relevant tax rate is 35 percent, what is the aneras casrmow nour une sare C 8. Calculating Salvage Value [L01] An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $7.900,000 and will be sold for $1,400,000 at the end of the project. If the tax rate is 35 percent, what is the aftertax salvage value of the asset? 9. Calculating Project OCF [L01] Summer Tyme, Inc., is considering a new three- year expansion project that requires an initial fixed asset investment of $3.9 million The fixed asset will be depreciated straight-line to zero over its three-year tax life after which time it will be worthless. The project is estimated to generate $2,650,000 in annual sales, with costs of $840,000. If the tax rate is 35 percent what is the OCF for this project? Calculating Project NPV [LO1] In the previous problem, suppose the required return on the project is 12 percent. What is the project's NPV? Z10. Calculating Project Cash Flow from Assets [LO1] In the previous problem. suppose the project requires an initial investment in net working capital of $300,00 and the fixed asset will have a market value of $210.000 at the end of the peoject. Wht is the project's year 0 net cash flow? Year 17 Year 2? Year 3? What is the new NPV 11. CHAPTER 10 Making Capital Investment Decisions 2 NPV and Modified ACRS L01) In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same What is the project's year 1 net cash flow now? Year 2? Year 3? What is the new NPV? 13 Project Evaluation [LO1] Dog Up! Franks is looking at a new sausage system with an installed cost of $560,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $85,000. The sausage system will save the firm $165,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29.000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project? Project Evaluation [LO1] Your firm is contemplating the purchase of a new $720,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $75,000 at the end of that time. You will save $260,000 before taxes per year in order processing costs, and you will be able to reduce working capital by S110,000 (this is a one-time reduction If the tax rate is 35 percent, what is the IRR for this project? Project Evalisation LO1] In the previous problem, suppose your required return on the proiect is 20 percent and your pretax cost savings are $300,000 per year Whar if the pretax cost savings are $240,000 per year? centing the
