A firm is reviewing a project with labor cost of $8.60 per unit, raw materials cost of $24.85 a unit, and fixed costs of $11,000 a month. Sales are projected at 10,600 units over the 3-month life of the project. What are the total variable costs of the project?

	$182,785
	$365,570
	$343,570
	$263,410
	$354,570
Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $1,113,600 is estimated to result in $371,200 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $162,400. The press also requires an initial investment in spare parts inventory of $46,400, along with an additional $6,960 in inventory for each succeeding year of the project.

Required :

If the shop's tax rate is 33 percent and its discount rate is 8 percent, what is the NPV for this project? (Do not round your intermediate calculations.)

rev: 09_18_2012

	$77,909.62
	$80,498.79
	$-64,090.75
	$81,805.10
	$74,014.13
Your firm is contemplating the purchase of a new $1,344,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $120,000 at the end of that time. You will save $528,000 before taxes per year in order processing costs and you will be able to reduce working capital by $177,994 (this is a one-time reduction).

Required :

If the tax rate is 30 percent, what is the IRR for this project? (Do not round your intermediate calculations.)

rev: 09_18_2012

	25.60%
	24.58%
	18.01%
	26.88%
	24.41%
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%

Sun Lee's Furniture just purchased some fixed assets classified as 5-year property for MACRS. The assets cost $53,000. What is the amount of the depreciation expense for the first year?

	$10,600
	$5,300
	$3,053
	$6,106
	$10,176
An asset used in a 4-year project falls in the 5-year MACRS class (MACRS Table) for tax purposes. The asset has an acquisition cost of $15,660,000 and will be sold for $3,480,000 at the end of the project.

Required:

If the tax rate is 31 percent, what is the aftertax salvage value of the asset?

rev: 09_18_2012

	$3,240,075
	$2,401,200
	$3,719,925
	$3,402,079
	$3,078,071
Winnebagel Corp. currently sells 28,800 motor homes per year at $43,200 each, and 11,520 luxury motor coaches per year at $81,600 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 18,240 of these campers per year at $11,520 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 4,320 units per year, and reduce the sales of its motor coaches by 864 units per year.

Required :

What is the amount to use as the annual sales figure when evaluating this project?

rev: 09_18_2012

	$342,558,720
	$309,934,080
	$467,251,200
	$326,246,400
	$210,124,800
Marshall's & Co. purchased a corner lot in Eglon City five years ago at a cost of $730,000. The lot was recently appraised at $765,000. At the time of the purchase, the company spent $53,000 to grade the lot and another $3,300 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 $1,120,000. What amount should be used as the initial cash flow for this building project?

	$1,858,600
	$1,893,600
	$1,850,000
	$1,885,000
	$1,890,300
A project is expected to create operating cash flows of $31,000 a year for three years. The initial cost of the fixed assets is $64,000. These assets will be worthless at the end of the project. An additional $2,500 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 15 percent?

	$4,279.98
	$3,423.77
	$2,033.33
	$8,423.77
	$5,923.77
Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land 5 years ago for $6 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $10 million. The company wants to build its new manufacturing plant on this land; the plant will cost $14.2 million to build, and the site requires $900,000 worth of grading before it is suitable for construction.

Required :

What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

rev: 09_18_2012

	$25,100,000
	$26,355,000
	$20,096,000
	$23,300,000
	$24,200,000
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%

Ronnie's Custom Cars purchased some fixed assets two years ago for $85,000. 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 $44,500 for his old assets. What is the net cash flow from the salvage value if the tax rate is 34 percent?

	$43,242.00
	$40,800.00
	$37,693.20
	$44,500.00
	$34,363.92
Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $2.106 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will be worthless. The project is estimated to generate $1,872,000 in annual sales, with costs of $748,800.

Required:

If the tax rate is 31 percent, what is the OCF for this project?

rev: 09_18_2012

	$290,628
	$992,628
	$942,997
	$1,042,259
	$1,123,200
A 9-year project has an initial fixed asset investment of $35,280, an initial NWC investment of $3,360, and an annual OCF of -$53,760. The fixed asset is fully depreciated over the life of the project and has no salvage value.

Required:

If the required return is 16 percent, what is the project's equivalent annual cost, or EAC? (Do not round your intermediate calculations.)

rev: 09_18_2012

	$-61,956.27
	$-52,662.83
	$-31,711.59
	$-65,054.08
	$-58,858.46
Consider an asset that costs $431,200 and is depreciated straight-line to zero over its 8-year tax life. The asset is to be used in a 3-year project; at the end of the project, the asset can be sold for $53,900.

Required :

If the relevant tax rate is 31 percent, what is the aftertax cash flow from the sale of this asset? (Do not round your intermediate calculations.)

rev: 09_18_2012

	$738,981.00
	$37,191.00
	$126,772.80
	$120,736.00
	$114,699.20
Dog Up! Franks is looking at a new sausage system with an installed cost of $639,600. This cost will be depreciated straight-line to zero over the project's 6-year life, at the end of which the sausage system can be scrapped for $98,400. The sausage system will save the firm $196,800 per year in pretax operating costs, and the system requires an initial investment in net working capital of $45,920.

Required:

If the tax rate is 31 percent and the discount rate is 10 percent, what is the NPV of this project?

rev: 09_18_2012

	$134,059.03
	$75,734.15
	$119,762.65
	$95,733.51
	$114,059.67
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?

	yes; The NPV is $229,996.24
	yes; The NPV is $149,880.54
	yes; The NPV is $65,335.09
	yes; The NPV is $74,000.00
	no; The NPV is $171,880.54