Use the following information for the next four questions:

Question 16:

The Umbrella Corporation is considering expanding one of its production facilities to research a new type of zombie, which will hopefully not result in another zombie outbreak. The project would require a $21,000,000 capital investment and will be depreciated (straight-line to zero) over its 3 year life. They know that they will be able to salvage $8,500,000 for the equipment at that time.

Incremental sales are expected to be $15,750,000 annually for the 3 year period with costs (excluding depreciation) of 30% of sales. The company would also have to commit initial working capital to the project of $2,500,000. The company has a 30% tax rate, and requires a 12.5% rate of return for projects of this risk level.

Project cash flow (Cash Flow From Assets) for Year 0 is:

Select one:

a. -$17,000,000

b. $16,000,000

c. -$21,000,000

d. -$16,000,000

e. -$23,500,000

Question 17:

Use the following information for the next four questions:

The Umbrella Corporation is considering expanding one of its production facilities to research a new type of zombie, which will hopefully not result in another zombie outbreak. The project would require a $21,000,000 capital investment and will be depreciated (straight-line to zero) over its 3 year life. They know that they will be able to salvage $8,500,000 for the equipment at that time.

Incremental sales are expected to be $15,750,000 annually for the 3 year period with costs (excluding depreciation) of 30% of sales. The company would also have to commit initial working capital to the project of $2,500,000. The company has a 30% tax rate, and requires a 12.5% rate of return for projects of this risk level.

Project cash flow (Cash Flow From Assets) for Year 1 is:

Select one:

a. $7,800,231

b. $6,800,470

c. $9,817,500

d. $4,756,384

e. $5,800,600

Question 18:

Use the following information for the next four questions:

The Umbrella Corporation is considering expanding one of its production facilities to research a new type of zombie, which will hopefully not result in another zombie outbreak. The project would require a $21,000,000 capital investment and will be depreciated (straight-line to zero) over its 3 year life. They know that they will be able to salvage $8,500,000 for the equipment at that time.

Incremental sales are expected to be $15,750,000 annually for the 3 year period with costs (excluding depreciation) of 30% of sales. The company would also have to commit initial working capital to the project of $2,500,000. The company has a 30% tax rate, and requires a 12.5% rate of return for projects of this risk level.

Project cash flow (Cash Flow From Assets) for Year 3 is:

Select one:

a. $13,800,000

b. $9,340,844

c. $10,826,250

d. $18,267,500

e. $12,800,555

Question 19:

Use the following information for the next four questions:

The Umbrella Corporation is considering expanding one of its production facilities to research a new type of zombie, which will hopefully not result in another zombie outbreak. The project would require a $21,000,000 capital investment and will be depreciated (straight-line to zero) over its 3 year life. They know that they will be able to salvage $8,500,000 for the equipment at that time.

Incremental sales are expected to be $15,750,000 annually for the 3 year period with costs (excluding depreciation) of 30% of sales. The company would also have to commit initial working capital to the project of $2,500,000. The company has a 30% tax rate, and requires a 12.5% rate of return for projects of this risk level.

What is the Projects NPV? Should we take the Project?

Select one:

a. -$3,800,605; no

b. -$2,800,412; no

c. $6,056,010; yes

d. $3,437,500; yes

e. $5,813,552; yes