Question
Slinger Supply is looking at developing a new line of industrial slings. The initial marketing study cost $50,000 and determined they should proceed with the
Slinger Supply is looking at developing a new line of industrial slings. The initial marketing study cost $50,000 and determined they should proceed with the next stage of analysis. The marketing department determined the expected unit sales for the next 5 years are 3000, 5000, 6000, 5000, 3000 respectively. Unit selling price $60 and is expected to increase by 3% after the first year. Unit cost $36 is expected to increase by 5% after the first year.
1. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.
What is the CF0?
-400,000 | ||
-420,000 | ||
-430,000 | ||
-480,000 |
2. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.
What is the depreciation expense for year 2?
128,000 | ||
134,400 | ||
80,000 | ||
137,600 |
3. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.
What is the OCF for year 3?
4. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.
The OCF for year 4 is between $94,000-96,000.
True
False
5. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.
What is the terminal (salvage) value for the equipment?
60,000 | ||
36,960 | ||
47,434 | ||
23,040 |
6. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.
What is CF5 (not just OCF) that is used in investment analysis?
130,170 | ||
140,170 | ||
16,656 | ||
202,592 |
7. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.
The NPV for this project is positive .
True
False
8. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.
What is the IRR for the project?
9. The equipment purchase price is $400,000 and will be put in a warehouse already owned by the company. The warehouse has a current market value of $20,000. Net working capital increase is $10,000. The machine can be salvaged at the end of the 5 year project for $60,000. The cost of capital is 8%. Tax rate 34%. Depreciation is MACRS 5 year.
If it is determined that additional project risk demands the cost of capital for this project to increase to 12%, the project has a positive NPV.
True
False
10. The discounted payback for Slinger Supply is slightly under 5 years.
True
False
11. The regular payback for Slinger Supply is over 5 years.
True
False
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started