BBT-1: How much is the cash flow at year 0?

Hint: initial cost of building + change in net working capital.

a) -1,000,000

b) 1,000,000

c) -1,100,000

d) 1,100,000

BBT-2: How much is the cash from operation in year 1?

a) 118800

b) 138800

c) 138000

d) 152000

BBT-3: How much is the cash flow from salvage sales?

Hint: Salvage value * (1-Tax rate)

a) 120000

b) 80000

c) 400000

d) 600000

BBT-4: How much is the cash flow for year 20?

a) 308000

b) 458800

c) 358800

d) 258800

BBT-5: How much is the Net Present value?

a) 1100000

b) 1306296

c) 206296

d) 306296

BBT-6: How much is the Internal Rate of Return?

a) 10.43%

b) 11.43%

c) 11.07%

d) 12.34%

BBT Bank: Capital budgeting decision on new branch Initial cost of building and equipment is $1 million Expected to have a useful life of 20 years At the end of the project the building and its equipment are expected to be sold for a $200,000 salvage value The building and its equipment will be depreciated over their 20-year life using straight-line depreciation to a zero balance The building is to be constructed on land leased for $22,000 per year Net working capital must be increased by $100,000 Annual revenues from the new branch will be $400,000 Of this $400,000 in revenues, $50,000 will be drawn away from the bank's main office The new branch will incur about $130,000 per year in other expenses Both expenses and revenues are expected to remain approximately constant over the branch's 20-year life Marginal tax rate is 40% Discount rate or Cost of capital 9% Use the excel worksheet to answer the following questions. Then complete the following multiple choice questions. 1. What is the cash flow for the branch's 20-year life CFO = Net Initial Investment = Initial cash flow = ?? CF1... CF19 = cash flow from year 1 to 19 = ?? CF20 = cash flow of year 20 = ?? 2. Calculate the NPV, Profitability index, and Internal rate of return (IRR). 3. Should the project be accepted? Why