*Lion Oil Company purchased a lot in Pacific Beach 6 years ago at a cost of $600,000. Today, that lot has a market value of $800,000. At the time of the purchase, the company spent $25,000 to level the lot and another $25,000 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1.25 million. What amount should be used as the initial cash flow for this project?

*Tiger Mfg. owns a manufacturing facility that is currently sitting idle. The facility is located on a piece of land that originally cost $159,000. The facility itself cost $1,390,000 to build. As of now, the book value of the land and the facility are $159,000 and $1,258,000, respectively. The firm owes no debt on either the land or the facility at the present time. The firm received a bid of $1,200,000 for the land and facility last week. The firm's management rejected this bid even though they were told that it is a reasonable offer in today's market. If the firm was to consider using this land and facility in a new project, what cost, if any, should it include in the project analysis?

*Bear Traders is considering a project that will produce sales of $38,000 and increase cash expenses by $15,500. If the project is implemented, taxes will increase by $3,000. The additional depreciation expense will be $2,600. An initial cash outlay of $3,400 is required for net working capital. What is the amount of the operating cash flow using the top-down approach?

*The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $338,000 and cash expenses by $284,000. The initial investment will require $96,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The company has a marginal tax rate of 21 percent. What is the annual value of the depreciation tax shield?

*You just purchased some equipment that is classified as 5-year property for MACRS. The equipment cost $625,000. What will the book value of this equipment be at the end of 4 years should you decide to resell the equipment at that point in time?

MACRS 5-year Property

Year Rate

1 20.00%

2 32.00%

3 19.20%

4 11.52%

5 11.52%

6 5.76%

I want to ask you to solve these 5 problems with detailed explanation.