E) Erosion 2. A project's cash flow is equal to the project's operating cash fow A) plus the project's depreciation expense minus both the project's taxes and capital spending. B) minus both the project's change in net working capital and capital spending C) minus the project's change in net working capital plus all of the depreciation expenses D) plus the project's depreciation expenses minus the project's taxes. E) minus the project's taxes 3. Which one of the following is a project cash inflow? Ignore any tax effeets. A) Decrease in accounts payable B) Increase in accounts receivable C) Decrease in inventory D) Depreciation expensoe E) Equipment acquisition 4. Dependable Motors just purchased some MACRS five-year property at a cost of S216.000. The MACRS rates are .2, .32, and.192 for Years 1 to 3, respectively. Assume the firm opted to forego any bonus depreciation. Which one of the following will correctly give you the book value of this equipment at the end of Year 2? A) $216,000(1+-2 + .32) B) $216.000(1 .2- 32 C) S216,000(.20+.32) D) [$216,000( 20)1 32) E) S216,000[ + .201+.32)] lly forshe next five years. You have an idle e land were sold today, it would net you 5. Consider a project to supply 70 million postage stamps annua parcel of land available that cost $279,000 five years ago it the land were sold today, it would $31 10.000, aftertax. You estimate the land can be sold for $400,000 after taxes in five years. You will need to install $1.867. equipment will be depreciated straight-line to zero over the project's five-year life. Ignore bonus depreciation. The equipment can be sold for $950,000 at the end of the projeet. You will also need $32.000 in initial net working capital for the project, and an additional investment of $5.000 every year starting with Year 1. All net working capital will be recovered when the project ends. Your production costs are 21 cents per stamp, and you have fixed costs of $440,000 per year. Assume the tax rates are suddenly increased such that a tax rate of 35 percent is once again applicable, and your required return on this project is 14 percent. What bid price per stamp should you submit? 000 in new manufacturing plant and equipment to actually produce the stamps; this plant and 6. Gateway Communications is considering a project with an initial fixed asset cost of $2.168 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. Ignore bonus depreciation. At the end of the project the equipment will be sold for an estimated $495.000. The project will not directly produce any sales but will reduce operating costs by $634,000 a year. The tax rate is 21 percent. The project will require $128,000 of net working capital which will be recouped when the project ends. What is the net present value at the required rate of return of 14.3 percent
