Reference no: EM133010514

Questions -

Q1. Raiders Restaurant is considering the purchase of an $8,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 550,000 tacos per year for the next 6 years, with each costing $3.50 to make and priced at $8. Assume the discount rate is 10% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the book value of the grill at the end of year 4.

Q2. Raiders Restaurant is considering the purchase of an $8,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 550,000 tacos per year for the next 6 years, with each costing $3.50 to make and priced at $8. Assume the discount rate is 10% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the annual depreciation value for the grill.

Q3. Raiders Restaurant is considering the purchase of an $8,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 550,000 tacos per year for the next 6 years, with each costing $3.50 to make and priced at $8. Assume the discount rate is 10% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the after-tax salvage value at the end of year 6.

Q4. Raiders Restaurant is considering the purchase of an $8,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 550,000 tacos per year for the next 6 years, with each costing $3.50 to make and priced at $8. Assume the discount rate is 10% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the initial cash outflow for the grill.

Q5. Raiders Restaurant is considering the purchase of an $8,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 550,000 tacos per year for the next 6 years, with each costing $3.50 to make and priced at $8. Assume the discount rate is 10% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the operating cash flow at the end of year 1.

Q6. Raiders Restaurant is considering the purchase of an $8,000,000 flat-top grill. The grill has an economic life of 6 years and will be fully depreciated using the straight-line method. The grill is expected to produce 550,000 tacos per year for the next 6 years, with each costing $3.50 to make and priced at $8. Assume the discount rate is 10% and the tax rate is 21%. The restaurant expects the market value of the grill to be $0, 6 years from now. Calculate the net present value for the project.

Q7. Madetaylor Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $150. The company feels that sales will be 10,000, 10,000, 10,000, 14,000, 14,000 and 14,000 units per year for the next 6 years. Variable costs will be 15% of sales, and fixed costs are $1,000,000 per year. The firm hired a marketing team to analyze the viability of the product and the marketing analysis cost $2,500,000. The company plans to use a vacant warehouse to manufacture and store the calculators. Based on a recent appraisal the warehouse and the property is worth $10 million on an after-tax basis. If the company does not sell the property today then it will sell the property 6 years from today at the currently appraised value. This project will require an injection of net working capital at the onset of the project in the amount of $2,000,000. This net working capital will be fully recovered at the end of the project. The firm will need to purchase some equipment in the amount of $3,800,000 to produce the new calculator. The firm is able to sell the machine at the end of the project for $1,000,000. The firm requires a 9% return on its investment and has a tax rate of 21%. Calculate the sunk cost of the project.

Q8. Madetaylor Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $150. The company feels that sales will be 10,000, 10,000, 10,000, 14,000, 14,000 and 14,000 units per year for the next 6 years. Variable costs will be 15% of sales, and fixed costs are $1,000,000 per year. The firm hired a marketing team to analyze the viability of the product and the marketing analysis cost $2,500,000. The company plans to use a vacant warehouse to manufacture and store the calculators. Based on a recent appraisal the warehouse and the property is worth $10 million on an after-tax basis. If the company does not sell the property today then it will sell the property 6 years from today at the currently appraised value. This project will require an injection of net working capital at the onset of the project in the amount of $2,000,000. This net working capital will be fully recovered at the end of the project. The firm will need to purchase some equipment in the amount of $3,800,000 to produce the new calculator. The firm is able to sell the machine at the end of the project for $1,000,000. The firm requires a 9% return on its investment and has a tax rate of 21%. Calculate the opportunity cost of the project.

Q9. Madetaylor Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $150. The company feels that sales will be 10,000, 10,000, 10,000, 14,000, 14,000 and 14,000 units per year for the next 6 years. Variable costs will be 15% of sales, and fixed costs are $1,000,000 per year. The firm hired a marketing team to analyze the viability of the product and the marketing analysis cost $2,500,000. The company plans to use a vacant warehouse to manufacture and store the calculators. Based on a recent appraisal the warehouse and the property is worth $10 million on an after-tax basis. If the company does not sell the property today then it will sell the property 6 years from today at the currently appraised value. This project will require an injection of net working capital at the onset of the project in the amount of $2,000,000. This net working capital will be fully recovered at the end of the project. The firm will need to purchase some equipment in the amount of $3,800,000 to produce the new calculator. The firm is able to sell the machine at the end of the project for $1,000,000. The firm requires a 9% return on its investment and has a tax rate of 21%. Calculate the net working capital injection at the beginning of the project.

Q10. Madetaylor Inc. manufactures financial calculators. The company is deciding whether to introduce a new calculator. This calculator will sell for $150. The company feels that sales will be 10,000, 10,000, 10,000, 14,000, 14,000 and 14,000 units per year for the next 6 years. Variable costs will be 15% of sales, and fixed costs are $1,000,000 per year. The firm hired a marketing team to analyze the viability of the product and the marketing analysis cost $2,500,000. The company plans to use a vacant warehouse to manufacture and store the calculators. Based on a recent appraisal the warehouse and the property is worth $10 million on an after-tax basis. If the company does not sell the property today then it will sell the property 6 years from today at the currently appraised value. This project will require an injection of net working capital at the onset of the project in the amount of $2,000,000. This net working capital will be fully recovered at the end of the project. The firm will need to purchase some equipment in the amount of $3,800,000 to produce the new calculator. The firm is able to sell the machine at the end of the project for $1,000,000. The firm requires a 9% return on its investment and has a tax rate of 21%. Calculate the book value of the machine at the end of year 6.