7.

You are considering adding a new software title to those published by your highly successful software company. If you add the new product, it will use capacity on your disk duplicating machines that you had planned on using for your flagship product, Battlin Bobby. You had planned on using the unused capacity to start selling BB on the West coast in two years. You would eventually have had to purchase additional duplicating machines 10 years from today, but using the capacity for your new product will require moving this purchase up to 2 years from today. If the new machines will cost $112,000 and can be expensed under Section 179, your marginal tax rate is 21 percent, and your cost of capital is 12 percent, what is the opportunity cost associated with using the unused capacity for the new product? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Opportunity Cost___________

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8.

Your company is considering a new project that will require $875,000 of new equipment at the start of the project. The equipment will have a depreciable life of 8 years and will be depreciated to a book value of $155,000 using straight-line depreciation. Neither bonus depreciation nor Section 179 expensing will be used. The cost of capital is 11 percent, and the firms tax rate is 21 percent. Estimate the present value of the tax benefits from depreciation. (Round your answer to 2 decimal places.)

Present Value _____________

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9.

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 10 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively.

Time:	0	1	2	3	4	5
Cash flow:	$244,000	$66,700	$84,900	$141,900	$122,900	$82,100

Use the IRR decision rule to evaluate this project. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

IRR _________

Should it be accepted or rejected?

______________________________________________________________________________________________________________________________

10.

Compute the discounted payback statistic for Project D if the appropriate cost of capital is 13 percent and the maximum allowable discounted payback is four years. (Do not round intermediate calculations and round your final answer to 2 decimal places. If the project does not pay back, then enter a "0" (zero).)

Project D
Time:	0	1	2	3	4	5
Cash flow:	$11,500	$3,400	$4,280	$1,620	$0	$1,100

Discounted payback period __________ years

Should it be accepted or rejected?

______________________________________________________________________________________________________________________________

11.

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.

Time:	0	1	2	3	4	5	6
Cash flow:	$4,900	$1,220	$2,420	$1,620	$1,620	$1,420	$1,220

Use the discounted payback decision rule to evaluate this project. (Round your answer to 2 decimal places.)

Discounted payback _________ years

Should it be accepted or rejected?

______________________________________________________________________________________________________________________________

12.

Compute the IRR statistic for Project E. The appropriate cost of capital is 8 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Project E
Time:	0	1	2	3	4	5
Cash flow	$3,500	$1,070	$1,020	$880	$660	$460

IRR __________

Should the project be accepted or rejected?