question 1 Flatte Restaurant is considering the purchase of a $10,600 souffl maker. The souffl maker has an economic life of five years and will
question 1
Flatte Restaurant is considering the purchase of a $10,600 souffl maker. The souffl maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 2,300 souffls per year, with each costing $2.70 to make and priced at $5.55. Assume that the discount rate is 16 percent and the tax rate is 40 percent.
| What is the NPV of the project? (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.) |
| Should the company make the purchase? |
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question 2
Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.40 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $1,980,000 in annual sales, with costs of $675,000. The tax rate is 34 percent and the required return is 18 percent. The project requires an initial investment in net working capital of $200,000, and the fixed asset will have a market value of $310,000 at the end of the project.
| What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. A negative answer should be indicated by a minus sign.) |
| Years | Cash Flow |
| Year 0 | $ |
| Year 1 | $ |
| Year 2 | $ |
| Year 3 | $ |
| What is the NPV? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
| What is the NPV of the project? (Do not round intermediate calculations andround your answer to 2 decimal places, e.g., 32.16.) |
Maxwell Software, Inc., has the following mutually exclusive projects.
| Year | | Project A | | Project B |
| 0 | | $35,000 | | $38,000 |
| 1 | | 19,500 | | 20,500 |
| 2 | | 16,000 | | 14,500 |
| 3 | | 4,400 | | 16,000 |
| a-1. | Calculate the payback period for each project. (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) |
| Payback period |
| Project A | years |
| Project B | years |
| a-2. | Which, if either, of these projects should be chosen? |
| |
| | Project A | | Project B | | Both projects | | Neither project | |
| b-1. | What is the NPV for each project if the appropriate discount rate is 16 percent? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
| NPV |
| Project A | $ |
| Project B | $ |
| b-2. | Which, if either, of these projects should be chosen if the appropriate discount rate is 16 percent? |
| |
| | Project A | | Project B | | Both projects | Neither project | |
