Data Mining is considering an expansion project. The companys management has decided that the initial cost of the project is $300,000 with an additional installment cost of $80,000 and a $30,000 cost for research purposes related to the project. The projects life is four years with a salvage value of $60,000 and it will be depreciated over four years using the straight-line method.

Management has also decided that $45,000 in inventories and $12,000 in accounts payable are needed if the project is taken today.

During the next four years, total sales are expected to be 525,100, 642,000, 504,400 and 698,500 respectively and total operating costs (excluding depreciation) are expected to be 234,000, 302,300, 272,000 and 440,000 respectively.

The weighted average cost of capital is at 10% and the tax rate is 40%.

1. The net working capital (NWC) equals: *

A. $33,000

B. $45,000

C. $57,000

D. $47,000

E. None of the above

2. The base price of the equipment equals: *

A. $300,000

B. $380,000

C. $220,000

D. $410,000

E. None of the above

3. What is the net cost of the equipment for capital budgeting purposes? *

A. $410,000

B. $412,000

C. $413,000

D. $443,000

E. None of the above

4. The depreciation expense for the 1st year is: *

A. $103,250

B. $95,000

C. $80,000

D. $87,500

E. None of the above

5. The depreciation expense for the 2nd year is: *

A. $103,250

B. $95,000

C. $80,000

D. $87,500

E. None of the above

6. The depreciation expense for the 3rd year is: *

A. $103,250

B. $95,000

C. $80,000

D. $87,500

E. None of the above

7. The depreciation expense for the 4th year is: *

A. $103,250

B. $95,000

C. $80,000

D. $87,500

E. None of the above

8. The after-tax Cash Flow for the 1st year is: *

A. $291,100

B. $206,660

C. $209,660

D. $187,830

E. None of the above

9. The after-tax Cash Flow for the 2nd year is: *

A. $203,820

B. $235,820

C. $238,820

D. $339,700

E. None of the above

10. The after-tax Cash Flow for the 3rd year is: *

A. $132,330

B. $139,440

C. $171,440

D. $174,440

E. None of the above

11. The after-tax Cash Flow for the 4th year is: *

A. $258,500

B. $235,100

C. $187,100

D. $190,100

E. None of the above

12. The Book Value of the equipment at termination is: *

A. $32,000

B. $0

C. $60,000

D. $24,000

E. None of the above

13. The Terminal Value (TV) is: *

A. $24,000

B. $60,000

C. $69,000

D. $93,000

E. None of the above

14. The NPV value of the project is: *

A. -$25,660

B. $104,320

C. $273,490

D. $457,020

E. None of the above