| What will the cash flows for this project be? Negative should be indicated by a minus sign Round final answer to 2 decimal places 2. | You are evaluating two different cookie-baking ovens. The Pillsbury 707 costs $72,000, has a 5-year life, and has an annual OCF (after tax) of $11,700 per year. The Keebler CookieMunster costs $98,500, has a 7-year life, and has an annual OCF (after tax) of$9,700 per year. |
| If your discount rate is 13 percent, what is each machines EAC? Negative answers should be indicated with a minus sign. Round final answer to 2 decimal places. The Pillsbury 707 _________ Keebler CookieMunster _________ 3. Suppose you sell a fixed asset for $125,000 when its book value is $145,000. If your companys marginal tax rate is 35 percent, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)? ATCF ____________ 4. | Your firm needs a computerized machine tool lathe which costs $53,000 and requires $12,300 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. Assume a tax rate of 34 percent and a discount rate of 12 percent. Round your answer to 2 decimal places. Salvage value after-tax _______________ 5. | You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $17,000 to purchase and which will have OCF of $1,800 annually throughout the vehicles expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $25,000 to purchase and which will have OCF of $950 annually throughout that vehicles expected 4-year life. Both cars will be worthless at the end of their life. You intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future. |
| If the business has a cost of capital of 12 percent, calculate the EAC |
|
| If the lathe can be sold for $5,300 at the end of year 3, what is the after-tax salvage value? Negative answer should be indicated with a minus sign. Round answer 2 decimal places. Scion EAC _______ Toyota EAC ______ Which one will you choose Scion or Toyota 6 | Moms Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old oven was $39,000; it is now five years old, and it has a current market value of $17,000. The old oven is being depreciated over a 10-year life toward a zero estimated salvage value on a straight-line basis, resulting in a current book value of $19,500 and an annual depreciation expense of $3,900. The old oven can be used for six more years but has no market value after its depreciable life is over. Management is contemplating the purchase of a new oven whose cost is $25,000 and whose estimated salvage value is zero. Expected before-tax cash savings from the new oven are $3,900 a year over its full MACRS depreciable life. Depreciation is computed using MACRS over a 5-year life, and the cost of capital is 10 percent. Assume a 34 percent tax rate. |
| What will the cash flows for this project be? (Note that the $39,000 cost of the old oven is depreciated over ten years at $3,900 per year. The half-year convention is not used for the old oven. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places.) 7. | You are considering the purchase of one of two machines used in your manufacturing plant. Machine A has a life of two years, costs $150 initially, and then $105 per year in maintenance costs. Machine B costs $220 initially, has a life of three years, and requires $170 in annual maintenance costs. Either machine must be replaced at the end of its life with an equivalent machine. |
| The discount rate is 13 percent and the tax rate is zero. Calculate the EAC. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) |
| EAC | | Machine A | $ | | Machine B | $ | | | | Which one should you choose? | | | |
| Year | 0 | | 1 | | 2 | | 3 | | 4 | | 5 | | 6 | | | FCF | $ | | $ | | $ | | $ | | $ | | $ | | $ | | | 8. | You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $480 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 $265 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $189,000 in assets, which will be depreciated straight-line to zero over the 3-year project life. The actual market value of these assets at the end of year 3 is expected to be $43,000. NWC requirements at the beginning of each year will be approximately 30 percent of the projected sales during the coming year. The tax rate is 30 percent and the required return on the project is 12 percent. |
| What change in NWC occurs at the end of year 1? Is there an increase or decrease? |
| 9. | You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $450 per unit and sales volume to be 1,200 units in year 1; 1,325 units in year 2; and 1,000 units in year 3. The project has a 3-year life. Variable costs amount to $250 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $150,000 in assets, which will be depreciated straight-line to zero over the 3-year project life. The actual market value of these assets at the end of year 3 is expected to be $30,000. 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 34 percent and the required return on the project is 10 percent. |
| What is the operating cash flow for the project in year 2? |
| Operating cash flow______________ 10. | Your firm needs a computerized machine tool lathe which costs $52,000 and requires $12,200 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. Assume a tax rate of 35 percent and a discount rate of 13 percent. |
| Calculate the depreciation tax shield for this project in year 3. (Round your answer to 2 decimal places.) |
| Depreciation tax shield | $ |
| $ |
|
| |
|
|
