17. McCarver Inc. is considering the following mutually exclusive projects:

 

 

Project A

Project B

Year

Cash Flow

Cash Flow

0

−$5,000

−$5,000

1

400

4,000

2

600

1,900

3

3,000

800

4

5,000

200

 

 

 

 

At what cost of capital will the net present value of the two projects be the same? (That is, what is the "crossover" rate?) Round it to one decimal place in percentage, e.g., 10.5.

 

18. Johnson Jets is considering two mutually exclusive projects. Project A has an up-front cost of $124,000 (CF₀ = -124,000), and produces positive after-tax cash inflows of $30,000 a year at the end of each of the next six years. Project B has an up-front cost of $59,000(CF₀ = -59,000) and produces after-tax cash inflows of $20,000 a year at the end of the next four years. Assuming the cost of capital is 10.5%, 

1. Compute the equivalent annual annuity of project A in box 1. Round the EAA to a whole dollar without the dollar sign or comma, e.g., 3452 (non-negative number)

2. Compute the equivalent annual annity of project B in box 2. The same format as box 1.

3. Decide which project to undertake in box 3, either Project A or Project B.

 

 

should have three answers:

1.

2.

3.

 

 

 

 

24. The Hot Air Company is contemplating the replacement of its old printing machine with a new model costing $ 6 0,000. The old machine, which originally cost $40,000, has 6 years of expected life remaining and a current book value of $ 26 ,000 versus a current market value of $ 21 ,000. The firm's corporate tax rate is 40 percent. If the company sells the old machine at market value, what is the initial after-tax outlay for the new printing machine? Cash outflow must be a negative number!Round it a whole dollar and do not include the $ sign.

 

25. The CEO of Network World Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $ 3 0,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $ 4 ,000. The computer would increase the firm's before-tax revenues by $30,000 per year but would also increase operating costs by $ 13 ,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.

 

What is the net cash flow at t = 0? Cash outflow should be in negative number, e.g., -33,000, and do not include the $ sign.

 

 

26. You are evaluating the proposed acquisition of a new computer. The computer's price is $ 5 0,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $2,000. The computer would increase the firm's before-tax revenues by $ 29 ,000 per year but would also increase operating costs by $ 20 ,000 per year. The computer is expected to be used for 3 years and then be sold for $25,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.

What is the operating cash flow in Year 2? Round it to a whole dollar, and do not include the $ sign. 

 

 

Year

MACRS Percent

1

0.33

2

0.45

3

0.15

4

0.07

 

 

 

27. You are evaluating the proposed acquisition of a new computer. The computer's price is $40,000, and it falls into the MACRS 3-year class. Purchase of the computer would require an increase in net operating working capital of $ 3 ,000. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for 3 years and then be sold for $ 24 ,000. The firm's marginal tax rate is 40 percent, and the project's cost of capital is 14 percent.

What is the total value of the terminal year non-operating cash flows at the end of Year 3? Round it to a whole dollar, and do not include the $ sign. 

 

 

Year

MACRS Percent

1

0.33

2

0.45

3

0.15

4

0.07

 

28.

AccountingQueen

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Status NEW Posted 20 Aug 2017 01:08 PM My Price 8.00

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