Reference no: EM132926230

Questions -

Q1. XYZ is evaluating a project that would require an initial investment of $500,000 and is expected to be in operation for 4 years. MACRS depreciation would be used where the depreciation rates in years 1, 2, 3, and 4 are 33.33%, 44.44%, 14.82%, and 7.41%, respectively. For each year of the project, XYZ relevant revenue associated with the project to be $76,000 and relevant costs associated with the project to be $8,000. The tax rate is 50 percent. What is X if X equals (the operating cash flow (OCF) associated with the project expected in year 3 of the project) plus (the OCF associated with the project expected in year 4 of the project)?

$12,425 (plus or minus $100)

$262,425 (plus or minus $100)

$123,575 (plus or minus $100)

$105,050 (plus or minus $100)

None of the above is within $100 of the correct answer

Q2. XYZ is evaluating a 3-year project that would involve buying a new piece of equipment for $240,000 today. The equipment would be depreciated straight-line to $0 over 2 years. In 3 years, the equipment would be hauled away for an after-tax cash flow of $0. In each of the 3 years of the project, relevant annual revenues are expected to be $157,000 and relevant annual costs are expected to be $23,000. The tax rate is 50% and the cost of capital for the project is 11%? What is the net present value of the project?

$26,480 (plus or minus $100)

$70,352 (plus or minus $100)

$21,477 (plus or minus $100)

$123,478 (plus or minus $100)

None of the above is within $100 of the correct answer