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1. Your small remodeling business has two work vehicles. One is a small passenger car used for job-site visits and for other general business purposes.

1.

Your small remodeling business has two work vehicles. One is a small passenger car used for job-site visits and for other general business purposes. The other is a heavy truck used to haul equipment. The car gets 25 miles per gallon (mpg). The truck gets 10 mpg. You want to improve gas mileage to save money, and you have enough money to upgrade one vehicle. The upgrade cost will be the same for both vehicles. An upgraded car will get 40 mpg; an upgraded truck will get 12.5 mpg. The cost of gasoline is $3.90 per gallon. Calculate the annual fuel savings, in gallons, for the truck and car assuming both vehicles are driven 14,000 miles per year. (Round your answers to 2 decimal places, e.g., 32.16.)

2.

Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.3 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $1,720,000 in annual sales, with costs of $630,000. The project requires an initial investment in net working capital of $270,000, and the fixed asset will have a market value of $210,000 at the end of the project.

a. If the tax rate is 22 percent, what is the projects Year 0 net cash flow? Year 1? Year 2? Year 3? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, e.g., 1,234,567.)
b.

If the required return is 10 percent, what is the project's NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

3.

Fill in the missing numbers for the following income statement. (Do not round intermediate calculations.)

a. Calculate the OCF. (Do not round intermediate calculations.)
b. What is the depreciation tax shield? (Do not round intermediate calculations.)

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