Problem 2 Whitehall Co. has the opportunity to introduce a new product. Whitehall expects the project to sell for 40 and to have per-unit variable costs of 27 and annual cash fixed costs of 1,500,000. Expected annual sales volume is 200,000 units. The equipment needed to bring out the new product costs 3,500,000, has a fouryear life and no salvage value, and would be depreciated on a straight-line basis. Whitehall's cutoff rate is 10% and its income tax rate is 40%.

Required: 1. Find the increase in annual after-tax cash flows for this opportunity. 2. Find the payback period on this project. 3. Find the NPV for this project.

Problem 3 Stockholm Company is considering the sale of a machine with the following characteristics. Book value 120,000 Remaining useful life 5 years Annual straight-line depreciation 24,000 Current market value 70,000

If the company sells the machine its cash operating expenses will increase by 30,000 per year due to an operating lease. The tax rate is 40%. Required: 1. Find the cash flow from selling the machine. 2. Calculate the increase in annual net cash outflows as a result of selling the machine

Problem 4 Pepin Company is considering replacing a machine that has the following characteristics. Book value 100,000 Remaining useful life 5 years Annual straight-line depreciation ??? Current market value 60,000

The replacement machine would cost 150,000, have a five-year life, and save 50,000 per year in cash operating costs. It would be depreciated using the straight-line method. The tax rate is 40%.

Required: 1. Find the net investment required to replace the existing machine. 2. Compute the increase in annual income taxes if the company replaces the machine. 3. Compute the increase in annual net cash flows if the company replaces the machine.