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##### Six Finance Problems Set

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Question;2. We are evaluating a project that costs $748,000, has an 15-year life, and has no salvage value. Assumethat depreciation is straight-line to zero over the life of the project. Sales are projected at 142,000 unitsper year. Price per unit is $39, variable cost per unit is $21, and fixed costs are $760,716 per year. Thetax rate is 34 percent, and we require a 14 percent return on this project.Suppose the projections given for price, quantity, variable costs, and fixed costs are all accurate to within+/-12 percent. The best-case NPV is $ and worst-case NPV is $. (Do not include the dollar signs ($).Negative amount should be indicated by a minus sign. Round your answers to the nearest wholedollar amount. (e.g., 32).)4.value:4.76 pointsA 12-year project has an initial fixed asset investment of $159,600, an initial NWC investment of $15,200,and an annual OCF of -$24,320. The fixed asset is fully depreciated over the life of the project and hasno salvage value. If the required return is 19 percent, the project's equivalent annual cost, or EAC, is$. (Do not include the dollar sign ($). Negative amount should be indicated by a minus sign.Round your answer to 2 decimal places. (e.g., 32.16))10.value:4.76 pointsMcGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $800 per set and have avariable cost of $500 per set. The company has spent $185,000 for a marketing study that determinedthe company will sell 77,000 sets per year for seven years. The marketing study also determined that thecompany will lose sales of 16,000 sets of its high-priced clubs. The high-priced clubs sell at $1,200 andhave variable costs of $1,000. The company will also increase sales of its cheap clubs by 17,000 sets.The cheap clubs sell for $500 and have variable costs of $300 per set. The fixed costs each year will be$9,240,000. The company has also spent $1,294,000 on research and development for the new clubs.The plant and equipment required will cost $22,000,000 and will be depreciated on a straight-line basis.The new clubs will also require an increase in net working capital of $1,242,000 that will be returned atthe end of the project. The tax rate is 38 percent, and the cost of capital is 10 percent.McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs and thequantity of new clubs sold. The sensitivity of the NPV to changes in the price is $ and the sensitivity ofthe NPV to the quantity sold is $. (Do not include the dollar signs ($). Round your answers to 2decimal places. (e.g., 32.16))13.Value: 4.76 pointsSummer Tyme, Inc., is considering a new three-year expansion project that requires an initial fixed assetinvestment of $3.0 million. The fixed asset falls into the three-year MACRS class (MACRS Table) and willhave a market value of $280,000 after three years. The project requires an initial investment in networking capital of $500,000. The project is estimated to generate $2,850,000 in annual sales, with costsof $1,160,000. The tax rate is 40 percent and the required return on the project is 12 percent. The netcash flow in Year 0 is $, the net cash flow in Year 1 is $, the net cash flow in Year 2 is $, and the net cashflow in Year 3 is $. The NPV for this project is $. (Do not include the dollar signs ($). Negativeamounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g.,32.16))18. value: 4.76 pointsConsider an asset that costs $413,600 and is depreciated straight-line to zero over its 9-year tax life. Theasset is to be used in a 3-year project, at the end of the project, the asset can be sold for $51,700. If therelevant tax rate is 33 percent, the aftertax cash flow from the sale of this asset is $. (Do not include thedollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16))20. value: 4.76 pointsGeary Machine Shop is considering a four-year project to improve its production efficiency. Buying a newmachine press for $979,200 is estimated to result in $326,400 in annual pretax cost savings. The pressfalls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the projectof $142,800. The press also requires an initial investment in spare parts inventory of $40,800, along withan additional $6,120 in inventory for each succeeding year of the project. If the shop's tax rate is 32percent and its discount rate is 17 percent, the NPV for the project is $ and Geary buy and install themachine press. (Do not include the dollar sign ($). Negative amount should be indicated by aminus sign. Round your answer to 2 decimal places. (e.g., 32.16))

Paper#48128 | Written in 18-Jul-2015

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