1. Joe's Technology must choose between two repeatable methods of producing a new product. The initial costs and year-end cash benefits are as follows:

Year012345

Method M-$1,500,000880,000950,000550,000200,000

Method N-$2,500,0001,200,000950,000700,000400,000300,000

Assume all cash flows occur at year-end and the company's required return is 4.45 percent.

Please compute the net present value ______________ and the equivalent annuity ________________ for Method M

Please compute the net present value ______________ and the equivalent annuity ________________ for Method N

Which production method should be used?_______________

1. The recently enacted tax law (2018) allows companies to use immediate write of equipment purchases or what they call "bonus" depreciation.This "bonus" depreciation phases out over time and is eliminated by 2025.Assume that we are now in 2025, and the tax law has reverted to the MACRS system discussed in chapter 8 (which is the way the law is written). You place the following equipment into service in the following years with the following tax lives:

Year placedTax lifeCost

Into service

Computer20253 year$46,000

Car20265 year$65,000

Shelves20277 year$98,000

What is thetotaldepreciation expense allowed by the IRS for all three pieces of equipment for tax years 2027? __________________

1. You are opening your own business and estimate the following expenses and revenues:

Year 1Year 2Year 3

Revenues$900,000$1,500,000$1,900,000

Cost of goods sold$550,000$800,000$1,200,000

Accounts payable as a percentage of cost of goods sold.......11%

Inventory as a percentage of cost of goods sold..................9%

Cash balance as a percentage of revenues.......................8%

Accounts receivables as a percentage of revenues...............13%

Accrued expenses as a percentage of revenues.................9%

All balances are needed in the year prior to the generation of the revenue and expense.

Please calculate the incremental investment in working capital needed for years 0,1,2,3. (you do not need to calculate the cash flow from operations - you do not have enough information to explain - only the incremental investment in working capital - all working capital accounts are liquidated at book value at the end of year 3)

Year 0_______________ Year 1_______________ Year 2__________________ and Year 3______________

1. You are opening your own business and estimate the following expenses and revenues:

Revenues year 1$288,000 growing at 9% thereafter

Cost of goods sold year 1$101,000 growing at 12% thereafter

Operating expense year 1$41,000 growing at 8% thereafter

Taxes all in years30% per year

Depreciation$15,000 in year 1, $18,000 in year 2, $12,000 in year 3

No working capital is needed -- please predict the after-tax cash flows from operations for the first three years of operations below:

Year 1_______________ Year 2__________________ and Year 3______________