5 Sanford Son Inc is thinking about expanding their business by opening another shop on property they purchased 10 years ago Which of the following items should be included in the analysis of this endeavor a The property was cleared of trees and brush 5 years ago at a cost of $5,000 b The new shop is expected to affect the profitability of the existing shop since some current customers will transfer their business to the new shop Sanford and Son estimate that profits at the existing shop will decrease by 10 percent c Sanford Son can lease the entire property to another company (that wants to grow flowers on the lot) for $5,000 per year d Both statements b and c should be included in the analysis e All of the statements above should be included in the analysis 1 points Question 6 The Target Copy Company is contemplating the replacement of its old printing machine with a new model costing $60,000 The old machine, which originally cost $40,000, has 6 years of expected life remaining and a current book value of $30,000 versus a current market value of $24,000 Target's corporate tax rate is 40 percent If Target sells the old machine at market value, what is the initial after tax outlay for the new printing machine a $22,180 b $30,000 c $33,600 d $36,000 e $40,000 1 points Question 7 Stanton Inc is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually and increase sales by $6,000 annually Stanton will use the MACRS method to depreciate the machine, and it expects to sell the machine at the end of its 5 year operating life for $10,000 before taxes Stanton's marginal tax rate is 40 percent, and it uses a 9 percent cost of capital to evaluate projects of this type If the machine's cost is $40,000, what is the project's NPV a $1,014 b $2,292 c $7,550 d $ 817 e $5,040 1 points Question 8 Klott Company encounters significant uncertainty with its sales volume and price in its primary product The firm uses scenario analysis in order to determine an expected NPV, which it then uses in its budget The base case, best case, and worse case scenarios and probabilities are provided in the table below What is Klott's expected NPV, standard deviation of NPV, and coefficient of variation of NPV Probability Unit Sales Sales NPV of Outcome Volume Price (In Thousands) Worst case 0 30 6,000 $3,600 $6,000 Base case 0 50 10,000 4,200 13,000 Best case 0 20 13,000 4,400 28,000 a Expected NPV $35,000 s NPV 17,500 CV NPV 2 00 b Expected NPV $35,000 s NPV 11,667 CV NPV 0 33 c Expected NPV $10,300 s NPV 12,083 CV NPV 1 17 d Expected NPV $13,900 s NPV 8,476 CV NPV 0 61 e Expected NPV $10,300 s NPV 13,900 CV NPV 1 35 1 points Question 9 Scenario 13 1The information below applies to the following problem(s) The president of Real Time Inc has asked you to evaluate the proposed acquisition of a new computer The computer's price is $40,000, and it falls into the MACRS 3 year class Purchase of the computer would require an increase in net operating working capital of $2,000 The computer would increase the firm's before tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year The computer is expected to be used for 3 years and then be sold for $25,000 The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent Refer to Scenario 13 1 What is the net investment required at t 0 a $42,000 b $40,000 c $38,600 d $37,600 e $36,600 1 points Question 10 Scenario 13 1The information below applies to the following problem(s) The president of Real Time Inc has asked you to evaluate the proposed acquisition of a new computer The computer's price is $40,000, and it falls into the MACRS 3 year class Purchase of the computer would require an increase in net operating working capital of $2,000 The computer would increase the firm's before tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year The computer is expected to be used for 3 years and then be sold for $25,000 The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent Refer to Scenario 13 1 What is the operating cash flow in Year 2 a $ 9,000 b $10,240 c $11,687 d $13,453 e $16,200 1 points Question 11 Scenario 13 1The information below applies to the following problem(s) The president of Real Time Inc has asked you to evaluate the proposed acquisition of a new computer The computer's price is $40,000, and it falls into the MACRS 3 year class Purchase of the computer would require an increase in net operating working capital of $2,000 The computer would increase the firm's before tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year The computer is expected to be used for 3 years and then be sold for $25,000 The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent Refer to Scenario 13 1 What is the total value of the terminal year non operating cash flows at the end of Year 3 a $18,120 b $19,000 c $21,000 d $25,000 e $27,000 1 points Question 12 Scenario 13 1The information below applies to the following problem(s) The president of Real Time Inc has asked you to evaluate the proposed acquisition of a new computer The computer's price is $40,000, and it falls into the MACRS 3 year class Purchase of the computer would require an increase in net operating working capital of $2,000 The computer would increase the firm's before tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year The computer is expected to be used for 3 years and then be sold for $25,000 The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent Refer to Scenario 13 1 What is the project's NPV a $2,622 b $2,803 c $2,917 d $5,712 e $6,438 1 points Question 13 The Unlimited, a national retailing chain, is considering an investment in one of two mutually exclusive projects The discount rate used for Project A is 12 percent Further, Project A costs $15,000, and it would be depreciated using MACRS It is expected to have an after tax salvage value of $5,000 at the end of 6 years and to produce after tax cash flows (including depreciation) of $4,000 for each of the 6 years Project B costs $14,815 and would also be depreciated using MACRS B is expected to have a zero salvage value at the end of its 6 year life and to produce after tax cash flows (including depreciation) of $5,100 each year for 6 years The Unlimited's marginal tax rate is 40 percent What risk adjusted discount rate will equate the NPV of Project B to that of Project A Hint Ask me in class a 15 b 16 c 18 d 20 e 12

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5 Sanford & Son Inc. is thinking about expanding their business by opening another shop on property they purchased 10 years ago. Which of the

Sanford & Son Inc. is thinking about expanding their business by opening another shop on property they purchased 10 years ago. Which of the following items should be included in the analysis of this endeavor?

a.	The property was cleared of trees and brush 5 years ago at a cost of $5,000.
b.	The new shop is expected to affect the profitability of the existing shop since some current customers will transfer their business to the new shop. Sanford and Son estimate that profits at the existing shop will decrease by 10 percent.
c.	Sanford & Son can lease the entire property to another company (that wants to grow flowers on the lot) for $5,000 per year.
d.	Both statements b and c should be included in the analysis.
e.	All of the statements above should be included in the analysis.

1 points

Question 6

The Target Copy Company is contemplating the replacement of its old printing machine with a new model costing $60,000. The old machine, which originally cost $40,000, has 6 years of expected life remaining and a current book value of $30,000 versus a current market value of $24,000. Target's corporate tax rate is 40 percent. If Target sells the old machine at market value, what is the initial after-tax outlay for the new printing machine?

a. -$22,180

b. -$30,000

c. -$33,600

d. -$36,000

e. -$40,000

1 points

Question 7

Stanton Inc. is considering the purchase of a new machine which will reduce manufacturing costs by $5,000 annually and increase sales by $6,000 annually. Stanton will use the MACRS method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for $10,000 before taxes. Stanton's marginal tax rate is 40 percent, and it uses a 9 percent cost of capital to evaluate projects of this type. If the machine's cost is $40,000, what is the project's NPV?

a. $1,014

b. $2,292

c. $7,550

d. $ 817

e. $5,040

1 points

Question 8

Klott Company encounters significant uncertainty with its sales volume and price in its primary product. The firm uses scenario analysis in order to determine an expected NPV, which it then uses in its budget. The base case, best case, and worse case scenarios and probabilities are provided in the table below. What is Klott's expected NPV, standard deviation of NPV, and coefficient of variation of NPV?

	Probability	Unit Sales	Sales	NPV
	of Outcome	Volume	Price	(In Thousands)
Worst case	0.30	6,000	$3,600	-$6,000
Base case	0.50	10,000	4,200	+13,000
Best case	0.20	13,000	4,400	+28,000

a.	Expected NPV = $35,000;s_NPV= 17,500; CV_NPV= 2.00.
b.	Expected NPV = $35,000;s_NPV= 11,667; CV_NPV= 0.33.
c.	Expected NPV = $10,300;s_NPV= 12,083; CV_NPV= 1.17.
d.	Expected NPV = $13,900;s_NPV= 8,476; CV_NPV= 0.61.
e.	Expected NPV = $10,300;s_NPV= 13,900; CV_NPV= 1.35.

1 points

Question 9

Scenario 13-1The information below applies to the following problem(s).The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.Refer to Scenario 13-1. What is the net investment required at t = 0?

a. -$42,000

b. -$40,000

c. -$38,600

d. -$37,600

e. -$36,600

1 points

Question 10

Scenario 13-1The information below applies to the following problem(s).The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.Refer to Scenario 13-1. What is the operating cash flow in Year 2?

a. $ 9,000

b. $10,240

c. $11,687

d. $13,453

e. $16,200

1 points

Question 11

Scenario 13-1The information below applies to the following problem(s).The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.Refer to Scenario 13-1. What is the total value of the terminal year non-operating cash flows at the end of Year 3?

a. $18,120

b. $19,000

c. $21,000

d. $25,000

e. $27,000

1 points

Question 12

Scenario 13-1The information below applies to the following problem(s).The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.Refer to Scenario 13-1. What is the project's NPV?

a. $2,622

b. $2,803

c. $2,917

d. $5,712

e. $6,438

1 points

Question 13

The Unlimited, a national retailing chain, is considering an investment in one of two mutually exclusive projects. The discount rate used for Project A is 12 percent. Further, Project A costs $15,000, and it would be depreciated using MACRS. It is expected to have an after-tax salvage value of $5,000 at the end of 6 years and to produce after-tax cash flows (including depreciation) of $4,000 for each of the 6 years. Project B costs $14,815 and would also be depreciated using MACRS. B is expected to have a zero salvage value at the end of its 6-year life and to produce after-tax cash flows (including depreciation) of $5,100 each year for 6 years. The Unlimited's marginal tax rate is 40 percent. What risk-adjusted discount rate will equate the NPV of Project B to that of Project A? [Hint: Ask me in class!]

a. 15%

b. 16%

c. 18%

d. 20%

e. 12%