1.value:

10.00 points

Consider the following income statement:

Sales $ 839,408

Costs 546,112

Depreciation 124,200

Taxes 35 %

a ) Calculate the EBIT.

(b ) Calculate the net income.

(c ) Calculate the OCF.

(d ) What is the depreciation tax shield?

2.value:

10.00 points

An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $16,920,000 and will be sold for $3,760,000 at the end of the project.

Required:

If the tax rate is 34 percent, what is the aftertax salvage value of the asset?

$3,475,684 | |

$2,481,600 | |

$4,044,316 | |

$3,649,468 | |

$3,301,900 |

3.value:

10.00 points

Winnebagel Corp. currently sells 36,000 motor homes per year at $54,000 each, and 14,400 luxury motor coaches per year at $102,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 22,800 of these campers per year at $14,400 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 5,400 units per year, and reduce the sales of its motor coaches by 1,080 units per year.

Required :

What is the amount to use as the annual sales figure when evaluating this project?

$535,248,000

$509,760,000

$484,272,000

$730,080,000

$328,320,000

4.value:

10.00 points

Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 10 years ago for $7 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $9.4 million. The company wants to build its new manufacturing plant on this land; the plant will cost $16.2 million to build, and the site requires $940,000 worth of grading before it is suitable for construction.

Required :

What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

$26,540,000

$25,600,000

$23,078,400

$24,660,000

$27,867,000

5.value:

10.00 points

Dog Up! Franks is looking at a new sausage system with an installed cost of $639,600. This cost will be depreciated straight-line to zero over the project’s 7-year life, at the end of which the sausage system can be scrapped for $98,400. The sausage system will save the firm $196,800 per year in pretax operating costs, and the system requires an initial investment in net working capital of $45,920.

Required:

If the tax rate is 31 percent and the discount rate is 12 percent, what is the NPV of this project?

$120,703.03

$84,242.56

$109,390.68

$114,955.26

$140,103.39

6.value:

10.00 points

Consider an asset that costs $281,600 and is depreciated straight-line to zero over its 9-year tax life. The asset is to be used in a 5-year project; at the end of the project, the asset can be sold for $35,200.

Required :

If the relevant tax rate is 35 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.)

$22,880.00

$70,018.66

$66,684.44

$441,772.00

$63,350.2

7.value:

10.00 points

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $1.134 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $88,200. The project requires an initial investment in net working capital of $126,000. The project is estimated to generate $1,008,000 in annual sales, with costs of $403,200. The tax rate is 32 percent and the required return on the project is 11 percent.

(a) What is the project’s year 0 net cash flow?

(b) What is the project’s year 1 net cash flow?

(c) What is the project’s year 2 net cash flow?

(d) What is the project’s year 3 net cash flow?

(e) What is the NPV?

8.value:

10.00 points

Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $1,104,000 is estimated to result in $368,000 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $161,000. The press also requires an initial investment in spare parts inventory of $46,000, along with an additional $6,900 in inventory for each succeeding year of the project.

Required :

If the shop’s tax rate is 31 percent and its discount rate is 14 percent, what is the NPV for this project? (Do not round your intermediate calculations.)

$-73,880.86

$-70,117.66

$-186,926.20

$-77,574.90

$-70,186.81

9.value:

10.00 points

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $1,980,000 and will last for 4 years. Variable costs are 33 percent of sales, and fixed costs are $130,000 per year. Machine B costs $4,790,000 and will last for 7 years. Variable costs for this machine are 26 percent of sales and fixed costs are $120,000 per year. The sales for each machine will be $9.58 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis.

(a)

If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.)

(b)

If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.)

10.value:

10.00 points

Summer Tyme, Inc., is considering a new 5-year expansion project that requires an initial fixed asset investment of $3.996 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. The project is estimated to generate $3,552,000 in annual sales, with costs of $1,420,800.

Required:

If the tax rate is 35 percent, what is the OCF for this project?

rev: 09_18_2012

$865,800

$1,581,750

$1,665,000

$2,131,200

$1,748,250

11.value:

10.00 points

Your firm is contemplating the purchase of a new $1,965,600 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $175,500 at the end of that time. You will save $772,200 before taxes per year in order processing costs and you will be able to reduce working capital by $184,312 (this is a one-time reduction).

Required :

If the tax rate is 31 percent, what is the IRR for this project? (Do not round your intermediate calculations.)

rev: 09_18_2012

22.69%

25.04%

22.90%

18.60%

23.85%

12.value:

10.00 points

Your firm is contemplating the purchase of a new $573,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $55,800 at the end of that time. You will be able to reduce working capital by $77,500 (this is a one-time reduction). The tax rate is 31 percent and your required return on the project is 24 percent and your pretax cost savings are $271,650 per year.

Requirement 1:

What is the NPV of this project?

Requirement 2:

What is the NPV if the pretax cost savings are $195,600 per year?

Requirement 3:

At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

13.value:

10.00 points

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $5.8 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $453,600 after 3 years. The project requires an initial investment in net working capital of $648,000. The project is estimated to generate $5,184,000 in annual sales, with costs of $2,073,600. The tax rate is 31 percent and the required return on the project is 10 percent. (Do not round your intermediate calculations.)

Required:

(a) What is the project’s year 0 net cash flow?

(b) What is the project’s year 1 net cash flow?

(c) What is the project’s year 2 net cash flow?

(d) What is the project’s year 3 net cash flow?

(e) What is the NPV?