1. Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $352,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,760,000. The cost of the machine will decline by $110,000 per year until it reaches $1,320,000, where it will remain. The required return is 14%.

What is the NPV if the company decides to wait 2 years to purchases the machine?

2. We are evaluating a project that costs $835,193, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 61,538 units per year. Price per unit is $41, variable cost per unit is $15, and fixed costs are $421,056 per year. The tax rate is 35%, and we require a return of 21% on this project.

In dollar terms, what is the sensitivity of NPV to changes in the units sold projection? The sensitivity is just the first order condition in the calculus. For example, in our question, the sensitivity of NPV changes associate change in the units sold as an example. The sensitivity means the NPV changes associate 1% change in units sold. Thus, the change starting points and ending points will not affect the question.

3. We are evaluating a project that costs $842,527, has an eight-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 64,426 units per year. Price per unit is $41, variable cost per unit is $20, and fixed costs are $417 per year. The tax rate is 35%, and we require a return of 18% on this project.

Calculate the Accounting Break-Even Point

4. We are evaluating a project that costs$677,319, has a five-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 46,221 units per year. Price per unit is $51, variable cost per unit is $20, and fixed costs are $527,763 per year. The tax rate is 30%, and we require a return of 21% on this project. Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within 10 percent.

What is the Best Case NPV?

5. Winnebagel Corp. currently sells 26,415 motor homes per year at $67,985 each and 11,814 luxury motor coaches per year at $101,571 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 13,104 of these campers per year at $12,027 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 2,400 units per year and reduce the sales of its motor coaches by 1,100 units per year.

What is the amount to use as the annual sales figure when evaluating this project?

6. Renegade Industries is considering the purchase of a new machine for the production of latex. Machine A costs $3 million and will last for six years. Variable costs are 32% of sales, and fixed costs are $1,951,280 per year. Machine B costs $5.05 million and will last for nine years. Variable costs for this machine are 21% of sales and fixed costs are $1,349,108 per year. The sales for each machine will be $9.4 million per year. The required return is 11 %, and the tax rate is 38%. 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 machine A.

7. You are evaluating two different milling machines to replace your current aging machine. Machine A costs $248,909, has a three-year life, and has pretax operating costs of $62,002 per year. Machine B costs $413,899, has a five-year life, and has pretax operating costs of $33,860 per year. For both milling machines, use straight-line depreciation to zero over the project's life and assume a salvage value of $44,169. Your tax rate is 34 % and your discount rate is 10 %.

What is the EAC for Machine A?

8. Atlantic Manufacturing is considering a new investment project that will last for four years. The delivered and installed cost of the machine needed for the project is $22,967 and it will be depreciated according to the three-year MACRS schedule. The project also requires an initial increase in net working capital of $291. Financial projections for sales and costs are in the table below. In addition, since sales are expected to fluctuate, NWC requirements will also fluctuate. The end-of-year NWC requirements are included below (hint: these NWC capital requirements DO NOT represent the change in NWC for the period). The $0 requirement for NWC at the end of year 4 means that all NWC is recovered by the end of the project. The corporate tax rate is 35% and the required return on the project is 12%.

Year	1	2	3	4
Sales	$11,675	$12,265	$13,668	$10,057
Costs	2,328	2,693	3,337	1,078
NWC Requirements	322	355	212	0

What is the project's NPV?

9. An investment project has annual cash inflows of $4,771, $3,062, $4,885, and $3,902 for the next four years, respectively, and a discount rate of 13%.

What is the discounted payback if the initial investment is $8,000?

10. Consider the following two independent investment opportunities that are available to Lion, Inc. The appropriate discount rate is 11.3%.

Year	Project X	Project Y
0	$-1,264	$-2,140
1	578	932
2	948	2,117
3	846	1,396

What is the Profitability Index of project X?