Reference no: EM132052997

1. Project Z will result in unit sales of 1,750, at a price of $550 each. The variable cost (VC) of each unit is $275. The cost accountant will allocate overhead on the existing plant to Project Z at a rate of $21 per unit. A special piece of equipment must be leased for $59,000 per year for purposes related solely to Project Z. Project Z will reduce sales of the same company’s Project X by 400 units (selling price of $850 with VC of $450 and overhead allocation of $32 per unit). What is the total incremental cash flow for Project Z?

$212,700

$262,250

$268,000

$308,450

$321,250

2. A firm is considering a project that will generate perpertual after-tax cash flows of 25,000 per year beginning next year. The project has the same risk as the firm's overall operations. Equity cost 15%and debt cost 6% on an after-tax basis. The firm's D/E ratio is 1.2. What is the most the firm can pay for the project and still earn its required return?

a) 212,250

b) 247,770

c) 276,500

d) 366,250

e) 412,750