FINA 2201 Financial Management

Winnebagel Corp. currently sells 16,800 motor homes per year at $25,200 each, and 6,720 luxury motor coaches per year at $47,600 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 10,640 of these campers per year at $6,720 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 2,520 units per year, and reduce the sales of its motor coaches by 504 units per year.

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

rev: 09_18_2012

$158,995,200

$116,565,120

$105,463,680

$111,014,400

$71,500,800

Consider an asset that costs $272,800 and is depreciated straight-line to zero over its 13-year tax life. The asset is to be used in a 7-year project; at the end of the project, the asset can be sold for $34,100.

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

$59,432.36

$65,688.40

$23,529.00

$62,560.38

$552,091.00

Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $960,000 is estimated to result in $320,000 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 $140,000. The press also requires an initial investment in spare parts inventory of $40,000, along with an additional $6,000 in inventory for each succeeding year of the project.

Required :If the shop's tax rate is 32 percent and its discount rate is 18 percent, what is the NPV for this project?(Do not round your intermediate calculations.)

rev: 09_18_2012

$-144,468.93

$-140,707.49

$-230,236.45

$-151,692.37

$-137,245.48

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,270,000 and will last for 4 years. Variable costs are 39 percent of sales, and fixed costs are $143,000 per year. Machine B costs $4,370,000 and will last for 7 years. Variable costs for this machine are 28 percent of sales and fixed costs are $111,000 per year. The sales for each machine will be $8.74 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis.

Required:(a)If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A?(Do not round your intermediate calculations.)

(Click to select)

$-4,160,919.25

$2,854,966.28

$-8,958,146.65

$-4,598,910.75

$-2,826,033.72

(b)If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B?(Do not round your intermediate calculations.)

(Click to select)

$-2,341,952.03

$-11,499,525.5

$-11,401,603.35

$3,339,047.97

$-12,710,001.87