Part II: Capital Budgeting

Use this information to answer questions 9 18

Intel is contemplating a new project where they will bring their computer chip manufacturing business back to the United States. They are estimating that they will invest $399,880 initially then will have positive cash flows over the next four years of:

Year 1: $75,000

Year 2: $122,000

Year 3: $149,800

Year 4: $165,000

Regardless of your answer in the previous question use a WACC of 7.8%. (This is NOT the answer you should have gotten in part 1.)

Part III: Cash Flow Estimation

Use this information to answer questions 18 25

BearKat Enterprises is considering a project where they will make high end designer face masks. They can buy the equipment they need to make the face masks for $275,000 plus another $20,000 for training and installation. They will have to increase inventory by $7,000 and accounts payable will increase $1,000. They think they can sell 25,000 masks a year at a price of $7.00 each for 4 years. The estimate variable costs at 55% of revenue. They follow a four years MACRS schedule for depreciation with the following depreciation rates:

Year 1: 33%

Year 2: 45%

Year 3: 15%

Year 4: 7%

QUESTION 18

1. Use part III of the information to answer this.

   What are BearKat Enterprises year 0 cash flows for this project?

   	A.	-$295,000
   	B.	-$284,000
   	C.	-$301,000
   	D.	-$343,000

3 points

QUESTION 19

1. Use part III of the information to answer this.

   What are BearKat Enterprises depreciation expenses in year 3 for this project?

   	A.	$44,250
   	B.	$94,500
   	C.	$103,500
   	D.	$121,500

3 points

QUESTION 20

1. Use part III of the information to answer this.

   What are BearKat Enterprises operating cash flows for year 2 of this project?

   	A.	$56,070
   	B.	$62,190
   	C.	$65,195
   	D.	$90,630

3 points

QUESTION 21

1. Use part III of the information to answer this.

   What are BearKat Enterprises terminal cash flows for this project?

   	A.	-$64,200
   	B.	$0
   	C.	$37,200
   	D.	$49,550

3 points

QUESTION 22

1. Based on the information in Part III, what is the NPV of this facemask project for BearKat Enterprises?

   	A.	-$2,513.88
   	B.	-$6,263.78
   	C.	$3,266.88
   	D.	$5,095.26