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Question 15 pts

Aero Motorcycles is considering opening a new manufacturing facility in Fort Worth to meet the demand for a new line of solar-charged motorcycles (who wants to ride on a cloudy day anyway?) The proposed project has the following features;

The firm just spent $300,000 for a marketing study to determine consumer demand (@ t=0).

Aero Motorcycles purchased the land the factory will be built on 5 years ago for $2,000,000 and owns it outright (that is, it does not have a mortgage). The land has a current market value of $2,600,000.

The project has an initial cost of $20,000,000 (excluding land, hint: the land is not subject to depreciation).

If the project is undertaken, at t = 0 the company will need to increase its inventories by $3,500,000, accounts receivable by $1,500,000, and its accounts payable by $2,000,000. This net operating working capital will be recovered at the end of the projects life (t = 10).

If the project is undertaken, the company will realize an additional $8,000,000 in sales over each of the next ten years. (i.e. sales in each year are $8,000,000)

The companys operating cost (not including depreciation) will equal 50% of sales.

The companys tax rate is 35 percent.

Use a 10-year straight-line depreciation schedule.

At t = 10, the project is expected to cease being economically viable and the factory (including land) will be sold for $4,500,000 (assume land has a book value equal to the original purchase price).

The projects WACC = 10 percent

Assume the firm is profitable and able to use any tax credits (i.e. negative taxes).

What is the operating cash flow @ t=1? Round to nearest whole dollar value.

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Question 25 pts

Aero Motorcycles is considering opening a new manufacturing facility in Fort Worth to meet the demand for a new line of solar-charged motorcycles (who wants to ride on a cloudy day anyway?) The proposed project has the following features;

The firm just spent $300,000 for a marketing study to determine consumer demand (@ t=0).

Aero Motorcycles purchased the land the factory will be built on 5 years ago for $2,000,000 and owns it outright (that is, it does not have a mortgage). The land has a current market value of $2,600,000.

The project has an initial cost of $20,000,000 (excluding land, hint: the land is not subject to depreciation).

If the project is undertaken, at t = 0 the company will need to increase its inventories by $3,500,000, accounts receivable by $1,500,000, and its accounts payable by $2,000,000. This net operating working capital will be recovered at the end of the projects life (t = 10).

If the project is undertaken, the company will realize an additional $8,000,000 in sales over each of the next ten years. (i.e. sales in each year are $8,000,000)

The companys operating cost (not including depreciation) will equal 50% of sales.

The companys tax rate is 35 percent.

Use a 10-year straight-line depreciation schedule.

At t = 10, the project is expected to cease being economically viable and the factory (including land) will be sold for $4,500,000 (assume land has a book value equal to the original purchase price).

The projects WACC = 10 percent

Assume the firm is profitable and able to use any tax credits (i.e. negative taxes).

What is the operating cash flow @ t=2? Round to nearest whole dollar value.

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Question 35 pts

Aero Motorcycles is considering opening a new manufacturing facility in Fort Worth to meet the demand for a new line of solar-charged motorcycles (who wants to ride on a cloudy day anyway?) The proposed project has the following features;

The firm just spent $300,000 for a marketing study to determine consumer demand (@ t=0).

Aero Motorcycles purchased the land the factory will be built on 5 years ago for $2,000,000 and owns it outright (that is, it does not have a mortgage). The land has a current market value of $2,600,000.

The project has an initial cost of $20,000,000 (excluding land, hint: the land is not subject to depreciation).

If the project is undertaken, at t = 0 the company will need to increase its inventories by $3,500,000, accounts receivable by $1,500,000, and its accounts payable by $2,000,000. This net operating working capital will be recovered at the end of the projects life (t = 10).

If the project is undertaken, the company will realize an additional $8,000,000 in sales over each of the next ten years. (i.e. sales in each year are $8,000,000)

The companys operating cost (not including depreciation) will equal 50% of sales.

The companys tax rate is 35 percent.

Use a 10-year straight-line depreciation schedule.

At t = 10, the project is expected to cease being economically viable and the factory (including land) will be sold for $4,500,000 (assume land has a book value equal to the original purchase price).

The projects WACC = 10 percent

Assume the firm is profitable and able to use any tax credits (i.e. negative taxes).

What are the after tax proceeds from the sale of the factory (i.e., ATSV)? Round to nearest whole dollar value.

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Question 45 pts

Aero Motorcycles is considering opening a new manufacturing facility in Fort Worth to meet the demand for a new line of solar-charged motorcycles (who wants to ride on a cloudy day anyway?) The proposed project has the following features;

The firm just spent $300,000 for a marketing study to determine consumer demand (@ t=0).

Aero Motorcycles purchased the land the factory will be built on 5 years ago for $2,000,000 and owns it outright (that is, it does not have a mortgage). The land has a current market value of $2,600,000.

The project has an initial cost of $20,000,000 (excluding land, hint: the land is not subject to depreciation).

If the project is undertaken, at t = 0 the company will need to increase its inventories by $3,500,000, accounts receivable by $1,500,000, and its accounts payable by $2,000,000. This net operating working capital will be recovered at the end of the projects life (t = 10).

If the project is undertaken, the company will realize an additional $8,000,000 in sales over each of the next ten years. (i.e. sales in each year are $8,000,000)

The companys operating cost (not including depreciation) will equal 50% of sales.

The companys tax rate is 35 percent.

Use a 10-year straight-line depreciation schedule.

At t = 10, the project is expected to cease being economically viable and the factory (including land) will be sold for $4,500,000 (assume land has a book value equal to the original purchase price).

The projects WACC = 10 percent

Assume the firm is profitable and able to use any tax credits (i.e. negative taxes).

What is the total cash flow at t=10? Round to nearest whole dollar value.

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Question 55 pts

Aero Motorcycles is considering opening a new manufacturing facility in Fort Worth to meet the demand for a new line of solar-charged motorcycles (who wants to ride on a cloudy day anyway?) The proposed project has the following features;

The firm just spent $300,000 for a marketing study to determine consumer demand (@ t=0).

Aero Motorcycles purchased the land the factory will be built on 5 years ago for $2,000,000 and owns it outright (that is, it does not have a mortgage). The land has a current market value of $2,621,136.

The project has an initial cost of $20,000,000 (excluding land, hint: the land is not subject to depreciation).

If the project is undertaken, at t = 0 the company will need to increase its inventories by $3,500,000, accounts receivable by $1,500,000, and its accounts payable by $2,000,000. This net operating working capital will be recovered at the end of the projects life (t = 10).

If the project is undertaken, the company will realize an additional $8,000,000 in sales over each of the next ten years. (i.e. sales in each year are $8,000,000)

The companys operating cost (not including depreciation) will equal 50% of sales.

The companys tax rate is 35 percent.

Use a 10-year straight-line depreciation schedule.

At t = 10, the project is expected to cease being economically viable and the factory (including land) will be sold for $4,500,000 (assume land has a book value equal to the original purchase price).

The projects WACC = 10 percent

Assume the firm is profitable and able to use any tax credits (i.e. negative taxes).

What is the project's NPV? Round to nearest whole dollar value.

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Question 61 pts

Grill Master Johnnys is thinking about purchasing a new, energy-efficient grill. The grill will cost $53,000.00 and will be depreciated according to the 3-year MACRS schedule. It will be sold for scrap metal after 3 years for $11,750.00. The grill will have no effect on revenues but will save Johnnys $23,500.00 per year in energy expenses. The tax rate is 40%. The 3-year MACRS schedule;

Year	Depr %
1	33.33
2	44.45
3	14.81
4	7.41

What is the total cash flow in year 3?

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Question 71 pts

What is the equivalent annual cost for a project that requires a $50,000 investment at time-period zero, and a $10,000 annual expense during each of the next 4 years, if the opportunity cost of capital is 10%?

(Hint: Watch Video #9 - I. Capital Budgeting and Cash Flows - Annualized NPV and EAC @ $WIKI_REFERENCE$/pages/capital-budgeting-and-cash-flows-the-lectures?module_item_id=g9a89e790298905497957e6a4658e2a67

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Question 85 pts

Suppose the capital budget in the lecture example worksheet in $WIKI_REFERENCE$/pages/capital-budgeting-and-cash-flows-the-lectures?module_item_id=g9a89e790298905497957e6a4658e2a67 Video #11

was $100,000. What is the NPV of the best project(s)? Click here for the spreadsheet and open the "Capital Rationing" worksheet.