Reference no: EM132679318

Problem 1: A project requires the purchase of new equipment at a cost of $18,000, which will be depreciated over the life of the asset. A further $5000 spent on transport and installation will be added to the purchase price of the equipment for depreciation purposes, and $1000 will be spent on advertising and other operating expenditure to get the project up and running.

What is the value of the asset for depreciation purposes?

Select one:

a. $24,000

b. $19,000

c. $23,000

d. $18,000

Problem 2: Project Beta is a 3-year project which requires an initial outlay of $3,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $6000 per year and incremental costs (excluding depreciation) of $1200. The tax rate is 20%.

What is the project's annual incremental EBIT?

Select one:

a. $2800

b. $3800

c. $5800

d. $3800

Problem 3: Project Beta is a project which will last for 4 years and which requires an initial outlay of $4,000. This outlay will be depreciated using straight-line depreciation over the life of the project. It will generate incremental revenue of $4000 per year. The value of incremental, after-tax earnings is $1332 per year. The project will require Net Working Capital equal to 20% of incremental revenue.

What is the value of incremental free cash flow in Year 0?

Select one:

a. $-4800

b. $4800

c. $-3200

d. $3200