4. You are an engineer at a chemical plant. You purchase voltage transformer equipment for $10 million. Your co-worker studies the tax laws and finds that you have two ways you can depreciate the transfer. Plan A allows you to depreciate it over 5 years at $2 million per year (straight line). Plan B allows you to accelerate the depreciation and with $6 million in year 1 and $1 million in each of the next 4 years.

5. If you want to maximize the NPV of the purchase, which plan would you prefer to use? Reminder: The NPV is calculated using after tax cash flows.

(d) How much has the accounts payables changed by on April 1, 2019?

(e) How much has the inventory of the seller changed by on April 1, 2019? When giving your answer state whether it has increased (by how much in $), stayed the same or decreased (by how much in $).

6. You own a business that produces red ball bearings. It makes the red ball bearings by buying silver ball bearings and painting them red. You purchase silver ball bearings as follows:

Number of Price per

ball bearings ball bearing

January 2000 $1

February 4000 $0.75

(a) If you are using FIFO accounting, what is the COGS if you produce 3000 red ball bearings?

What is the net income from this transaction on April 1, 2019?

What is the cash flow on April 1, 2019?

What is the cash flow on May 1, 2019?

Your company buys 10,000 gal of fuel from a supplier for $3.00/gal on April 1, 2019. The fuel ships to you immediately arriving the same day. The purchasing contract requires that you pay cash for it one month later (on May 1, 2019). Answer the following questions. Note that you should indicate by a positive sign a cash flow increase and by a negative sign a cash flow decrease.

Issue equity (stock) Issue bonds Buy back equity (stock) Buy back bonds Increase working capital Decrease working capital Increase after tax cash flow Decrease after tax cash flow Find legal ways to increase the tax rate (all else equal) Find legal ways to decrease the tax rate (all else equal)

3. For Plan B, with all else equal, will the company owe more taxes in year two than it did in year one or less?

What are all the ways shown below that you could raise cash for a future investment? There are multiple correct choices. You should indicate all of them that are correct to get full credit

For Plan B, how much is left to depreciated at the end of 2 years?