# Project #76216 - Finance Ch10

#1A 5-year project has an initial fixed asset investment of \$41,580, an initial NWC investment of \$3,960, and an annual OCF of -\$63,360. The fixed asset is fully depreciated over the life of the project and has no salvage value.

Required:

If the required return is 18 percent, what is the project's equivalent annual cost, or EAC? (Do not round your intermediate calculations.)

Multiple Choice:

\$-81,237.62

\$-65,763.79

\$-73,500.70

\$-77,369.16

\$-48,389.32

#2 Winnebagel Corp. currently sells 24,000 motor homes per year at \$36,000 each, and 9,600 luxury motor coaches per year at \$68,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 15,200 of these campers per year at \$9,600 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 3,600 units per year, and reduce the sales of its motor coaches by 720 units per year.

What is the amount to use as the annual sales figure when evaluating this project?

Multiple choice:

\$145,920,000

\$215,232,000

\$226,560,000

\$237,888,000

\$324,480,000

#4 Dog Up! Franks is looking at a new sausage system with an installed cost of \$881,400. This cost will be depreciated straight-line to zero over the project's 3-year life, at the end of which the sausage system can be scrapped for \$135,600. The sausage system will save the firm \$271,200 per year in pretax operating costs, and the system requires an initial investment in net working capital of \$63,280.

Required:

If the tax rate is 34 percent and the discount rate is 11 percent, what is the NPV of this project?

Multiple Choice:

\$-199,887.07

\$-151,458.57

\$-159,031.50

\$-216,897.27

\$-134,448.36

#5 Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs \$2,250,000 and will last for 8 years. Variable costs are 35 percent of sales, and fixed costs are \$122,000 per year. Machine B costs \$4,570,000 and will last for 12 years. Variable costs for this machine are 29 percent of sales and fixed costs are \$119,000 per year. The sales for each machine will be \$9.14 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis.

If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.)

Multiple Choice:

\$3,459,038.46

\$-13,241,081.64

\$-4,525,723.12

\$-2,481,961.54

\$-4,094,701.88

(b)

If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.)

Multiple Choice:

\$-15,928,072.23

\$-8,560,797.18

\$3,603,343.32

\$-7,745,483.17

\$-2,337,656.68

#6 Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for \$5.5 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net \$5.8 million. The company wants to build its new manufacturing plant on this land; the plant will cost \$13.0 million to build, and the site requires \$820,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Cash flow amount:

#7 Dog Up! Franks is looking at a new sausage system with an installed cost of \$495,000. 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 \$73,000. The sausage system will save the firm \$175,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of \$32,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

#8 Your firm is contemplating the purchase of a new \$620,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth \$68,000 at the end of that time. You will save \$250,000 before taxes per year in order processing costs, and you will be able to reduce working capital by \$83,000 (this is a one-time reduction). If the tax rate is 34 percent, what is the IRR for this project? (Round your answer to 2 decimal places. (e.g., 32.16))

 Subject Business Due By (Pacific Time) 07/11/2015 12:00 am
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