1) Logan Corporation currently produces gadgets and is considering expanding its operations. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land ten years ago at a cost of $272,000 and spent $94,000 on grading and excavation costs at that time. Today, the land is valued at $333,000. The company currently has some unused equipment that it currently owns with a current market value of $62,000. This equipment could be used for production if $21,000 is spent for equipment modifications. Other equipment costing $95,000 will be required. What is the amount of the initial cash flow for this expansion project?

a)$627,000

b$589,000

c)$546,000

d)$511,000

e)$482,000

2)Andover Corporation purchased an equipment three years ago at a cost of $382,000. The equipment is being depreciated using the straight-line method over six years. The tax rate is 25 percent and the discount rate is 10 percent. If the equipment is sold today for $215,000, what will the aftertax salvage value be?

a)$296,000

b)$274,000

c)$250,000

d)$231,000

e)$209,000

3)Westford Enterprise is evaluating a project that will increase sales by $261,000 and costs by $195,000. The project will initially cost $432,000 for fixed assets that will be depreciated straight-line to a zero book value over the 10-year life of the project. The applicable tax rate is 25 percent. What is the operating cash flow for this project?

a)$56,900

b)$58,400

c)$60,300

d)$62,200

e)$64,500

4)Delta Company purchased some fixed assets four years ago at a cost of $248,000. It no longer needs these assets, so it is going to sell them today at a price of $57,500. The assets are classified as 5-year property for MACRS. The MACRS table values .2000, .3200, .1920, .1152, .1152, and .0576 for Years 1 to 6, respectively. What is the current book value of these assets?

a)$42,854.40

b)$47,360.30

c)$52,019.70

d)$57,219.70

e)$37,415.80

5)A project will produce an operating cash flow of $135,000 a year for three years. The initial cash outlay for equipment will be $234,000. The net aftertax salvage value of $27,200 will be received at the end of the project. The project requires $64,500 of net working capital up front that will be fully recovered. What is the net present value of the project if the required rate of return is 12.5 percent?

a)$73,938.54

b)$77,483.25

c)$83,185.20

d)$87,385.32

e)$93,425.36

6)Briston Company is considering a 3-year project with an initial cost of $586,000. The project will not directly produce any sales but will reduce operating costs by $158,000 a year. The equipment is classified as MACRS 7-year property. The MACRS table values are .1429, .2449, .1749, .1249, .0893, .0892, .0893, and .0446 for Years 1 to 8, respectively. At the end of the project, the equipment will be sold for an estimated $284,000 before tax. The tax rate is 25 percent and the required return is 12 percent. An extra $63,000 of inventory will be required for the life of the project. What is the total cash flow for Year 3?

a)$534,670.80

b)$452,380.60

c)$516,278.20

d)$435,672.40

e)$484,187.30

7)Assume a machine costs $404,000 and lasts four years before it is replaced. The operating cost is $47,000 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 12.5 percent?(Hint: the EAC should account for both initial investment and annual operating costs)

a)$163,297

b)$174,825

c)$181,414

d)$195,637

e)$202,118

8)Duke Corporation is analyzing two machines to determine which one it should purchase. Whichever machine is purchased will be replaced at the end of its useful life. The company requires a 12 percent rate of return and uses straight-line depreciation to a zero book value over the life of the machine. Machine A has a cost of $405,000, annual operating costs of $21,000, and a 3-year life. Machine B costs $276,000, has annual operating costs of $33,000, and a 2-year life. The firm currently pays no taxes. Which machine should be purchased and why?

a)Machine A; because it will save the company about $6,687 a year

b)Machine A; because it will save the company about $8,251 a year

c)Machine B; because it will save the company about $5,947 a year

d)Machine B; because it will save the company about $7,380 a year

e)Machine A; because it will save the company about $7,506 a year

9)Fisher, Inc. is analyzing a proposed 3-year project using standard sensitivity analysis. The company expects to sell 25,000 units, 4 percent. The expected variable cost per unit is $13.20 and the expected fixed costs are $60,000. The fixed and variable cost estimates are considered accurate within a 5 percent range. The sales price is estimated at $17.20 a unit, 5 percent. The project requires an initial investment of $220,000 for equipment that will be depreciated using the straight-line method to zero over the project's life. The equipment can be sold for $52,400 at the end of the project. The project requires $20,000 in net working capital for the three years. The discount rate is 12% percent and tax rate is 25 percent. What is the operating cash flow under the optimistic case scenario?

a)$76,937.68

b)$83,223.33

c)$89,715.37

d)$93,514.29

e)$98,518.72

10)Freeport Corporation has compiled this information related to a new project: Initial investment: $532,000; Fixed costs: $298,000; Variable costs: $14 per unit; Selling price: $36.50 per unit; Discount rate: 12 percent; Project life: 5 years; Tax rate: 25 percent. Fixed assets are depreciated using straight-line depreciation over the project's life. What is the financial break-even point?

a)19,176

b)20,821

c)19,543

d)19,918

e)20,414