1.

Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.55 million. 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 $2,030,000 in annual sales, with costs of $725,000. The tax rate is 25 percent and the required return is 15 percent. What is the projects NPV? round your answer to 2 decimal places

2.

Your firm is contemplating the purchase of a new $575,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. You will save $265,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $74,000 (this is a one-time reduction). If the tax rate is 21 percent, what is the IRR for this project? enter your answer as a percent rounded to 2 decimal places

3.

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3,156,000 and will last for six years. Variable costs are 40 percent of sales, and fixed costs are $290,000 per year. Machine B costs $5,391,000 and will last for nine years. Variable costs for this machine are 35 percent of sales and fixed costs are $225,000 per year. The sales for each machine will be $12 million per year. The required return is 11 percent, and the tax rate is 25 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis.

Calculate the EAC for each machine. Your answers should be negative values and indicated by minus signs. round your answers to 2 decimal places, e.g., 32.16.)

Machine A:

Machine B:

Which machine should the company choose?

4.

Squirrel Spring Water, Inc., expects to sell 2.84 million bottles of drinking water each year in perpetuity. This year, each bottle will sell for $1.45 in real terms and will cost $.94 in real terms. Sales income and costs occur at year-end. Revenues will rise at a real rate of 5 percent annually, while real costs will rise at a real rate of 4 percent annually. The real discount rate is 12 percent. The corporate tax rate is 24 percent.

What is the company worth today? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)