Project #36016 - Estimating cash flows on capital budgeting

Hello everybody, 

I am a MBA student and I need Help with my finance class on capital budgeting. I need help with. If you have a questiion, please feel free to contact me first. Thank you.

 

Here is the assigment below:

1)    12-2: PV OF DEPRECIATION TAX BENEFITS: YOUR COMPANY1 IS CONSIDERING A NEW PROJECT THAT WILL REQUIRE $1,000,000 OF NEW EQUIPMENT AT THE START OF THE PROJECT. THE EQUIPMENT WILL HAVE A DEPRECIABLE LIFE OF 10 YEARS AND WIL BE DEPRECIATED TO A BOOK VALUE OF $150,000 USING STRAIGHT-LINE DEPRECIATION. THE COST OF CAPITAL IS 13 PERCENT, AND THE FIRM’S TAX RATE IS 34 PERCENT. ESTIMATE THE PRESENT VALUE OF THE TAX BENEFITS FROM DEPRECIATION. (LG12-4)

2)    12-5: EAC APPROACH: YOU ARE CONSIDERING THE PURCHASE OF ONE OF TWO MACHINES USED IN YOUR MANUFACTURING PLANT. MACHINE A HAS LIFE OF TWO YEARS, COSTS $80 INITIALLY, AND THEN $125 PER YEAR IN MAINTENAINANCE COST. MACHINE BCOSTS $150 INITIALLY, HAS A LIFE OF THREE YEARS, AND REQUIRES $100 IN ANNUAL MAINTENANCE COSTS. EITHER MACHINE MUST BE REPLACED AT THE END OF ITS LIFE WITH AN EQUIVALENT MACHINE. WHICH IS THE BETTER MACHINE FOR THE FIRM? THE DISCOOUNT RATE IS 12% AND THE TAX RATE IS ZERO. (LG12-8)

3)    12-6: PROJECT CASH FLOWS: KADS, INC., HAS SPENT $400,000 ON RESEARCH TO DEVELOP A NEW COMPUTER GAME. THE FIRM IS PLANNING TO SPEND $200,000 ON A MACHINE TO PRODUCE THE NEW GAME. SHIPPING AND INSTALLATION COSTS OF THE MACHINE WILL BE CAPITALIZED AND DEPRECIATED; THEY TOTAL $50,000. THE MACHINE HAS AN EXPECTED LIFE OF THREE YEARS, A $75,000 ESTIMATED RESALE VALUE, AND FALLS UNDER THE MACRS 7-YEAR, WITH COSTS OF $250,000 PER YEAR. THE FIRM HAS A TAX RATE OF 35%, AN OPPORTUNITY COST OF CAPITAL OF 15 PERCENT, AND IT EXPECTS NET WORKING CAPITAL TO INCREASE BY $100,000 AT THE BEGINNING OF THE PROJECT. WHAT WILL THE CASH FLOWS FOR THIS PROJECT BE? (LG12-3).

4)    12-10: CHANGE IN NWC: YOU ARE EVALUATING A PROJECT FOR THE TIFF-ANY GOLF CLUB, GUARANTEED TO CORRECT THAT NASTY SLICE. YOU ESTIMATE THE SALES PRICE OF THE TIFF-ANY TO BE $400 PER UNIT AND SALES VOLUME TO BE 1,000 UNITS IN YEAR 3. THE PROJECT HAS A 3-YEARS LIFE. VARIABLE COSTS AMOUNT TO $225 PER UNIT AND FIXED COSTS ARE $100,000 PER YEAR. THE PROJECT REQUIRES AN INITIAL INVESTMENT OF $165,000 IN ASSETS, WHICH WILL BE DEPRECIATED STRAIGHT-LINE TO ZERO OVER THE 3-YEAR PROJECT LIFE. THE ACTUAL MARKET VALUE OF THESE ASSETS AT THE END OF YEAR 3 IS EXPECTED TO BE $35,000. NWC REQUIREMENTS AT THE BEGINNING OF EACH YEAR WILL BE APPROXIMATELY 20% OF THE PROJECTED SALES DURING THE COMING YEAR. THE TAX RATE IS 34% AND THE REQUIRED RETURN ON THE PROJECT IS 10% PERCENT. WHAT CHANGE IN NWC OCCURS AT THE END OF YEAR 1? (LG12-3)

5)    12-11: OPERATING CASH FLOW: CONTINUING THE PREVIOUS PROBLEM, WHAT IS THE OPERATING CASH FLOW FOR THE PROJECT IN YEAR 2? (LG12-3)

 

6)    12-12:           PROJECT CASH FLOW:  MOM’S COOKIES, INC., IS CONSIDERING THE PURCHASE OF A NEW COOKIE OVEN. THE ORIGINAL COST OF THE OLD OVEN WAS $30,000; IT IS NOW FIVE YEARS OLD, AND IT HAS CURRENT MARKET VALUE OF $13,333.33. THE OLD OVEN IS BEING DEPRECIATED OVER A 10-YEAR LIFE TOWARD A ZERO ESTIMATED SALVAGE VALUE ON A STRAIGHT-LINE BASIS, RESULTING IN A CURRENT BOOK VALUE OF $15,000 AND AN ANNUAL DEPRECIATION EXPENSE OF $3,000.  THE OLD OVEN CAN BE USED FOR SIX MORE YEARS BUT HAS NO MARKET VALUE AFTER ITS DEPRECIABLE LIFE IS OVER. MANAGEMENT IS CONTEMPLATING THE PURCHASE OF A NEW OVEN WHOSE COST IS $25,000 AND WHOSE ESTIMATED SALVAGE VALUE IS ZERO. EXPECTED BEFORE-TAX CASH SAVINGS FROM THE NEW OVEN ARE $4,000 A YEAR OVER ITS FULL MACRS DEPRECIABLE LIFE. DEPRECIATION IS COMPUTED USING MACRS OVER A 5-YEAR LIFE, AND THE COST OF CAPITAL IS 10%. ASSUME A 40% TAX RATE. WHAT WILL THE CASH FLOWS FOR THIS PROJECT BE? (LG12-5)

Subject Business
Due By (Pacific Time) 07/23/2014 03:00 pm
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