A project has an initial cost of $40,000, expected net cash inf lows of $9,000 per year for  7 years, and a cost of capital of 11%. What is the project's NPV? (Hint: Begin by construct-ing a time line.)

 

10-7) Your division is considering two investment projects, each of which requires an up-front expenditure of $15 million. You estimate that the investments will produce the following net cash f lows:

 

Year	Project A	Project B
1	$5,000,000	$20,000,000
2	10,000,000	10,000,000
3	20,000,000	6,000,000

 

What are the two projects' net present values, assuming the cost of capital is 5%? 10%? 15%?

 

11-1) Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17 million, and production and sales will require an initial  $5 million investment in net operating working capital. The company's tax rate is 25%.

 

a.What is the initial investment outlay?

 

b.The company spent and expensed $150,000 on research related to the new product last year. What is the initial investment outlay?

 

c.Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold  for $1.5 million after taxes and real estate commissions. What is the initial invest-ment outlay?

 

 

11-2) The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service: 

 

Projected sales                                                   $18 million

Operating costs (not including depreciation)                  $9 million

Depreciation                                                        $4 million

 

Interest expense                                                   $3 million

 

 

The company faces a 25% tax rate. What is the project's cash f low for the first year (t 5 1)?

 

11-3) Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $12 million, of which 75% has been depreciated. The federal-plus-state tax rate is 25%. What is the equipment's after-tax net salvage value?