20.

Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $530,000. The lot was recently appraised at $555,000. At the time of the purchase, the company spent $40,000 to grade the lot and another $3,100 to build a small building on the lot to house a parking lot attendant who has overseen the use of the lot for daily commuter parking. The company now wants to build a new retail store on the site. The building cost is estimated at $1,100,000. What amount should be used as the initial cash flow for this building project?

$1,630,000

$1,637,100

$1,662,100

$1,655,000

$1,659,000

21.

Use the table below to answer this question.

MACRS 5-year property
Year	Rate
1	20.00%
2	32.00%
3	19.20%
4	11.52%
5	11.52%
6	5.76%

22. Ronnie's Custom Cars purchased some fixed assets two years ago for $50,000. The assets are classified as 5-year property for MACRS. Ronnie is considering selling these assets now so he can buy some newer fixed assets which utilize the latest in technology. Ronnie has been offered $27,000 for his old assets. What is the net cash flow from the salvage value if the tax rate is 34 percent?

$24,000.00

$20,757.60

$27,000.00

$25,980.00

$22,716.00

23. A project is expected to create operating cash flows of $30,500 a year for three years. The initial cost of the fixed assets is $63,000. These assets will be worthless at the end of the project. An additional $2,000 of net working capital will be required throughout the life of the project. What is the project's net present value if the required rate of return is 14 percent?

$5,809.78

$5,159.72

$2,178.57

$9,159.72

$7,159.72

24.

Thornley Machines is considering a 3-year project with an initial cost of $840,000. The project will not directly produce any sales but will reduce operating costs by $435,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $90,000. The tax rate is 34 percent. The project will require $22,000 in extra inventory for spare parts and accessories. Should this project be implemented if Thornley's requires a rate of return of 10 percent? Why or why not?

no; The NPV is $171,880.54

yes; The NPV is $74,000.00

yes; The NPV is $149,880.54

yes; The NPV is $65,335.09

yes; The NPV is $229,996.24

25.

A firm is reviewing a project with labor cost of $7.20 per unit, raw materials cost of $23.45 a unit, and fixed costs of $16,000 a month. Sales are projected at 9,200 units over the 3-month life of the project. What are the total variable costs of the project?

$148,990

$265,980

$281,980

$297,980

$215,740