1) Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbulb costs $0.35 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs $2.90 and lasts for 12,000 hours. A kilowatt hour of electricity costs $0.111, which is about the national average. A kilowatt-hour is 1,000 watts for 1 hour. However, electricity costs actually vary quite a bit depending on location and user type. An industrial user in West Virginia might pay $0.04 per kilowatt-hour whereas a residential user in Hawaii might pay $0.25.

Break-even cost $ _____________

2) Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.55 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,030,000 in annual sales, with costs of $735,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $285,000 at the end of the project.

If the tax rate is 35 percent, what is the projects year 1 net cash flow? Year 2? Year 3? (Use MACRS) (Enter your answers in dollars, not millions of dollars, i.e. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Years	Cash Flow
Year 0	$
Year 1	$
Year 2	$
Year 3	$

If the required return is 15 percent, what is the project's NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$