Project’s NPV Assignment | Homework For You

40) A company. has a project available with the following cash flows: Year Cash Flow 0 −$32,630 1 12,990 2 14,740 3 20,640 4 11,840 If the required return for the project is 9.3 percent, what is the project’s NPV?

A) $15,696.11 B) $17,938.41 C) $27,580.00 D) $7,400.06 E) $14,388.10 Version 1 16

41) A project that will last for 7 years is expected to have equal annual cash flows of $103,000. If the required return is 8.7 percent, what maximum initial investment would make the project acceptable?

A) $938,968.70 B) $523,653.86 C) $466,211.75 D) $506,438.76 E) $435,130.96

42) Shelton Co. purchased a parcel of land six years ago for $859,500. At that time, the firm invested $131,000 in grading the site so that it would be usable. Since the firm wasn’t ready to use the site itself at that time, it decided to lease the land for $47,000 a year. The company is now considering building a warehouse on the site as the rental lease is expiring. The current value of the land is $911,000. What value should be included in the initial cost of the warehouse project for the use of this land?

A) $859,500 B) $990,500 C) $911,000 D) $0 E) $1,042,000

43) Shelton Co. purchased a parcel of land six years ago for $859,500. At that time, the firm invested $131,000 in grading the site so that it would be usable. Since the firm wasn’t ready to use the site itself at that time, it decided to lease the land for $47,000 a year. The company is now considering building a warehouse on the site as the rental lease is expiring. The current value of the land is $911,000. What value should be included in the initial cost of the warehouse project for the use of this land?

A) $859,500 B) $990,500 C) $911,000 D) $0 E) $1,042,000

43) McCanless Co. recently purchased an asset for $2,250,000 that will be used in a 3-year project. The asset is in the 4-year MACRS class. The depreciation percentage each year is 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. What is the amount of depreciation in Year 2?

A) $750,000 B) $1,000,125 C) $749,925 D) $166,725 E) $333,225 Version 1 17

44) A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,800,000 and can be sold for $745,000 at the end of the project. The asset is in the 5- year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company’s tax rate is 34 percent. What is the aftertax salvage value of the equipment?

A) $714,958 B) $491,700 C) $566,119 D) $775,042 E) $745,000

45) Bennett Co. has a potential new project that is expected to generate annual revenues of $254,000, with variable costs of $140,400, and fixed costs of $58,600. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $20,000. The annual depreciation is $23,400 and the tax rate is 34 percent. What is the annual operating cash flow?

A) $42,956 B) $44,256 C) $121,556 D) $78,400 E) $172,212

46) A 4-year project has an annual operating cash flow of $47,500. At the beginning of the project, $3,850 in net working capital was required, which will be recovered at the end of the project. The firm also spent $21,600 on equipment to start the project. This equipment will have a book value of $4,340 at the end of the project, but can be sold for $5,430. The tax rate is 35 percent. What is the Year 4 cash flow? Version 1 18

A) $54,880 B) $18,392 C) $56,399 D) $57,162 E) $48,699

47) A project with a life of 9 years is expected to provide annual sales of $330,000 and costs of $229,000. The project will require an investment in equipment of $595,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-10 percent. The tax rate is 40 percent. What is the annual operating cash flow for the best-case scenario?

A) $120,584 B) $53,504 C) $89,204 D) $104,894 E) $94,140

48) A 6-year project is expected to provide annual sales of $213,000 with costs of $96,500. The equipment necessary for the project will cost $350,000 and will be depreciated on a straightline method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 40 percent. What is the annual operating cash flow for the worst-case scenario?

A) $42,045 B) $121,088 C) $51,363 D) $65,378 E) $88,503 Version 1 19

49) A 9-year project is expected to generate annual sales of 8,300 units at a price of $70 per unit and a variable cost of $41 per unit. The equipment necessary for the project will cost $269,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $160,000 per year and the tax rate is 34 percent. How sensitive is the operating cash flow to a $1 change in the per unit sales price?

A) $3,970 B) $4,930 C) $3,010 D) $3,490 E) $5,478

50) Sun Brite has a new pair of sunglasses it is evaluating. The company expects to sell 6,800 pairs of sunglasses at a price of $163 each and a variable cost of $115 each. The equipment necessary for the project will cost $355,000 and will be depreciated on a straight-line basis over the 7-year life of the project. Fixed costs are $290,000 per year and the tax rate is 34 percent. How sensitive is the operating cash flow to a $1 increase in variable costs per pairs of sunglasses?

A) −$4,039 B) −$4,488 C) −$4,987 D) $4,488 E