1. A company will sell Gizmos to consumers at a price of $84 per unit. The variable cost to produce Gizmos is $44 per unit. The company expects to sell 16,000Gizmos to consumers each year. The fixed costs incurred each year will be $130,000. There is an initial investment to produce the goods of $2,900,000 which will be depreciated straight line over the 17 year life of the investment to a salvage value of $0. The opportunity cost of capital is 9% and the tax rate is 25%. Using the an annual operating cash flow of $425,147.06, what is the net present value of this investment? Should the company accept or reject this project?
2. Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $24,000 and will be depreciated straight-line over 7 years to a salvage value of zero. The grill will have no effect on revenues, but will save Johnny's $16,000 in energy expenses. The tax rate is 35 percent. If the discount rate is 11 percent, what is the net present value of the grill? Use $11,600 for operating cash flow.
3. An auto plant that costs $90 million to build can produce a new line of cars that will produce net cash flow of $30 million per year if the line is successful, but only $1.5 million per year if it is unsuccessful. You believe that the probability of success is about 10 percent. The auto plant is expected to have a life of 16 years and the opportunity cost of capital is 6 percent. (NPV is -46.04 Million)If the plant could be sold for $110 million to another automaker in one year if the auto line is not successful, what is the expected net present value of building the plant? Please state your answer in millions and in 2 decimal places.