$3.00 Finance Concepts
- From Mathematics: Algebra , General-Questions: General-Academic-Questions
- Closed, but you can still post tutorials
- Due on Nov. 09, 2009
- Asked on Nov 07, 2009 at 1:38:12PM
Q:
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1. 1. Blanchford Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected.
WACC = 10%
Year: 0 1 2 3 4
Cash flows: -$1,000 $475 $475 $475 $475
(Points: 4)
$482.16
$496.38
$505.69
$519.05
$524.72
2.Tapley Dental Associates is considering a project that has the following cash flow data. What is the project's payback?
Year: 0 1 2 3 4 5
Cash flows: -$1,000 $300 $310 $320 $330 $340
(Points: 4)
2.11 years
2.50 years
2.71 years
3.05 years
3.21 years
3.Ryngaert Medical Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected.
WACC = 10%
Year: 0 1 2 3 4
Cash flows: -$1,000 $400 $405 $410 $415
(Points: 4)
$241.24
$255.83
$268.54
$274.78
$289.84
4.Rockmont Recreation Inc. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year: 0 1 2 3 4
Cash flows: -$1,000 $250 $230 $210 $190
(Points: 4)
-5.15%
-3.44%
-1.17%
2.25%
3.72%
5.A company is analyzing two mutually exclusive projects, S and L, with the following cash flows:
0 1 2 3 4
Project S -$1,000 $900 $250 $10 $10
Project L -$1,000 $0 $250 $$400 $800
The company's WACC is 10 percent. What is the IRR of the better project? (Hint: Note that the better project may or may not be the one with the higher IRR.)
6.You must evaluate a proposal to buy a new milling machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The applicable depreciation rates are 33, 45, 15 and 7 percent as discussed in Appendix 12A of your text book. The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pre-tax labor costs would decline by $44,000 per year. The marginal tax rate is 35 percent, and the WACC is 12 percent. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.
How should the $5,000 spent last year be handled?
7.You must evaluate a proposal to buy a new milling machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The applicable depreciation rates are 33, 45, 15 and 7 percent as discussed in Appendix 12A of your text book. The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pre-tax labor costs would decline by $44,000 per year. The marginal tax rate is 35 percent, and the WACC is 12 percent. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.
What is the net cost of the machine for capital budgeting purposes, that is, the Year 0 project cash flow?
8.
You must evaluate a proposal to buy a new milling machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The applicable depreciation rates are 33, 45, 15 and 7 percent as discussed in Appendix 12A of your text book. The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pre-tax labor costs would decline by $44,000 per year. The marginal tax rate is 35 percent, and the WACC is 12 percent. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.
What are the net operating cash flows during Years 1, 2 and 3?
9.You must evaluate a proposal to buy a new milling machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The applicable depreciation rates are 33, 45, 15 and 7 percent as discussed in Appendix 12A of your text book. The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pre-tax labor costs would decline by $44,000 per year. The marginal tax rate is 35 percent, and the WACC is 12 percent. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.
What is the terminal year cash flow?
10.You must evaluate a proposal to buy a new milling machine. The base price is $108,000, and shipping and installation costs would add another $12,500. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000. The applicable depreciation rates are 33, 45, 15 and 7 percent as discussed in Appendix 12A of your text book. The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pre-tax labor costs would decline by $44,000 per year. The marginal tax rate is 35 percent, and the WACC is 12 percent. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.
Should the machine be purchased? Explain your answer.
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