$22$

$1$ point

A manufacturing company has found that altering their process improves the quality of their product so that they have less waste per ton of raw material used to produce their product. The new process, however, requires more energy and more labor. Training, support and setup for the new process is required to make sure results will be consistent. The company believes the benefit will last four years before the product is obsolete in the market. The company has a $13\%$ hurdle rate for projects of this type $($i$.$e$.,$ the required rate of return is $13\%)$ and requires a $31-$month payback period. They are subject to a $28\%$ tax rate.

The initial investment consists of $$93,338,$ all of which is a period expense $($i$.$e$.,$ part of cash operating expenses in Year $0).$ The net savings, lincluding the effect of material consumption, labor, energy, etc., would $$36995$ per year for years $1-4.$ This amount would reduce cash operating expenses in the forecast years $($ereating a positive effect on operating income$).$

What is the net present value of this proposal?

Enter your answer as a monetary amount rounded to four decimal places, but without the currency symbol. For example, if your answer is $$90\mathrm{.}1234,$ enter $90\mathrm{.}1234.$ If you answer is less than zero, enter a negative value, like this: $=90\mathrm{.}1234$

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$23$

$1$ point

A company is considering opening a new store. The company's WACC $($weighted average cost of capital$)$ is $11\%,$ so this will be the required rate of return for this expansion. They also would like a $25-$month payback period so that capital will become available for other projects. They are subject to a $27\%$ tax rate. Opening the store will require fixtures, etc., which will cost $$1484144$ before the store can begin operating. These will be depreciated straightline over $5$ years assuming a $9\%$ salvage value. The salvage amount will also be included as part of the terminal valut, representing the amount recaptured at the end of year $5.$ There will be no tax effect in the salvage value because the book value is expected to be $9\%$ of the historical cost at the end of year $5.$ There will be a need for $$11994$ for net working capital before the store opens, and net working capital will grow equally each year through year $4.$ At the end of year $5,$ the total net working capital will be $$60000.$ This amount will be released in the final year as part of the terminal value.

Sales for each year are forecasted to be:

Year $1$: $$424,098$

Year $2$: $$999,190$

Year $3$:$$1,444,966$

Year $4$:$$2,100,000$

Year $5$: $$2,100,000$

Cash operating costs will be $69\%$ of revenue for each year,

What is the net present value of this proposal?

Enter your answer as a monetary amount rounded to four decimal places, but without the currency symbol. For example, if your answer is $$90\mathrm{.}1234,$ enter $90\mathrm{.}1234.$ If you answer is less than zero, enter a negative value, like this: $-90\mathrm{.}1234$