Problem 12-1 (Algo) Cash flow [LO12-2] Assume a corporation has earnings before depreciation and taxes of $116,000, depreciation of $44,000 and that it is in a 30 percent tax bracket. Compute its cash flow using the following format. Earnings before depreciation and taxes Depreciation Earnings before taxes Taxes Earnings after taxes Depreciation Cash flow Problem 12-10 (Algo) Payback and net present value [LO12-3, 12-4] X-treme Vitamin Company is considering two investments, both of which cost $34,000. The cash flows are as follows: Year 1 2 3 Project A $ 36,000 16,000 10,000 Project B $ 34,000 16,000 18,000 Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator m a-1. Calculate the payback period for Project A and Project B. Note: Round your answers to 2 decimal places. Project A Project B Payback Period year(s) year(s) a-2. Which of the two projects should be chosen based on the payback method? O Project A O Project B b-1. Calculate the net present value for Project A and Project B. Assume a cost of capital of 12 percent. Note: Do not round intermediate calculations and round your final answers to 2 decimal places. Net Present Value Project A Project B Problem 12-11 (Algo) Internal rate of return [LO12-4] You buy a new piece of equipment for $27,729, and you receive a cash inflow of $4,400 per year for 14 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? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. Internal rate of return % Problem 12-14 (Algo) Net present value method [LO12-4] Aerospace Dynamics will invest $205,000 in a project that will produce the following cash flows. The cost of capital is 11 percent. (Note that the fourth year's cash flow is negative.) 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 Cash Flow $ 67,000 82,000 71,000 (82,000) 151,000 a. What is the net present value of the project? Note: 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 b. Should the project be undertaken? O yes Problem 12-7 (Algo) Payback method [LO12-3] Assume a $80,000 investment and the following cash flows for two alternatives. Year 1 Investment X Investment Y $ 20,000 $ 40,000 2345 25,000 20,000 25,000 20,000 30,000 15,000 a. Calculate the payback for investment X and Y. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Investment X Investment Y years years b. Which alternative would you select under the payback method? O Investment X O Investment Y Problem 12-8 (Algo) Payback method [LO12-3] Assume a $45,000 investment and the following cash flows for two alternatives. Year Investment A Investment B 1 $ 10,000 2 15,000 3 10,000 4 20,000 5 20,000 $ 25,000 15,000 20,000 a. Calculate the payback for investment A and B. Note: Round your answers to 2 decimal places. Investment A Investment B years years b. Which investment would you select under the payback method? O Investment A O Investment B c. If the inflow in the fifth year for Investment A was $20,000,000 instead of $20,000, would your answer change under the payback method? Yes No Appendix D Present value of an annuity of $1, PV IFA PV = A[1 (1 / (1 + i)")] / i Percent Period 1% 2% 3% 4% 1 0.990 0.980 0.971 2 1.970 1.942 1.913 3 2.941 2.884 2.829 2.775 4 3.902 3.808 3.717 5 3.630 4.853 4.713 4.580 4.452 6 5.795 5.601 5.417 7 6.728 8 7.652 7.325 9 10 11 6% 8% 0.943 0.935 0.926 1.833 1.808 1.783 2.673 2.624 2.577 3.546 3.465 3.387 3.312 4.329 4.212 4.100 3.993 5.242 5.076 4.917 4.767 4.623 6.472 6.230 6.002 5.786 5.582 5.389 5.206 7.020 6.733 6.463 6.210 5.971 5.747 8.566 8.162 7.786 7.435 7.108 6.802 9.471 8.983 8.530 8.111 10.368 9.787 9.253 8.760 5% 7% 0.962 0.952 1.886 1.859 2.723 6.515 6.247 7.722 7.360 7.024 6.710 6.418 6.145 8.306 7.887 7.499 7.139 12 11.255 10.575 9.954 9.385 13 12.134 11.348 10.635 9.986 9.394 8.863 8.384 8.853 14 13.004 12.106 11.296 | 10.563 9.899 9.295 15 13.865 12.849 11.938 11.118 10.380 9.712 16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 7.943 7.536 8.358 7.904 8.745 8.244 9.108 8.559 8.851 17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 20 25 18.046 16.351 14.877 13.590 12.462 11.470 10.594 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.818 9.823 9.077 30 25.808 22.396 19.600 17.292 15.372 13.765 12.409 11.258 40 10.274 9.427 32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 50 39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 9.042 8.304 9% 10% 11% 0.917 0.909 0.901 0.893 0.885 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 1.440 1.361 1.289 1.224 1.111 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 1.952 1.816 1.696 1.589 1.407 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.362 2.166 1.997 1.849 1.605 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.689 2.436 2.220 2.035 1.737 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 2.951 2.643 2.385 2.168 1.824 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.161 2.802 2.508 2.263 1.883 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.329 2.925 2.598 2.331 1.922 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.463 3.019 2.665 2.379 1.948 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 3.571 3.092 2.715 2.414 1.965 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 3.656 3.147 2.752 2.438 1.977 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 3.725 3.190 2.779 2.456 1.985 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 3.780 3.223 2.799 2.469 1.990 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 3.824 3.249 2.814 2.478 1.993 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 3.859 3.268 2.825 2.484 1.995 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 3.887 3.283 2.834 2.489 1.997 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.988 4.775 3.910 3.295 2.840 2.492 1.998 8.756 8.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 3.928 3.304 2.844 2.494 1.999 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 3.942 3.311 2.848 2.496 1.999 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870 3.954 3.316 2.850 2.497 1.999 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 3.985 3.329 2.856 2.499 2.000 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 3.995 3.332 2.857 2.500 2.000 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 3.999 3.333 2.857 2.500 2.000 7.675 7.133 6.661 6.246 5.880 5.554 5.262 4.999 4.000 3.333 2.857 2.500 2.000 12% 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 35% 40% 50% 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.800 0.769 0.741 0.714 0.667