Problem One Use the following data to answer Questions 1 through 14: Fool Proof Software is considering an expansion project that has a life of four years. The proposed project has the following features: Initial cost of the equipment is $200,000, with shipping cost of $10,000 and installation cost of $30,000. The company will also pay $25,000 for research purposes related to the equipment. The equipment will be depreciated over 4 years using MACRS at the following rates (33%, 45%, 15%, and 7%). Inventories will increase by $25,000, and accounts payable will rise by $5,000. The company will sell 100,000 units per year with a price of $2/unit. The company's total operating cost will equal to $120,000 each year. At t=4, the equipment's salvage value is $25,000. The company's tax rate is 40%. The project's WACC is 10%. 1. The net working capital (NWC) equals: A. $20,000 B. 30,000 C. $25,000 O D. $5,000 2. The base price of the equipment equals: * A. $265,000 B. $230,000 O C. $210,000 D. $240,000 E. None of the above 3. What is the net cost of the equipment for capital budgeting purposes? * A. $240,000 B. $260,000 c. $200,000 D. $230,000 O E. None of the above 4. The depreciation expense for the 1st year is: * A. $79,200 B. $87,450 C. $76,400 D. $65,000 E. None of the above 5. The depreciation expense for the 2nd year is: * A. $119,250 B. $100,000 C. $96,000 D. $108,000 E. None of the above Problem One Use the following data to answer Questions 1 through 14: Fool Proof Software is considering an expansion project that has a life of four years. The proposed project has the following features: Initial cost of the equipment is $200,000, with shipping cost of $10,000 and installation cost of $30,000. The company will also pay $25,000 for research purposes related to the equipment. The equipment will be depreciated over 4 years using MACRS at the following rates (33%, 45%, 15%, and 7%). Inventories will increase by $25,000, and accounts payable will rise by $5,000. The company will sell 100,000 units per year with a price of $2/unit. The company's total operating cost will equal to $120,000 each year. At t=4, the equipment's salvage value is $25,000. The company's tax rate is 40%. The project's WACC is 10%. 1. The net working capital (NWC) equals: A. $20,000 B. 30,000 C. $25,000 O D. $5,000 2. The base price of the equipment equals: * A. $265,000 B. $230,000 O C. $210,000 D. $240,000 E. None of the above 3. What is the net cost of the equipment for capital budgeting purposes? * A. $240,000 B. $260,000 c. $200,000 D. $230,000 O E. None of the above 4. The depreciation expense for the 1st year is: * A. $79,200 B. $87,450 C. $76,400 D. $65,000 E. None of the above 5. The depreciation expense for the 2nd year is: * A. $119,250 B. $100,000 C. $96,000 D. $108,000 E. None of the above
