Suppose your firm is considering investing in a project with

Assignment Help Finance Basics

Reference no: EM13805001

1.Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.


Time:	0	1	2	3	4	5	6
Cash flow	-$7,700	$1,110	$2,310	$1,510	$1,510	$1,310	$1,110

Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.)

IRR

KADS, Inc., has spent $360,000 on research to develop a new computer game. The firm is planning to spend $160,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $46,000. The machine has an expected life of three years, a $71,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $560,000 per year, with costs of $210,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 13 percent, and it expects net working capital to increase by $80,000 at the beginning of the project.

What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

Year	0	1	2	3
FCF	mce_markernbsp;	mce_markernbsp;	mce_markernbsp;	mce_markernbsp;

Your firm needs a computerized machine tool lathe which costs $49,000 and requires $11,900 in maintenance for each year of its 3-year life. After three years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 34 percent and a discount rate of 13 percent.

If the lathe can be sold for $4,900 at the end of year 3, what is the after-tax salvage value? (Round your answer to 2 decimal places.)

Salvage value after tax

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $50,000. The truck falls into the MACRS 3-year class, and it will be sold after three years for $19,100. Use of the truck will require an increase in NWC (spare parts inventory) of $1,100. The truck will have no effect on revenues, but it is expected to save the firm $17,200 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 39 percent.

What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

Year	0	1	2	3
FCF	mce_markernbsp;	mce_markernbsp;	mce_markernbsp;	mce_markernbsp;

Reference no: EM13805001

Questions Cloud

Monopolist demand and cost curves : Given the following monopolist demand and cost curves, QD= 1000 - 2P TC = 5,000 + 50Q

Calculate the accounting profit and the economic profit : Gomez runs a small pottery firm. He hires one helper at $15,500 per year, pays annual rent of $5,500 for his shop, and spends $21,000 per year on materials. He has $40,000 of his own funds invested in equipment (pottery wheels, kilns, and so forth) t..

Electricity is often generated using coal fired plants : Electricity is often generated using coal fired plants. Unfortunately, coal burning produces SO2, which causes acid rain. Consider two countries that border each other to answer the following question. Country A's SO2 emissions are known to negativel..

No opportunity cost for travel time for him : John wants to travel from Pittsburgh to Philadelphia. It takes him 5 hours to drive by car or 1 hour to fly by plane. If the total car rental (fuel and other costs are included) cost is $120 and flight ticket from Pittsburgh to Philadelphia is $200, ..

Suppose your firm is considering investing in a project with : 1.Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the ..

Overview of bls statistics on unemployment : Review the information available on the following websites. You will use this information to answer the questions below:Overview of BLS Statistics on Unemployment: http://www.bls.gov/bls/unemployment.htmUnemployment, total (% of total labor force): ..

Monopoly is considering selling several units of homogeneous : A monopoly is considering selling several units of a homogeneous product as a single package. A typical consumer’s demand for the product is Qd = 120 - 0.25P, and the marginal cost of production is $160. Determine the optimal number of units to put i..

The keynesian is-lm model : According to the Keynesian IS-LM model, what is the effect of each of the following onoutput, the real interest rate, employment, and the price level? Distinguish between the short runand the long run. Be sure to express graphically and explain in wo..

Determine the optimal number of bran muffins to sell : The American Baker’s Association reports that annual sales of bakery goods last year rose 15 percent, driven by a 50 percent increase in the demand for bran muffins. Most of the increase was attributed to a report that diets rich in bran help prevent..

User Account

All Pages