1.

You are evaluating a project for The Farstroke golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Farstroke to be $500 per unit and sales volume to be 1,000 units in year 1; 900 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $275 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $195,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $45,000. NWC requirements at the beginning of each year will be approximately 25 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 11 percent. What change in NWC occurs at the end of year 1? (Enter a decrease as a negative amount using a minus sign.)

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2.

Your firm needs a computerized machine tool lathe which costs $48,000 and requires $11,800 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category, and neither bonus depreciation nor Section 179 expensing can be used. Assume a tax rate of 21 percent and a discount rate of 12 percent. If the lathe can be sold for $4,800 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.)

Salvage value after tax _______

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3.

KADS, Incorporated has spent $360,000 on research to develop a new computer game. The firm is planning to spend $160,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated using bonus depreciated; they total $46,000. The machine has an expected life of three years, a $71,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $560,000 per year, with costs of $210,000 per year. The firm has a tax rate of 21 percent, has an opportunity cost of capital of 13 percent, and expects net working capital to increase by $80,000 at the beginning of the project.

What will the cash flows for this project be?

Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.

Year	0	1	2	3
FCF

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4.

You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of The Ultimate to be $320 per unit and sales volume to be 1,000 units in year 1; 1,250 units in year 2; and 1,325 units in year 3. The project has a 3-year life. Variable costs amount to $185 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $141,000 in assets, which can be depreciated using bonus depreciation. The actual market value of these assets at the end of year 3 is expected to be $27,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 10 percent.

What will the cash flows for this project be?

Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.

Year	0	1	2	3
Total cash flow

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5.

Your company is contemplating replacing their current fleet of delivery vehicles with Nissan NV vans. You will be replacing 5 fully-depreciated vans, which you think you can sell for $4,000 a piece and which you could probably use for another 2 years if you chose not to replace them. The NV vans will cost $39,000 each in the configuration you want them, and can be depreciated using MACRSover a 5-year life, but you are unable to make use of either bonus depreciation or Section 179 expensing. Expected yearly before-tax cash savings due to acquiring the new vans amounts to about $4,700 each. If your cost of capital is 8 percent and your firm faces a 21 percent tax rate, what will the cash flows for this project be? (Round your answers to the nearest dollar amount.)

Year	0	1	2	3	4	5	6
FCF