Hello, Need help with the following set of problems:

11-1

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17million, and production and sales will require an initial $5 million investment in net operating working capital. The companys tax rate is 40%.

a. What is the initial investment outlay?

b. The company spent and expensed $150,000 on research related to the new product last year. Would this change your answer? Explain.

c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer?

11-2

The financial staff of Cairn Communications has identified the following information for the first,

Year of the roll-out of its new proposed service:

Projected sales $18 million

Operating costs (not including depreciation) $ 9 million

Depreciation $ 4 million

Interest expense $ 3 million

The company faces a 40% tax rate. What is the projects operating cash flow for the first year ()?

11-3

Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $12million, of which 75% has been depreciated. The used equipment can be sold today for $4 million, and its tax rate is 40%. What is the equipments after-tax net salvage value?

11-4

Although the Chen Companys milling machine is old, it is still in relatively good working order and would last for

Another 10 years. It is inefficient compared to modern standards, though, and so the company is considering replacing it. The new milling machine, at a cost of $110,000 delivered and installed, would also last for 10 years and would produce after-tax cash flows (labor savings and depreciation tax savings) of $19,000 per year. It would have zero salvage value at the end of its life. The firms WACC is 10%, and its marginal tax rate is 35%. Should Chen buy the new machine?

11-6

The Campbell Company is considering adding a robotic paints sprayer to its production line. The sprayers base price is $1,080,000, and it would cost another $22,500 to install lit. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $605,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $15,500. The sprayer would not change revenues, but it is expected to save the firm $380,000 per year in before-tax operating costs, mainly labor. Campbells marginal tax rate is 35%.

• What is the Year 0 net cash flow?
• What are the net operating cash flows in Years 1,2, and 3?
• What is the additional Year-3 cash flow (i.e., the after-tax salvage and there turn of working capital)?
• If the projects cost of capital is 12%, should the machine be purchased?