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Question;1. Square Manufacturing is considering investing in a robotics;manufacturing line. Installation of the line will cost an estimated $10.0;million. This amount must be paid immediately even though construction will;take three years to complete (years 0, 1, and 2). Year 3 will be spent;testing the production line and, hence, it will not yield any positive cash;flows. If the operation is very successful, the company can expect after-tax;cash savings of $7.0 million per year in each of years 4 through 7. After reviewing;the use of these systems with the management of other companies, Square?s;controller has concluded that the operation will most probably result in;annual savings of $5.2 million per year for each of years 4 through 7.;However, it is entirely possible that the savings could be as low as $2.8;million per year for each of years 4 through 7. The company uses a 14 percent;discount rate.;Required;Compute the NPV under the three scenarios.(Negative amount should;be indicated by a minus sign. Round present value factor for each year to;three decimal places. Do not round other intermediate computations and round;your final answer to the nearest dollar amount. Enter your answers in;thousands of dollars and not in millions of dollars.);Best Case;Expected;Wore case;NPV;2.;Rush Corporation plans to acquire production equipment for;$612,500 that will be depreciated for tax purposes as follows: year 1;$122,500, year 2, $212,500, and in each of years 3 through 5, $92,500 per;year. An 14 percent discount rate is appropriate for this asset, and the;company?s tax rate is 40 percent.;Required;(a);Compute the present value of the tax shield resulting from;depreciation.(Round present value factor for each year to three decimal places and;other computations to nearest whole dollar value.);present value of the tax shield=;-;Compute the present value of the tax shield from depreciation;assuming straight-line depreciation ($122,500 per year). (Round present value;factor for each year to three decimal places and other computations to;nearest whole dollar value.);present value of the tax shield=;3. Star City is considering an investment in;the community center that is expected to return the following cash flows;Year;Net Cash Flow;1;$;39,000;2;69,000;3;99,000;4;99,000;5;119,000;This schedule includes all cash inflows from;the project, which will also require an immediate $219,000 cash outlay. The;city is tax-exempt, therefore, taxes need not be considered.;Required;(a);What is the net present value of the project;if the appropriate discount rate is 24 percent?(Round present value factor for each year to;three decimal places. Negative amount should be indicated by a minus sign.);net present value of;the project=;(b);What is the net present value of the project;if the appropriate discount rate is 14 percent?(Round present value factor for each year to;three decimal places. Negative amount should be indicated by a minus sign.);net present value=;4. The Johnson Research Organization, a;nonprofit organization that does not pay taxes, is considering buying;laboratory equipment with an estimated life of 7 years so it will not have;to use outsiders' laboratories for certain types of work. The following are;all of the cash flows affected by the decision;Investment (outflow at time 0);$;7,000,000;Periodic operating cash flows;Annual cash savings;because outside laboratories;are;not used;1,500,000;Additional cash outflow;for people and supplies to operate;the;equipment;300,000;Salvage value after seven years, which is the;estimated;life of this project;500,000;Discount rate;6;%;Required;Calculate the net present value of this;decision. Should the organization buy the equipment?(Round present value;factors to three decimal places. Negative amount should be indicated by a;minus sign.);net present value=;Should the organization buy the equipment? Yes?, No?;3.

 

Paper#42928 | Written in 18-Jul-2015

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