code, parties may
waive terms of a written contract by their course of
performance, even when the contract requires all modifications
to be in writing. Nutrisoya Foods, Inc. v. Sunrich, LLC, 626 F.
Supp. 2d 985, 990 (D. Minn. 2009). This exception is narrow,
however, and any waiver under § 2-209(4) must satisfy the
common-law requirements for waiver. Valspar Refinish, Inc. v.

Gaylord's, Inc., 764 N.W.2d 359, 367 (Minn. 2009). Both
Minnesota and Arkansas courts define waiver as the intentional,
voluntary relinquishment of a known legal right. Bio-Tech
Pharmacal, Inc. v. Int'l Bus. Connections, LLC, 86 Ark. App.
220, 184 S.W.3d 447, 452 (Ark. Ct. App. 2004); [*21]Valspar,
764 N.W.2d at 367 (Minn. 2009).
Whether a waiver occurred is ordinarily a fact issue, and the
intention to waive "is rarely to be inferred as a matter of law."
Farnum v. Peterson-Biddick Co., 182 Minn. 338, 234 N.W. 646,
647 (Minn. 1931); see also Moore Ford Co. v. Smith, 270 Ark.
340, 604 S.W.2d 943, 946 (Ark. 1980). Under the circumstances
of this case, the Court cannot hold, as a matter of law, that
Little i and LSM waived their right not to be bound by their
respective Supplier Agreements after those agreements expired.
First, the Supplier Agreement specifically assured Little i and
LSM that Walmart "will never assume that you . . . will be
willing to extend or renew this Agreement . . . ." Supplier
Agreement P 29. Second, the Supplier Agreement repeatedly
assured Little i and LSM that nothing about the agreement could
be changed -- including the expiration date -- except in "a
writing" that was "executed by both parties." Id. Third, this is
not a case in which a vendor who was making regular deliveries
under a Supplier Agreement continued to make those deliveries
after the Supplier Agreement expired. Rather, there is no
evidence that Little i made any deliveries after its contract

expired in July 2007 [*22] and before Webb Candy began
selling under its vendor-identification number in the fall of
2008, and there is no evidence that LSM made any deliveries
after its contract expired in December 2006 and before Webb
Candy began selling under its vendor-identification number in
November 2008. With respect to both Little i and LSM, then,
there was a significant gap between the expiration of the
Supplier Agreement and the resumption of deliveries to
Walmart stores. Finally, when deliveries resumed under the
Supplier Agreement, Little i and LSM were not the ones doing
the delivering; rather, Webb Candy was making deliveries,
having purchased the right to use the vendor-identification
number of Little i and then LSM.
Accepting plaintiffs' assertions of fact as true and taking all
factual inferences in their favor, the Court cannot find, as a
matter of law, and based on this scant factual record, that Little
i and LSM intentionally relinquished their right not to be bound
by their respective Supplier Agreements after those agreements
expired.
3. Creation of a New Contract
Finally, Walmart argues that by continuing to do business after
the Supplier Agreement expired, Walmart and the vendors
created [*23] new implied-in-fact contracts identical to the
original Supplier Agreements. As Walmart would have it, the
forum-selection clause of the original agreements became part

of the new agreements and now requires that this action be
dismissed or transferred to Arkansas.
It is true that when parties continue to perform under an expired
contract, their conduct can give rise to a new, implied-in-fact
contract. See Steed v. Busby, 268 Ark. 1, 593 S.W.2d 34, 38
(Ark. 1980); Bolander v. Bolander, 703 N.W.2d 529, 542 (Minn.
App. 2005). But the fact that parties to an expired contract
continue to deal with one another does not mean that they
necessarily create a new contract -- or, if they do, that every
term of the expired contract becomes part of the new contract.
Twitchell v. Town of Pittsford, 106 A.D.2d 903, 483 N.Y.S.2d
524, 525 (N.Y. App. Div. 1984), aff'd 66 N.Y.2d 824, 489
N.E.2d 250, 498 N.Y.S.2d 363 (N.Y. 1985). The presumption of
a new, implied-in-fact contract may be rebutted with evidence
that the parties did not intend to create a new contractual
relationship or did not intend to be bound by certain terms of
the expired contract. Comenos v. Viacom Int'l, Inc., 857 F.
Supp. 1160, 1165 (E.D. Mich. 1994).
A review of the case law reveals that courts [*24] typically
find that new, implied-in-fact contracts have been created only
when the conduct of the parties satisfies two conditions:
First, the performance that allegedly gives rise to the new
contract must flow continuously from the performance that took
place under the original contract. For example, a vendor that
delivered 500 hard drives to a computer manufacturer every

Monday for several months under an expired contract and who,
without a break, continues to deliver 500 hard drives to the
same manufacturer every Monday after the contract expires (and
to be paid for those deliveries) has a good argument that an
implied-in-fact contract has been created. See Fischer v. Pinske,
309 Minn. 202, 243 N.W.2d 733 (Minn. 1976) (continuous
employment for several years after expiration of original
written contract gives rise to new employment contract);
Cloverdale Equip. Co. v. Manitowoc Eng'g Co., 964 F. Supp.
1152 (E.D. Mich. 1997) (continuous performance under
distribution agreement gives rise to new distribution
agreement); Montgomery County Maryland v. Metromedia Fiber
Network, Inc., 326 B.R. 483 (S.D.N.Y. 2005), vacated and
remanded by joint motion, No. 05-4123-bk (2d Cir. Aug. 31,
2006) (continuous [*25] use of utility right-of-way following
expiration of franchise agreement gave rise to new agreement
requiring franchisee to continue making payments).
Second, the parties' performance must be substantially
unchanged following the contract's expiration. See Martin v.
Campanaro, 156 F.2d 127, 129 (2d Cir. 1946) (new contract is
created "if, without more, the parties continue to perform as
theretofore") (emphasis added). Suppose, for example, that a
vendor delivered 500 hard drives to a computer manufacturer
every Monday for several months under an expired contract.
After the contract expired, however, the manufacturer did not

place any orders for over a year -- and then placed orders only
sporadically (not weekly), and for keyboards (not hard drives).
It would be difficult for the vendor to establish that an implied-
in-fact contract had been created.
Even when these two conditions are met, courts will
nevertheless decline to find that an implied-in-fact contract was
created when other circumstances indicate that one or more of
the parties did not intend to be bound by the terms of the
expired contract. For example, in Sevel Argentine, SA v.
General Motors Corp., the court found that in [*26] spite of the
parties' continuing to perform following expiration of a
contract, no new contract had been created when the parties had
tried unsuccessfully to negotiate a contract renewal and the
expired contract contained four separate provisions stating that
the contract would not be extended unless by a signed writing.
46 F. Supp. 2d 261, 268 (S.D.N.Y. 1999). Other factors that cut
against the creation of a new contract are a failure by either side
to adhere to the terms of the expired contract, Jurrens v. Lorenz
Mfg. Co. of Benson Minn., 1998 SD 49, 578 N.W.2d 151, 154
(S.D. 1998), and correspondence indicating that the business
relationship has changed notwithstanding continued
performance. Computerized Med. Imaging Equip. v. Diasonics
Ultrasound, Inc., 303 A.D.2d 962, 758 N.Y.S.2d 228, 230 (N.Y.
App. Div. 2003).
Even when subsequent conduct does give rise to a new, implied-

in-fact contract, courts will not assume that the new contract
includes every term that appeared in the expired contract.
Rather, in deciding whether a particular term is part of the new
contract, courts will examine evidence that the parties did or did
not intend to carry forward that term. N.Y. Tel. Co. v.
Jamestown Tel. Corp., 282 N.Y. 365, 371, 26 N.E.2d 295
(1940). [*27] Ultimately, in deciding whether any implied-in-
fact contract has been created -- and, if so, what terms are
included in that new contract -- "[t]he test remains whether
there was a meeting of the minds, as is always the case in
determining the existence of any contract." Local Union 813,
Int'l Bhd. of Teamsters v. Waste Mgmt. of N.Y., 469 F. Supp.
2d 80, 85 (E.D.N.Y. 2007).
In this case, accepting plaintiffs' assertions of fact as true and
taking all factual inferences in their favor, the Court cannot
find, as a matter of law, that Walmart and the vendors created
implied-in-fact contracts after the Supplier Agreements expired.
This is true for several reasons:
First, this is not a case in which the performance that took place
after expiration of a written agreement flowed continuously
from the performance that took place before expiration of that
agreement. To the contrary, after expiration of the Little i and
LSM Supplier Agreements -- each of which lasted only one year
-- more than a year passed before Little i or LSM resumed
making deliveries to Walmart stores.

Second, the record does not allow this Court to find that the
parties' performance after expiration of the Supplier Agreements
[*28] was substantially unchanged. In fact, the record contains
no evidence about what deliveries Little i or LSM made under
their respective agreements. There is reason to believe, though,
that the post-expiration sales may have differed markedly from
the pre-expiration sales. The post-expiration sales were made by
Webb Candy directly to individual Walmart stores (as Walmart
was made aware), while the pre-expiration sales were
presumably made by Little i and LSM to Walmart.
Finally, there is also reason to believe that neither Little i nor
LSM intended to create new implied-in-fact contracts with
Walmart when they allowed Webb Candy to use their vendor-
identification numbers. Again, the Supplier Agreement
specifically assured Little i and LSM that Walmart "will never
assume that you . . . will be willing to extend or renew this
Agreement . . . ," and repeatedly assured them that the
agreement could not be renewed except in a writing that was
signed by both Walmart and the vendor. Suppler Agreement P
29.
In light of the sizeable gap between the contracts' expiration
dates and the Webb Candy deliveries, the paucity of evidence
about the parties' course of performance before and after
expiration, [*29] and the contract's specific, repeated
assurances that renewal would require a written agreement, the

Court cannot now hold, as a matter of law, that the parties
intended to create a new, implied-in-fact contract. Moreover,
even if it were clear that the parties did intend to create a new
contract, the Court could not now hold, as a matter of law, that
they intended the forum-selection clause to carry forward into
that new contract. Walmart's motion to dismiss is therefore
denied.
B. Motion to Transfer Under § 1404(a)
Walmart also moves to transfer this case to the United States
District Court for the Western District of Arkansas pursuant to
28 U.S.C. § 1404(a). Under § 1404(a), a court may transfer a
civil action to another federal district "[f]or the convenience of
parties and witnesses" and "in the interest of justice." A
plaintiff's choice of forum is entitled to "considerable
deference," and a party seeking transfer under § 1404(a) bears
the burden of establishing that a transfer is warranted. See Terra
Int'l, Inc. v. Miss. Chem. Corp., 119 F.3d 688, 695 (8th Cir.
1997). Walmart has not come close to meeting its burden.
First, Walmart has not shown that Arkansas is more convenient
[*30] for the parties. Arkansas would be more convenient for
Walmart, which is headquartered there, but it would not be more
convenient for Webb Candy, which is headquartered here.
"'Merely shifting the inconvenience from one side to the other .
. . obviously is not a permissible justification for a change of

venue.'" Id. at 119 F.3d at 696-97 (quoting Scheidt v. Klein, 956
F.2d 963, 966 (10th Cir.1992)).
Second, Walmart has not shown that Arkansas would be more
convenient for potential witnesses. It is difficult for the Court
to determine who is likely to be called to testify at trial,
because Walmart and Webb Candy have not explained what they
are fighting about. Walmart and Webb Candy seem to agree that
Walmart must pay for merchandise that Webb Candy delivered
or return that merchandise to Webb Candy. Presumably, then,
the parties dispute what was delivered by Webb Candy and
whether Webb Candy has already been paid for that
merchandise. If the Court's presumption is correct, then the
most important witnesses would appear to be employees of
Webb Candy -- people who live and work in Minnesota.
Affidavit of Alan Webb at 1. Arkansas would obviously not be
convenient for them.
Finally, Walmart[*31] has not suggested any reason why
transferring this action to Arkansas would serve the interests of
justice, except that Walmart argues that a transfer would give
effect to the forum-selection clause in the Supplier Agreement.
As this Court has already held, however, there is substantial
reason to doubt that the Supplier Agreement applies to this
action.
For all of these reasons, the Court denies Walmart's motion to
transfer under § 1404(a).

ORDER
Based on the foregoing, and on all of the files, records, and
proceedings herein, IT IS HEREBY ORDERED THAT
defendant Walmart Stores, Inc.'s Amended Motion to Dismiss
or, in the Alternative, to Transfer Venue [Docket No. 7] is
DENIED.
Dated: June 7, 2010
/s/ Patrick J. Schiltz
Patrick J. Schiltz
United States District Judge
Questions 1-5Week 3Using the Payback Method, IRR, and
NPVAll solutions are performed using a financial calculator
(i.e. HP 10BII) and/or Microsoft Excel.Set up each of these in
the following format, showing what you know and what you
don't know. Calculate the following time value of money
problems:1. If you want to accumulate $500,000 in 20 years,
how much do you need to deposit today that pays an interest
rate of 15%?FV = 500,000N = 20 This is a Present Value
problem. Use the PV formula for excel or an HP. I = 15%Excel
formula on page 99PMT = 0PV=?PV=? 2. What is the future
value if you plan to invest $200,000 for 5 years and the interest
rate is 5%?FV=?N = This is a Future Value problem. Use the

FV formula for excel or an HP. I = X%Excel formula on page
99PMT = 0PV = FV=? 3. What is the interest rate for an
initial investment of $100,000 to grow to $300,000 in 10
years?FV=N = In this problem, you are solving for the interest
rate. Use the Discount Rate formula for excel or an HP. I
=?Excel formula on page 99PMT = 0PV = I=? 4. If your
company purchases an annuity that will pay $50,000/year for 10
years at a 11% discount rate, what is the value of the annuity on
the purchase date if the first annuity payment is made on the
date of purchase?N = I = PV=?PMT = This is a Present Value
problem. Use the PV formula for excel or an HP. PV = ?Excel
formula on page 99* Make sure to set your calculator in
"BEGIN" mode to solve this problem5. What is the rate of
return required to accumulate $400,000 if you invest $10,000
per year for 20 years? Assume all payments are made at the end
of the period.N = I = ?i=?PMT = In this problem, you are
solving for the interest rate. Use the Discount Rate formula
for excel or an HP. FV = Excel formula on page 99* Make sure
to set your calculator in "END" mode to solve this problem
Project Cash FlowUse the Spreadsheet Application on page 137
for help. Set up the problem like the example for Question 12
on page 164.Calculate the project cash flow generated for
Project A and Project B using the NPV method. Which project
would you select, and why? Which project would you select
under the payback method? The discount rate is 10% for both

projects. Use Microsoft Excel to prepare your answer. Note that
a similar problem is in the textbook in Section 5.1.Chapter
5Question 12Set up the problem similar to the way Problem 12
is solved. Annual cash flows:IIIYear 0$ (35,000)$
(16,000)Year 1$ 19,800$ 9,400Year 2$ 19,800$ 9,400Year
3$ 19,800$ 9,400Required return10%Output
area:Profitability index (I)1.407Profitability index (II)1.461The
profitability index implies accept Project IINPV (I)$
14,239.67NPV (II)$ 7,376.41NPV decision rule implies accept
Project IUsing the profitability index to compare mutually
exclusive projects can be ambiguous when the magnitude of the
cash flows for the two projects are of different scale. The
following problem will help solve for the payback part of the
question. Chapter 5Question 1Input area:YearCash Flow
(A)Cash Flow (B)0$ (20,000)$
(24,000)113,20014,10028,3009,80033,2007,600Required
payback2Discount rate15%Output area:a)Project A Payback
1.819Project AAcceptProject B Payback2.013Project
BRejectb)Project A NPV$ (141.69)Project ARejectProject B
NPV$ 668.20Project BAcceptAccept Project B because it has a
greater NPV.
Shannon 2nd edition)A1The required return on debt is 8%, the
required return on equity is 14% and the marginal tax rate is

40%. If the firm is financed 70% equity and 30% debt , what is
the WACC?Definitions:L=LeverageL=the market value
proportion of debt financingD= DebtT=marginal corporate tax
rate of income from the projectrsub e = required return for
equityrsub d = required return for debtSet up the
problem:D=0.4E=0.6rsub e =0.07rsub d=0.09T=0.4L=0.4

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WACC#1Exercise (From the Cost of Capital Workbook Pratt, Shannon .docx