Q1. Medium Size Mart, Inc. is considering a project with the following cash flows:

Initial cash outlay = $2,100,000

After-tax net operating cash flows for years 1 to 3 = $775,000 per year

Additional after-tax terminal cash flow at the end of year 3 = $650,000

Compute the profitability index of this project if Medium Mart's WACC is 10%.Enter your answer rounded to two decimal places

Q2. Walker & Campsey wants to invest in a new computer system, and management has narrowed the choice to Systems A and B.

System A requires an up-front cost of $125,000, after which it generates positive after-tax cash flows of $80,000 at the end of each of the next 2 years.The system could be replaced every 2 years, and the cash inflows and outflows would remain the same.

System B also requires an up-front cost of $125,000, after which it would generate positive after-tax cash flows of $60,000 at the end of each of the next 3 years.System B can be replaced every 3 years, but each time the system is replaced, both the cash outflows and cash inflows would increase by 5%.

The company needs a computer system for 6 years, after which the current owners plan to retire and liquidate the firm.The company's cost of capital is 12%.What is the NPV (on a 6-year extended basis) of the system that adds the most value?

Q3. Using the information from problem 8 on Walker & Campsey, what is the equivalent annual annuity (EAA) for System A?

Q4. You work for Athens Inc., and you must estimate the Year 1 operating cash flow for a project with the following data.What is the Year 1 after-tax net operating cash flow?

Sales revenues

$20,000

Depreciation

$4,500

Cash operating costs

$6,500

Tax rate

25%

Q5.Florida Enterprises, Inc. is considering a new project whose data are shown below.The equipment that will be used has a 3-year class life and will be depreciated by the MACRS depreciation system.Revenues and Cash operating costs are expected to be constant over the project's 10-year life.What is the Year 1 after-tax net operating cash flow?

Equipment cost (depreciable basis)

$75,000

Sales revenues, each year

$70,000

Cash operating costs

$29,000

Tax rate

20.0%