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Question;54. Cool Comfort currently sells 300 Class A spas, 450;Class C spas, and 200 deluxe model spas each year. The firm is considering;adding a mid-class spa and expects that if it does it can sell 375 of them.;However, if the new spa is added, Class A sales are expected to decline to 225;units while the Class C sales are expected to decline to 200. The sales of the;deluxe model will not be affected. Class A spas sell for an average of $12,000;each. Class C spas are priced at $6,000 and the deluxe model sells for $17,000;each. The new mid-range spa will sell for $8,000. What is the value of the;erosion?;A. $600,000;B. $1,200,000;C. $1,800,000;D. $2,400,000;E. $3,900,000;55. Jefferson & Sons is evaluating a project that;will increase annual sales by $138,000 and annual costs by $94,000. The project;will initially require $110,000 in fixed assets that will be depreciated;straight-line to a zero book value over the 4-year life of the project. The;applicable tax rate is 32 percent. What is the operating cash flow for this;project?;A. $11,220;B. $29,920;C. $38,720;D. $46,480;E. $46,620;56. Marie's Fashions is considering a project that;will require $28,000 in net working capital and $87,000 in fixed assets. The;project is expected to produce annual sales of $75,000 with associated costs of;$57,000. The project has a 5-year life. The company uses straight-line;depreciation to a zero book value over the life of the project. The tax rate is;30 percent. What is the operating cash flow for this project?;A. -$1,520;B. -$580;C. $420;D. $15,680;E. $17,820;57. The Beach House has sales of $784,000 and a profit;margin of 11 percent. The annual depreciation expense is $14,000. What is the;amount of the operating cash flow if the company has no long-term debt?;A. $68,760;B. $72,240;C. $86,240;D. $100,240;E. $101,760;58. The Pancake House has sales of $1,642,000;depreciation of $27,000, and net working capital of $218,000. The firm has a;tax rate of 35 percent and a profit margin of 6 percent. The firm has no;interest expense. What is the amount of the operating cash flow?;A. $98,520;B. $125,520;C. $147,480;D. $268,480;E. $343,520;59. Northern Railway is considering a project which;will produce annual sales of $975,000 and increase cash expenses by $859,000.;If the project is implemented, taxes will increase from $141,000 to $154,000;and depreciation will increase from $194,000 to $272,000. The company is;debt-free. What is the amount of the operating cash flow using the top-down;approach?;A. $25,000;B. $103,000;C. $157,000;D. $181,000;E. $209,000;60. Bi-Lo Traders is considering a project that will;produce sales of $28,000 and increase cash expenses by $17,500. If the project;is implemented, taxes will increase by $3,000. The additional depreciation;expense will be $1,600. An initial cash outlay of $1,400 is required for net;working capital. What is the amount of the operating cash flow using the;top-down approach?;A. $4,500;B. $5,900;C. $6,100;D. $7,500;E. $8,900;61. A proposed expansion project is expected to;increase sales of JL Ticker's Store by $35,000 and increase cash expenses by;$21,000. The project will cost $24,000 and be depreciated using straight-line;depreciation to a zero book value over the 4-year life of the project. The;store has a marginal tax rate of 30 percent. What is the operating cash flow of;the project using the tax shield approach?;A. $5,600;B. $7,800;C. $11,600;D. $13,300;E. $14,600;62. The Lumber Yard is considering adding a new;product line that is expected to increase annual sales by $238,000 and cash;expenses by $184,000. The initial investment will require $96,000 in fixed;assets that will be depreciated using the straight-line method to a zero book;value over the 6-year life of the project. The company has a marginal tax rate;of 32 percent. What is the annual value of the depreciation tax shield?;A. $5,120;B. $13,160;C. $25,840;D. $32,560;E. $41,840;63. Bernie's Beverages purchased some fixed assets;classified as 5-year property for MACRS. The assets cost $87,000. What will the;accumulated depreciation be at the end of year three?;A. $13,520;B. $25,056;C. $38,241;D. $48,759;E. $61,944;64. You just purchased some equipment that is;classified as 5-year property for MACRS. The equipment cost $147,000. What will;the book value of this equipment be at the end of 4 years should you decide to;resell the equipment at that point in time?;A. $8,467.20;B. $25,401.60;C. $42,336.00;D. $121,598.40;E. $138,532.80;65. Peterborough Trucking just purchased some fixed;assets that are classified as 3-year property for MACRS. The assets cost;$9,800. What is the amount of the depreciation expense in year 3?;A. $537.52;B. $1,347.17;C. $1,451.38;D. $1,929.11;E. $2,177.56;66. Crafter's Supply purchased some fixed assets 2;years ago at a cost of $38,700. It no longer needs these assets so it is going;to sell them today for $25,000. The assets are classified as 5-year property;for MACRS. What is the net cash flow from this sale if the firm's tax rate is;30 percent?;A. $13,122.20;B. $18,576.00;C. $20,843.68;D. $23,072.80;E. $25,211.09;67. You own some equipment that you purchased 4 years;ago at a cost of $216,000. The equipment is 5-year property for MACRS. You are;considering selling the equipment today for $75,500. Which one of the following;statements is correct if your tax rate is 35 percent?;A. The tax due on the sale is $26,425.;B. The book value today is $178,675.20.;C. The accumulated depreciation to date is $37,324.80.;D. The taxable amount on the sale is $37,324.80.;E. The aftertax salvage value is $62,138.68.;68. Edward's Manufactured Homes purchased some;machinery 2 years ago for $319,000. These assets are classified as 5-year;property for MACRS. The company is replacing this machinery today with newer;machines that utilize the latest in technology. The old machines are being sold;for $140,000 to a foreign firm for use in its production facility in South;America. What is the aftertax salvage value from this sale if the tax rate is;35 percent?;A. $135,408;B. $140,000;C. $142,312;D. $144,592;E. $146,820;69. Bruno's Lunch Counter is expanding and expects;operating cash flows of $26,000 a year for 4 years as a result. This expansion;requires $39,000 in new fixed assets. These assets will be worthless at the end;of the project. In addition, the project requires $3,000 of net working capital;throughout the life of the project. What is the net present value of this;expansion project at a required rate of return of 16 percent?;A. $18,477.29;B. $21,033.33;C. $28,288.70;D. $29,416.08;E. $32,409.57;70. Jasper Metals is considering installing a new;molding machine which is expected to produce operating cash flows of $73,000 a;year for 7 years. At the beginning of the project, inventory will decrease by;$16,000, accounts receivables will increase by $21,000, and accounts payable;will increase by $15,000. All net working capital will be recovered at the end;of the project. The initial cost of the molding machine is $249,000. The;equipment will be depreciated straight-line to a zero book value over the life;of the project. The equipment will be salvaged at the end of the project;creating a $48,000 aftertax cash flow. At the end of the project, net working;capital will return to its normal level. What is the net present value of this;project given a required return of 14.5 percent?;A. $77,211.20;B. $79,418.80;C. $82,336.01;D. $84,049.74;E. $87,925.54;71. A project will produce an operating cash flow of;$14,600 a year for 8 years. The initial fixed asset investment in the project;will be $48,900. The net aftertax salvage value is estimated at $11,000 and;will be received during the last year of the project's life. What is the net;present value of the project if the required rate of return is 12;percent?;A. $23,627.54;B. $28,070.26;C. $34,627.54;D. $39,070.26;E. $41,040.83;72. Kwik ?n Hot Dogs is considering the installation;of a new computerized pressure cooker that will cut annual operating costs by;$23,000. The system will cost $39,900 to purchase and install. This system is;expected to have a 4-year life and will be depreciated to zero using;straight-line depreciation. What is the amount of the earnings before interest;and taxes for this project?;A. $10,525;B. $13,025;C. $15,525;D. $16,900;E. $19,400;73. Colors and More is considering replacing the;equipment it uses to produce crayons. The equipment would cost $1.37 million;have a 12-year life, and lower manufacturing costs by an estimated $304,000 a;year. The equipment will be depreciated using straight-line depreciation to a;book value of zero. The required rate of return is 15 percent and the tax rate;is 35 percent. What is the net income from this proposed project?;A. $18,508.75;B. $40,211.24;C. $66,441.67;D. $123,391.67;E. $136,709.48;74. Gateway Communications is considering a project;with an initial fixed asset cost of $2.46 million which will be depreciated;straight-line to a zero book value over the 10-year life of the project. At the;end of the project the equipment will be sold for an estimated $300,000. The;project will not directly produce any sales but will reduce operating costs by;$725,000 a year. The tax rate is 35 percent. The project will require $45,000;of inventory which will be recouped when the project ends. Should this project;be implemented if the firm requires a 14 percent rate of return? Why or why;not?;A. No, The NPV is -$172,937.49.;B. No, The NPV is -$87,820.48.;C. Yes, The NPV is $251,860.34;D. Yes, The NPV is $387,516.67;E. Yes, The NPV is $466,940.57;75. You are working on a bid to build two city parks a;year for the next three years. This project requires the purchase of $180,000;of equipment that will be depreciated using straight-line depreciation to a;zero book value over the 3-year project life. The equipment can be sold at the;end of the project for $34,000. You will also need $20,000 in net working;capital for the duration of the project. The fixed costs will be $16,000 a year;and the variable costs will be $168,000 per park. Your required rate of return;is 15 percent and your tax rate is 34 percent. What is the minimal amount you;should bid per park? (Round your answer to the nearest $100);A. $72,500;B. $128,600;C. $154,300;D. $189,100;E. $217,600;76. You are working on a bid to build two apartment;buildings a year for the next 5 years for a local college. This project;requires the purchase of $750,000 of equipment that will be depreciated using;straight-line depreciation to a zero book value over the project's life. The;equipment can be sold at the end of the project for $325,000. You will also;need $140,000 in net working capital over the life of the project. The fixed;costs will be $628,000 a year and the variable costs will be $1,298,000 per;building. Your required rate of return is 14.5 percent for this project and;your tax rate is 35 percent. What is the minimal amount, rounded to the nearest;$100, you should bid per building?;A. $1,423,700;B. $1,489,500;C. $1,733,000;D. $2,780,600;E. $3,465,900;77. Automated Manufacturers uses high-tech equipment;to produce specialized aluminum products for its customers. Each one of these;machines costs $1,480,000 to purchase plus an additional $49,000 a year to;operate. The machines have a 6-year life after which they are worthless. What;is the equivalent annual cost of one these machines if the required return is;16 percent?;A. -$450,657;B. -$427,109;C. -$301,586;D. -$295,667;E. -$256,947;78. Champion Bakers uses specialized ovens to bake its;bread. One oven costs $689,000 and lasts about 4 years before it needs to be;replaced. The annual operating cost per over is $41,000. What is the equivalent;annual cost of an oven if the required rate of return is 13 percent?;A. -$272,638;B. -$248,313;C. -$232,407;D. -$200,561;E. $196,210

 

Paper#51102 | Written in 18-Jul-2015

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