1.A proposed new project has projected sales of $123,000, costs of $57,000, and depreciation of $12,600. The tax rate is 35 percent. Calculate operating cash flow using the four different approaches.

Approaches	Operating cash flow
EBIT + Depreciation - Taxes	$
Top-down	$
Tax-shield	$
Bottom-up	$

2.

An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,110,000 and will be sold for $1,310,000 at the end of the project. If the tax rate is 30 percent, what is the aftertax salvage value of the asset? Refer to Table 10.7. (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Aftertax salvage value

$

3. Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.55 million. The fixed asset falls into the three-year MACRS class. The project is estimated to generate $2,030,000 in annual sales, with costs of $735,000. The project requires an initial investment in net working capital of $250,000, and the fixed asset will have a market value of $285,000 at the end of the project.

If the tax rate is 35 percent, what is the projects year 1 net cash flow? Year 2? Year 3? (Use MACRS) (Enter your answers in dollars, not millions of dollars, i.e. 1,234,567. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Years	Cash Flow
Year 0	$
Year 1	$
Year 2	$
Year 3	$

If the required return is 15 percent, what is the project's NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

4.

Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $268,000, has a four-year life, and requires $82,000 in pretax annual operating costs. System B costs $378,000, has a six-year life, and requires $76,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 35 percent and the discount rate is 10 percent.

Calculate the NPV for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

NPV

System A

$

System B

$

5.

Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbulb costs $0.36 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs $2.95 and lasts for 12,000 hours. A kilowatt hour of electricity costs $0.112, which is about the national average. A kilowatt-hour is 1,000 watts for 1 hour. However, electricity costs actually vary quite a bit depending on location and user type. An industrial user in West Virginia might pay $0.04 per kilowatt-hour whereas a residential user in Hawaii might pay $0.25.

You require a return of 11 percent and use a light fixture 500 hours per year. What is the break-even cost per kilowatt-hour? (Do not round intermediate calculations and round your final answer to 6 decimal places. (e.g., 32.161616))

Break-even cost

$

6. You have been hired as a consultant for Pristine Urban-Tech Zither, Inc. (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $1.33 million in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $1.43 million on an aftertax basis. In four years, the land could be sold for $1.53 million after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $118,000. An excerpt of the marketing report is as follows:

The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 3,100, 4,000, 4,600, and 3,500 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium price of $580 can be charged for each zither. Because zithers appear to be a fad, we feel at the end of the four-year period, sales should be discontinued.

PUTZ believes that fixed costs for the project will be $390,000 per year, and variable costs are 20 percent of sales. The equipment necessary for production will cost $2.80 million and will be depreciated according to a three-year MACRS schedule. At the end of the project, the equipment can be scrapped for $365,000. Net working capital of $118,000 will be required immediately. PUTZ has a 35 percent tax rate, and the required return on the project is 12 percent. Refer to Table 10.7.

What is the NPV of the project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

NPV

$

7. Your company has been approached to bid on a contract to sell 4,600 voice recognition (VR) computer keyboards a year for four years. Due to technological improvements, beyond that time they will be outdated and no sales will be possible. The equipment necessary for the production will cost $4.2 million and will be depreciated on a straight-line basis to a zero salvage value. Production will require an investment in net working capital of $99,000 to be returned at the end of the project, and the equipment can be sold for $279,000 at the end of production. Fixed costs are $644,000 per year, and variable costs are $159 per unit. In addition to the contract, you feel your company can sell 9,900, 10,800, 12,900, and 10,200 additional units to companies in other countries over the next four years, respectively, at a price of $330. This price is fixed. The tax rate is 30 percent, and the required return is 11 percent. Additionally, the president of the company will undertake the project only if it has an NPV of $100,000. What bid price should you set for the contract? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Bid price

$