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##### Finance 301 Homework Assignment 6

**Description**

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**Question**

Question;1) Winnebagel Corp. currently;sells 19,200 motor homes per year at $28,800 each, and 7,680 luxury motor;coaches per year at $54,400 each. The company wants to introduce a new portable;camper to fill out its product line, it hopes to sell 13,440 of these campers;per year at $7,680 each. An independent consultant has determined that if;Winnebagel introduces the new campers, it should boost the sales of its;existing motor homes by 3,200 units per year, and reduce the sales of its motor;coaches by 832 units per year. The amount to use as the annual sales figure;when evaluating this project is $____________.;2) Summer Tyme, Inc., is;considering a new 5-year expansion project that requires an initial fixed asset;investment of $5.778 million. The fixed asset will be depreciated straight-line;to zero over its 5-year tax life, after which time it will be worthless. The;project is estimated to generate $5,136,000 in annual sales, with costs of;$2,054,400. If the tax rate is 33 percent, the OCF for this project is;$___________.;3) Summer Tyme, Inc., is;considering a new 5-year expansion project that requires an initial fixed asset;investment of $1.242 million. The fixed asset will be depreciated straight-line;to zero over its 5-year tax life, after which time it will be worthless. The project;is estimated to generate $1,104,000 in annual sales, with costs of $441,600. If;the tax rate is 32 percent and the required return on the project is 9 percent;the NPV for this project is $___________.;4) Summer Tyme, Inc., is;considering a new 3-year expansion project that requires an initial fixed asset;investment of $1.404 million. The fixed asset will be depreciated straight-line;to zero over its 3-year tax life, after which time it will have a market value;of $109,200. The project requires an initial investment in net working capital;of $156,000. The project is estimated to generate $1,248,000 in annual sales;with costs of $499,200. The tax rate is 32 percent and the required return on;the project is 11 percent. The NPV for this project is $____________.;5) Dog Up! Franks is looking;at a new sausage system with an installed cost of $904,800. This cost will be;depreciated straight-line to zero over the project's 9-year life, at the end of;which the sausage system can be scrapped for $139,200. The sausage system will;save the firm $278,400 per year in pretax operating costs, and the system;requires an initial investment in net working capital of $64,960. If the tax;rate is 34 percent and the discount rate is 11 percent, the NPV of this project;is $_______________.;6);Your firm is contemplating the purchase of a new $1,764,000;computer-based order entry system. The system will be depreciated straight-line;to zero over its 5-year life. It will be worth $157,500 at the end of that;time. You will save $693,000 before taxes per year in order processing costs;and you will be able to reduce working capital by $139,499 (this is a one-time;reduction). If the tax rate is 33 percent, the IRR for this project is;percent.;7);Consider a;project to supply Detroit with 49,000 tons of machine screws annually for;automobile production. You will need an initial $2,107,000 investment in;threading equipment to get the project started, the project will last for 6;years. The accounting department estimates that annual fixed costs will be;$490,000 and that variable costs should be $220 per ton, accounting will;depreciate the initial fixed asset investment straight-line to zero over the;6-year project life. It also estimates a salvage value of $539,000 after;dismantling costs. The marketing department estimates that the automakers;will let the contract at a selling price of $250 per ton. The engineering;department estimates you will need an initial net working capital investment;of $441,000. You require a 15 percent return and face a marginal tax rate of;39 percent on this project.;a.;The estimated;OCF for this project is $ and the NPV is $_________.;b.;Suppose you;believe that the accounting department's initial cost and salvage value;projections are accurate only to within ?15 percent, the marketing;department's price estimate is accurate only to within ?9 percent, and the;engineering department's net working capital estimate is accurate only to;within ?6 percent. Your worst-case NPV for this project is $______ and your;best-case NPV is $.

Paper#47950 | Written in 18-Jul-2015

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