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##### Financial Planning Problems

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Question;Q1.Down Under Boomerang, Inc., is considering a new three-year expansion project that requires aninitial fixed asset investment of $2.55 million. The fixed asset will be depreciated straight-line to zero overits three-year tax life. The project is estimated to generate $2,030,000 in annual sales, with costs of$725,000. The tax rate is 35 percent and the required return is 15 percent. The project requires an initialinvestment in net working capital of $250,000, and the fixed asset will have a market value of $285,000at the end of the project.What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediatecalculations. Negative amounts should be indicated by a minus sign.)YearsYear 0Year 1Year 2Year 3Cash Flow$$$$What is the NPV? (Do not round intermediate calculations and round your final answer to 2decimal places. (e.g., 32.16))NPV$Q2.Down Under Boomerang, Inc., is considering a new three-year expansion project that requires aninitial fixed asset investment of $2.85 million. The fixed asset falls into the three-year MACRS class. Theproject is estimated to generate $2,130,000 in annual sales, with costs of $815,000. The project requiresan initial investment in net working capital of $350,000, and the fixed asset will have a market value of$235,000 at the end of the project.If the tax rate is 34 percent and the required return is 11 percent, what is the project?s Year 1 net cashflow? Year 2? Year 3? (Use MACRS) Link to MACRS http://lectures.mhhe.com/connect/0077479475/Table 10.7.JPG(Enter your answers in dollars, not millions of dollars, i.e. 1,234,567. Negative amounts should beindicated by a minus sign. Do not round intermediate calculations and round your final answersto 2 decimal places. (e.g., 32.16))YearsYear 0Year 1Year 2Year 3Cash Flow$$$$What is the NPV? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567. Do not roundintermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))NPV$Q3You are evaluating two different silicon wafer milling machines. The Techron I costs $213,000, has athree-year life, and has pretax operating costs of $54,000 per year. The Techron II costs $375,000, has afive-year life, and has pretax operating costs of $27,000 per year. For both milling machines, usestraight-line depreciation to zero over the project?s life and assume a salvage value of $31,000. If yourtax rate is 30 percent and your discount rate is 9 percent, compute the EAC for bothmachines. (Negative amounts should be indicated by a minus sign. Do not round intermediatecalculations and round your final answers to 2 decimal places. (e.g., 32.16))EACTechron ITechron II$$Q4.Massey Machine Shop is considering a four-year project to improve its production efficiency. Buying anew machine press for $390,000 is estimated to result in $150,000 in annual pretax cost savings. Thepress falls in the MACRS five-year class, and it will have a salvage value at the end of the project of$66,000. The press also requires an initial investment in spare parts inventory of $12,000, along with anadditional $1,700 in inventory for each succeeding year of the project. The shop?s tax rate is 35 percentand its discount rate is 9 percent. Refer to Table 6.8. see table at http://ezto.mhhmdemo.mcgrawhill.com/servlet/TestPilot4/laserwords2/13185743031397711.tp4/table10-7.jpgCalculate the NPV of this project. (Do not round intermediate calculations and round your finalanswer to 2 decimal places. (e.g., 32.16))NPV $Q5.Hagar Industrial Systems Company (HISC) is trying to decide between two different conveyor beltsystems. System A costs $224,000, has a four-year life, and requires $71,000 in pretax annual operatingcosts. System B costs $318,000, has a six-year life, and requires $65,000 in pretax annual operatingcosts. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvagevalue. Whichever system is chosen, it will not be replaced when it wears out. The tax rate is 30 percentand the discount rate is 9 percent.Calculate the NPV for both conveyor belt systems. (Do not round intermediate calculationsand round your answer to 2 decimal places. (e.g., 32.16). Negative amounts should be indicatedby a minus sign.)NPVSystem A System B$$Q6.Etonic Inc. is considering an investment of $385,000 in an asset with an economic life of 5 years. Thefirm estimates that the nominal annual cash revenues and expenses at the end of the first year will be$265,000 and $90,000, respectively. Both revenues and expenses will grow thereafter at the annualinflation rate of 3 percent. Etonic will use the straight-line method to depreciate its asset to zero over fiveyears. The salvage value of the asset is estimated to be $65,000 in nominal terms at that time. The onetime net working capital investment of $20,000 is required immediately and will be recovered at the endof the project. All corporate cash flows are subject to a 34 percent tax rate.What is the project?s total nominal cash flow from assets for each year? (Do not round intermediatecalculations. Negative amounts should be indicated by a minus sign.)Cash flowYear 0Year 1$$Year 2Year 3Year 4Year 5$$$$

Paper#49861 | Written in 18-Jul-2015

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