Here is a challenge question if anyone wants to help out. :) $10 tip if completed in 1 1/2 hour.

Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $80,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $35,800. A new piece of equipment will cost $240,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 6 Cash Savings $62,000 52,000 50,000 48,000 45,000 34,000 The firm's tax rate is 30 percent and the cost of capital is 9 percent. a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Book value $ b. What is the tax loss on the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax loss $ c. What is the tax benefit from the sale? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax benefit $ d. What is the cash inflow from the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Cash inflow $ e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) $ Net cost f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year 1 Depreciation Base $ Percentage Depreciation Annual Depreciation $ 2 3 4 5 6 $ g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year 1 2 Depreciation Base $ Percentage Depreciation Annual Depreciation $ 3 4 h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Depreciation on New Equipment $ Year 1 Depreciation on Old Equipment $ Incremental Depreciation $ Tax Rate 2 3 4 5 6 i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Savings 1 $62,000 2 52,000 3 50,000 4 48,000 5 45,000 6 34,000 (1 - Tax Rate) Aftertax Savings $ Tax Shield Benefits $ j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Year Tax Shield Benefits from Depreciation 1 Aftertax Cost Savings $ Total Annual Benefits $ 2 3 4 5 6 j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Total annual benefits $ k-1. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e). (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) Net present value k-2. Should the replacement be undertaken? No Yes $ Table 12-12 http://lectures.mhhe.com/connect/0077861612/ch12/Table_12_12.jpg Appx B http://lectures.mhhe.com/connect/0077861612/appendix_b.jpg Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $80,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $35,800. A new piece of equipment will cost $240,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 6 Cash Savings $62,000 52,000 50,000 48,000 45,000 34,000 The firm's tax rate is 30 percent and the cost of capital is 9 percent. a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Book value $ BV of Old is 38,400 b. What is the tax loss on the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax loss $ Tax Loss $2600 c. What is the tax benefit from the sale? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax benefit $ Tax Benefit $780 d. What is the cash inflow from the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Cash inflow $ Cash Inflow $36,580 e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Net cost $ Net cost $203,420 f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year Dep Base % Dep Annual Dep 1 $240,000 0.200 $48,000 2 $240,000 0.320 $76,800 3 $240,000 0.192 $46,080 4 $240,000 0.115 $27,600 5 $240,000 0.115 $27,600 6 $240,000 0.058 $13,920 Total Dep $240,000 g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) 1 $80,000 0.192 $15,360 2 $80,000 0.115 $9,200 3 $80,000 0.115 $9,200 4 $80,000 0.058 $4,640 h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Dep-New Eqpt Dep Old Eqt Incr Dep Tax Rate Tax Benefit 1 $48,000 $15,360 $32,640 30% $9,792 2 $76,800 $9,200 $67,600 30% $20,280 3 $46,080 $9,200 $36,880 30% $11,064 4 $27,600 $4,640 $22,960 30% $6,888 5 $27,600 $27,600 30% $8,280 6 $13,920 $13,920 30% $4,176 i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Cost Savings (1-Tax Rate) AT Cost Saving 0.70 1 $62,000 $43,400 0.70 2 $52,000 $36,400 0.70 3 $50,000 $35,000 0.70 4 $48,000 $33,600 0.70 5 $45,000 $31,500 0.70 6 $34,000 $23,800 j- Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual 1. benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Year Tax Benefit AT Cost Saving Total Annual benefit 1 $9,792 $43,400 $53,192 2 $20,280 $36,400 $56,680 3 $11,064 $35,000 $46,064 4 $6,888 $33,600 $40,488 5 $8,280 $31,500 $39,780 6 $4,176 $23,800 $27,976 j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Total annual benefits $ Total Annual benefit $203,294 k-1. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e). (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) Net present value NPV -$126 k-2. Should the replacement be undertaken? NO No Yes $ 1. X-treme Vitamin Company is considering two investments, both of which cost $36,000. The cash flows are as follows: Year Project A 1 $38,000 Project B 30,00 $ 0 10,00 0 12,000 2 3 8,000 18,000 Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.) Project A Project B Payback Period year(s) year(s) Proj A : 0.95 Yrs Proj B : 1.75 Yrs a-2. Which of the two projects should be chosen based on the payback method? Project A Project B b-1. Calculate the net present value for Project A and Project B. Assume a cost of capital of 7 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places.) Proj A $18,043.98 Proj B $13,718.25 b-2. Which of the two projects should be chosen based on the net present value method? Project A Project B c. Should a firm normally have more confidence in the payback method or the net present value method? Net present value method Payback method 2. You buy a new piece of equipment for $21,309, and you receive a cash inflow of $3,000 per year for 13 years. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method. What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Internal rate of return % IRR = 10.00% 3. The Summitt Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $430,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12. Year 1 Year 2 Year 3 Year 4 $200,000 245,000 84,000 76,000 The firm is in a 40 percent tax bracket and has a cost of capital of 12 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) NPV= $(2,451.84) Under the net present value method, should Summitt Petroleum Corporation purchase the asset? b. No Yes 4. Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $50,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $20,800. A new piece of equipment will cost $140,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 6 Cash Savings $58,000 50,000 48,000 46,000 43,000 32,000 The firm's tax rate is 30 percent and the cost of capital is 8 percent. a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Book value $ 24000 b. What is the tax loss on the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax loss $ 3200 c. What is the tax benefit from the sale? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax benefit $ 960 d. What is the cash inflow from the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Cash inflow $ 21620 Cash Inflow $21760 e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) $ Net cost 118380 Net cost $118,240 f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Dep Base Annual Dep Year % Dep 0.20 $28,000 1 $140,000 0 0.32 $44,800 2 $140,000 0 0.19 $26,880 3 $140,000 2 0.11 $16,100 4 $140,000 5 0.11 $16,100 5 $140,000 5 0.05 $8,120 6 $140,000 8 $140,000 Total Dep g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) 0. 1 $50,000 192 2 $50,000 115 0. 0. 3 $50,000 115 0. 4 $50,000 058 $9,600 $5,750 $5,750 $2,900 h.Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Dep-New Eqpt Dep Old Eqt Incr Dep Tax Rate Tax Benefit 1 $28,000 $9,600 $18,400 30% $5,520 2 $44,800 $5,750 $39,050 30% $11,715 3 $26,880 $5,750 $21,130 30% $6,339 4 $16,100 $2,900 $13,200 30% $3,960 5 $16,100 $16,100 30% $4,830 6 $8,120 $8,120 30% $2,436 i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Cost Savings (1-Tax Rate) AT Cost Saving 1 $58,000 0.7 $40,600 2 $50,000 0.7 $35,000 3 $48,000 0.7 $33,600 4 $46,000 0.7 $32,200 5 $43,000 0.7 $30,100 6 $32,000 0.7 $22,400 j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Year Tax Benefit AT Cost Saving Total Annual benefit 1 $5,520 $40,600 $46,120 2 $11,715 $35,000 $46,715 3 $6,339 $33,600 $39,939 4 $3,960 $32,200 $36,160 5 $4,830 $30,100 $34,930 6 $2,436 $22,400 $24,836 j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Total annual benefits $ Total Annual benefits $180,461 k-1. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e). (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) Net present value NPV = $62,221 $ k-2. Should the replacement be undertaken? Yes No 5. Shack Homebuilders Limited is evaluating a new promotional campaign that could increase home sales. Possible outcomes and probabilities of the outcomes are shown next. Possible Outcomes Ineffective campaign Normal response Extremely effective Additional Sales in Units Probabilities 50 .40 70 .30 130 .30 Compute the coefficient of variation. (Do not round intermediate calculations. Round your answer to 3 decimal places.) Coefficient of variation Coeff of Var = 0.422 6. Five investment alternatives have the following returns and standard deviations of returns. Alternatives Returns: Expected Value Standard Deviation A $ 1,650 $ 520 B 1,750 1,010 C 13,300 1,300 D 1,350 790 E 64,900 23,000 Calculate the coefficient of variation and rank the five alternatives from lowest risk to the highest risk by using the coefficient of variation. (Round your answers to 3 decimal places.) Alternatives Returns: Standard Coeff of Expected Value Deviation Variation Rank A $ 1,650 $ 520 0.315 II B $ 1,750 $ 1,010 0.577 IV C $13,300 $ 1,300 0.098 I D $ 1,350 $ 790 0.585 V E $64,900 $ 23,000 0.354 III 7. Waste Industries is evaluating a $52,300 project with the following cash flows. Years Cash Flows 1 $ 9,960 2 12,700 3 27,000 4 18,300 5 30,200 The coefficient of variation for the project is .325. Coefficient of Variation Discount Rate 0 .25 4% .26 .50 7% .51 .75 10% .76 1.00 12% 1.01 1.25 18% Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Select the appropriate discount rate. 7% 4% 18% 10% 7% 12% b. Compute the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value NPV $ $25,634.29 c. Based on the net present value should the project be undertaken? No Yes 8. Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 9 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 13 percent. Either method will require an initial capital outlay of $105,000. The inflows from projected business over the next five years are given next. Years 1 2 Method 1 $33,000 30,500 3 42,000 4 37,500 5 20,700 Method 2 $18,900 28,300 40,70 0 34,300 70,40 0 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods. a. Calculate net present value for Method 1 and Method 2. (Do not round intermediate calculations and round your answers to 2 decimal places.) NPV M1 NPV M2 $23,397.7 0 $74,042.9 9 b. Which method should be selected using net present value analysis? Method 2 Method 1 Method 2 Neither of these 9. Debby's Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $20,700. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby's cost of capital is 12 percent. UseAppendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. Cash Flow $ 3,880 5,230 8,230 10,50 0 Probability .2 .3 .3 .2 a. What is the expected value of the cash flow? The value you compute will apply to each of the five years. Expected Cash Flow $ b. What is the expected net present value? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. ) NPV= $ 4,223.42 c. Should Debby buy the new equipment? No Yes Appx A http://lectures.mhhe.com/connect/0077861612/appendix_a.jpg Appx B http://lectures.mhhe.com/connect/0077861612/appendix_b.jpg Appx D http://lectures.mhhe.com/connect/0077861612/appendix_d.jpg Table 21-11 http://lectures.mhhe.com/connect/0077861612/ch12/Table_12_11.jpg Table 12-12 http://lectures.mhhe.com/connect/0077861612/ch12/Table_12_12.jpg Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $80,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $35,800. A new piece of equipment will cost $240,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 6 Cash Savings $62,000 52,000 50,000 48,000 45,000 34,000 The firm's tax rate is 30 percent and the cost of capital is 9 percent. a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Book value $ BV of Old is 38,400 b. What is the tax loss on the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax loss $ Tax Loss $2600 c. What is the tax benefit from the sale? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax benefit $ Tax Benefit $780 d. What is the cash inflow from the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Cash inflow $ Cash Inflow $36,580 e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Net cost $ Net cost $203,420 f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year Dep Base % Dep Annual Dep 1 $240,000 0.200 $48,000 2 $240,000 0.320 $76,800 3 $240,000 0.192 $46,080 4 $240,000 0.115 $27,600 5 $240,000 0.115 $27,600 6 $240,000 0.058 $13,920 Total Dep $240,000 g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) 1 $80,000 0.192 $15,360 2 $80,000 0.115 $9,200 3 $80,000 0.115 $9,200 4 $80,000 0.058 $4,640 h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Dep-New Eqpt Dep Old Eqt Incr Dep Tax Rate Tax Benefit 1 $48,000 $15,360 $32,640 30% $9,792 2 $76,800 $9,200 $67,600 30% $20,280 3 $46,080 $9,200 $36,880 30% $11,064 4 $27,600 $4,640 $22,960 30% $6,888 5 $27,600 $27,600 30% $8,280 6 $13,920 $13,920 30% $4,176 i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Cost Savings (1-Tax Rate) AT Cost Saving 0.70 1 $62,000 $43,400 0.70 2 $52,000 $36,400 0.70 3 $50,000 $35,000 0.70 4 $48,000 $33,600 0.70 5 $45,000 $31,500 0.70 6 $34,000 $23,800 j- Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual 1. benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Year Tax Benefit AT Cost Saving Total Annual benefit 1 $9,792 $43,400 $53,192 2 $20,280 $36,400 $56,680 3 $11,064 $35,000 $46,064 4 $6,888 $33,600 $40,488 5 $8,280 $31,500 $39,780 6 $4,176 $23,800 $27,976 j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Total annual benefits $ Total Annual benefit $203,294 k-1. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e). (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) Net present value NPV -$126 k-2. Should the replacement be undertaken? NO No Yes $ 1. X-treme Vitamin Company is considering two investments, both of which cost $36,000. The cash flows are as follows: Year Project A 1 $38,000 Project B 30,00 $ 0 10,00 0 12,000 2 3 8,000 18,000 Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a-1. Calculate the payback period for Project A and Project B. (Round your answers to 2 decimal places.) Project A Project B Payback Period year(s) year(s) Proj A : 0.95 Yrs Proj B : 1.75 Yrs a-2. Which of the two projects should be chosen based on the payback method? Project A Project B b-1. Calculate the net present value for Project A and Project B. Assume a cost of capital of 7 percent. (Do not round intermediate calculations and round your final answers to 2 decimal places.) Proj A $18,043.98 Proj B $13,718.25 b-2. Which of the two projects should be chosen based on the net present value method? Project A Project B c. Should a firm normally have more confidence in the payback method or the net present value method? Net present value method Payback method 2. You buy a new piece of equipment for $21,309, and you receive a cash inflow of $3,000 per year for 13 years. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method. What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Internal rate of return % IRR = 10.00% 3. The Summitt Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $430,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12. Year 1 Year 2 Year 3 Year 4 $200,000 245,000 84,000 76,000 The firm is in a 40 percent tax bracket and has a cost of capital of 12 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) NPV= $(2,451.84) Under the net present value method, should Summitt Petroleum Corporation purchase the asset? b. No Yes 4. Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $50,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $20,800. A new piece of equipment will cost $140,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 6 Cash Savings $58,000 50,000 48,000 46,000 43,000 32,000 The firm's tax rate is 30 percent and the cost of capital is 8 percent. a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Book value $ 24000 b. What is the tax loss on the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax loss $ 3200 c. What is the tax benefit from the sale? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax benefit $ 960 d. What is the cash inflow from the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Cash inflow $ 21620 Cash Inflow $21760 e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) $ Net cost 118380 Net cost $118,240 f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Dep Base Annual Dep Year % Dep 0.20 $28,000 1 $140,000 0 0.32 $44,800 2 $140,000 0 0.19 $26,880 3 $140,000 2 0.11 $16,100 4 $140,000 5 0.11 $16,100 5 $140,000 5 0.05 $8,120 6 $140,000 8 $140,000 Total Dep g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) 0. 1 $50,000 192 2 $50,000 115 0. 0. 3 $50,000 115 0. 4 $50,000 058 $9,600 $5,750 $5,750 $2,900 h.Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Dep-New Eqpt Dep Old Eqt Incr Dep Tax Rate Tax Benefit 1 $28,000 $9,600 $18,400 30% $5,520 2 $44,800 $5,750 $39,050 30% $11,715 3 $26,880 $5,750 $21,130 30% $6,339 4 $16,100 $2,900 $13,200 30% $3,960 5 $16,100 $16,100 30% $4,830 6 $8,120 $8,120 30% $2,436 i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Cost Savings (1-Tax Rate) AT Cost Saving 1 $58,000 0.7 $40,600 2 $50,000 0.7 $35,000 3 $48,000 0.7 $33,600 4 $46,000 0.7 $32,200 5 $43,000 0.7 $30,100 6 $32,000 0.7 $22,400 j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Year Tax Benefit AT Cost Saving Total Annual benefit 1 $5,520 $40,600 $46,120 2 $11,715 $35,000 $46,715 3 $6,339 $33,600 $39,939 4 $3,960 $32,200 $36,160 5 $4,830 $30,100 $34,930 6 $2,436 $22,400 $24,836 j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Total annual benefits $ Total Annual benefits $180,461 k-1. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e). (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) Net present value NPV = $62,221 $ k-2. Should the replacement be undertaken? Yes No 5. Shack Homebuilders Limited is evaluating a new promotional campaign that could increase home sales. Possible outcomes and probabilities of the outcomes are shown next. Possible Outcomes Ineffective campaign Normal response Extremely effective Additional Sales in Units Probabilities 50 .40 70 .30 130 .30 Compute the coefficient of variation. (Do not round intermediate calculations. Round your answer to 3 decimal places.) Coefficient of variation Coeff of Var = 0.422 6. Five investment alternatives have the following returns and standard deviations of returns. Alternatives Returns: Expected Value Standard Deviation A $ 1,650 $ 520 B 1,750 1,010 C 13,300 1,300 D 1,350 790 E 64,900 23,000 Calculate the coefficient of variation and rank the five alternatives from lowest risk to the highest risk by using the coefficient of variation. (Round your answers to 3 decimal places.) Alternatives Returns: Standard Coeff of Expected Value Deviation Variation Rank A $ 1,650 $ 520 0.315 II B $ 1,750 $ 1,010 0.577 IV C $13,300 $ 1,300 0.098 I D $ 1,350 $ 790 0.585 V E $64,900 $ 23,000 0.354 III 7. Waste Industries is evaluating a $52,300 project with the following cash flows. Years Cash Flows 1 $ 9,960 2 12,700 3 27,000 4 18,300 5 30,200 The coefficient of variation for the project is .325. Coefficient of Variation Discount Rate 0 .25 4% .26 .50 7% .51 .75 10% .76 1.00 12% 1.01 1.25 18% Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Select the appropriate discount rate. 7% 4% 18% 10% 7% 12% b. Compute the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value NPV $ $25,634.29 c. Based on the net present value should the project be undertaken? No Yes 8. Dixie Dynamite Company is evaluating two methods of blowing up old buildings for commercial purposes over the next five years. Method one (implosion) is relatively low in risk for this business and will carry a 9 percent discount rate. Method two (explosion) is less expensive to perform but more dangerous and will call for a higher discount rate of 13 percent. Either method will require an initial capital outlay of $105,000. The inflows from projected business over the next five years are given next. Years 1 2 Method 1 $33,000 30,500 3 42,000 4 37,500 5 20,700 Method 2 $18,900 28,300 40,70 0 34,300 70,40 0 Use Appendix B for an approximate answer but calculate your final answers using the formula and financial calculator methods. a. Calculate net present value for Method 1 and Method 2. (Do not round intermediate calculations and round your answers to 2 decimal places.) NPV M1 NPV M2 $23,397.7 0 $74,042.9 9 b. Which method should be selected using net present value analysis? Method 2 Method 1 Method 2 Neither of these 9. Debby's Dance Studios is considering the purchase of new sound equipment that will enhance the popularity of its aerobics dancing. The equipment will cost $20,700. Debby is not sure how many members the new equipment will attract, but she estimates that her increased annual cash flows for each of the next five years will have the following probability distribution. Debby's cost of capital is 12 percent. UseAppendix D for an approximate answer but calculate your final answers using the formula and financial calculator methods. Cash Flow $ 3,880 5,230 8,230 10,50 0 Probability .2 .3 .3 .2 a. What is the expected value of the cash flow? The value you compute will apply to each of the five years. Expected Cash Flow $ b. What is the expected net present value? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places. ) NPV= $ 4,223.42 c. Should Debby buy the new equipment? No Yes Appx A http://lectures.mhhe.com/connect/0077861612/appendix_a.jpg Appx B http://lectures.mhhe.com/connect/0077861612/appendix_b.jpg Appx D http://lectures.mhhe.com/connect/0077861612/appendix_d.jpg Table 21-11 http://lectures.mhhe.com/connect/0077861612/ch12/Table_12_11.jpg Table 12-12 http://lectures.mhhe.com/connect/0077861612/ch12/Table_12_12.jpg