Reference no: EM133013627

Questions -

Q1. 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 depreciation expense at the end of year 2.

Q2. 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 after-tax salvage value at the end of year 6.

Q3. 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 operating cash flows at the end of year 1.

Q4. 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 initial cash outflow (e.g. the time 0 cash flow).

Q5. 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 cash flow from assets at the end of year 6.

Q6. 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 present value for the project.

Q7. Raph Inc. needs someone to supply it with 800,000 planks of wood per year to support its manufacturing needs over the next five years, and your company has decided to bid on the contract. It will cost your firm $2,500,000 to install the equipment necessary to start production. The equipment will be depreciated using the straight-line method to 0 over the project's life. The salvage value of the equipment is expected to be 0. Your fixed costs will be $1,000,000 per year and your variable production costs are $15 per plank. You also need an initial investment in net working capital of $500,000, which will be recovered at the end of the project. The firm has a tax rate of 21% and the required rate of return is 7%. Calculate the initial cash outflow.

Q8. Raph Inc. needs someone to supply it with 800,000 planks of wood per year to support its manufacturing needs over the next five years, and your company has decided to bid on the contract. It will cost your firm $2,500,000 to install the equipment necessary to start production. The equipment will be depreciated using the straight-line method to 0 over the project's life. The salvage value of the equipment is expected to be 0. Your fixed costs will be $1,000,000 per year and your variable production costs are $15 per plank. You also need an initial investment in net working capital of $500,000, which will be recovered at the end of the project. The firm has a tax rate of 21% and the required rate of return is 7%. Calculate the bid price.

Q9. Raph Inc. needs someone to supply it with 800,000 planks of wood per year to support its manufacturing needs over the next five years, and your company has decided to bid on the contract. It will cost your firm $2,500,000 to install the equipment necessary to start production. The equipment will be depreciated using the straight-line method to 0 over the project's life. The salvage value of the equipment is expected to be 0. Your fixed costs will be $1,000,000 per year and your variable production costs are $15 per plank. You also need an initial investment in net working capital of $500,000, which will be recovered at the end of the project. The firm has a tax rate of 21% and the required rate of return is 7%. Based on the bid price, calculate the OCF for year 1.

Q10. Suppose a firm has the following pro forma information:

Sales: 10,000,000

Variable Costs: 4,500,000

Fixed Costs: 1,500,000

Depreciation: 1,000,000

Tax rate: 21%

Calculate the OCF.