Question
1. Kelly's Corner Bakery purchased a lot in Oil City six years ago at a cost of $98,700. Today, that lot has a market value
1. Kelly's Corner Bakery purchased a lot in Oil City six years ago at a cost of $98,700. Today, that lot has a market value of $128,900. At the time of the purchase, the company spent $6,500 to level the lot and another $12,000 to install storm drains. The company now wants to build a new facility on the site at an estimated cost of $494,200. What amount should be used as the initial cash flow for this project?
2. A project will produce an operating cash flow of $56,200 a year for 5 years. The initial fixed asset investment in the project will be $238,900. The net aftertax salvage value is estimated at $67,000 and will be received during the last year of the project's life. What is the net present value of the project if the required rate of return is 15.2 percent?
3. Shelton Co. purchased a parcel of land six years ago for $863,500. At that time, the firm invested $135,000 in grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $49,000 a year. The company is now considering building a warehouse on the site as the rental lease is expiring. The current value of the land is $915,000. What value should be included in the initial cost of the warehouse project for the use of this land?
4. Power Manufacturing has equipment that it purchased 7 years ago for $2,150,000. The equipment was used for a project that was intended to last for 9 years. However, due to low demand, the project is being shut down. The equipment was depreciated using the straight-line method and can be sold for $320,000 today. The company's tax rate is 34 percent. What is the aftertax salvage value of the equipment?
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