1. A firm is reviewing a project with labor cost of $8.40 per unit, raw materials cost of $24.65 a unit, and fixed costs of $10,000 a month. Sales are projected at 10,400 units over the 3-month life of the project. What are the total variable costs of the project?

$353,720

$333,720

$176,860

$256,360

$343,720

2.

Thornley Machines is considering a 3-year project with an initial cost of $600,000. The project will not directly produce any sales but will reduce operating costs by $310,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $66,000. The tax rate is 34 percent. The project will require $14,000 in extra inventory for spare parts and accessories. Should this project be implemented if Thornley's requires a rate of return of 10 percent? Why or why not? Select answer below:

yes; The NPV is $107,161.53

yes; The NPV is $163,813.37

yes; The NPV is $54,760.00

no; The NPV is $121,161.53

yes; The NPV is $47,161.53

3.

Fill in the missing numbers in the following income statement: (Do not round intermediate calculations.)

Sales	$	644,900
Costs		346,400
Depreciation		97,100
EBIT	$
Taxes (40%)
Net income	$

Requirement 2:

What is the OCF? _____________

What is the depreciation tax shield? ______________

4.

Cochrane, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,610,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,320,000 in annual sales, with costs of $1,300,000. The project requires an initial investment in net working capital of $167,000, and the fixed asset will have a market value of $192,000 at the end of the project. Assume that the tax rate is 40 percent and the required return on the project is 6 percent.

Requirement 1:

What are the net cash flows of the project for the following years? (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answers in dollars, not millions of dollars (e.g., 1,234,567).) List cash flow for each year.

Year	Cash Flow
0
1
2
3

Requirement 2:

What is the NPV of the project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).)

NPV $ ________________

5.

Automatic Transmissions, Inc., has the following estimates for its new gear assembly project: price = $1,170 per unit; variable cost = $390 per unit; fixed costs = $4.90 million; quantity = 80,000 units. Suppose the company believes all of its estimates are accurate only to within 15 percent.

Required:

What values should the company use for the four variables given here when it performs its best-case and worst-case scenario analysis? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars. Round your answers to the nearest whole dollar amount (e.g.,1,234,567).)

Scenario	Unit Sales	Unit Price		Unit Variable Cost		Fixed Costs
Base case	80,000	$	1,170	$	390	$	4,900,000
Best case
Worst case