Reference no: EM132540891
1)A project has an initial cost of $65,000, expected net cash inflows of $12,000 per year for 12 years, and a cost of capital of 14%. What is the project's NPV? (Hint: Begin by constructing a time line.) Do not round intermediate calculations. Round your answer to the nearest cent.
2) Davis Industries must choose between a gas-powered and an electric-powered forklift truck for moving materials in its factory. Because both forklifts perform the same function, the firm will choose only one. (They are mutually exclusive investments.) The electric-powered truck will cost more, but it will be less expensive to operate; it will cost $22,000, whereas the gas-powered truck will cost $17,500. The cost of capital that applies to both investments is 12%. The life for both types of truck is estimated to be 6 years, during which time the net cash flows for the electric-powered truck will be $6,290 per year, and those for the gas-powered truck will be $5,000 per year. Annual net cash flows include depreciation expenses.
Calculate the NPV and IRR for each type of truck, and decide which to recommend. Do not round intermediate calculations. Round the monetary values to the nearest dollar and percentage values to two decimal places.
3) The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:
Projected sales$ 24 million
Operating costs (not including depreciation )$8 million
Depreciation $6 million
Interest expense $4 million
The company faces a 25% tax rate. What is the project's operating cash flow for the first year (t = 1)?
4) Allen Air Lines must liquidate some equipment that is being replaced. The equipment originally cost $18.9 million, of which 85% has been depreciated. The used equipment can be sold today for $5.4 million, and its tax rate is 25%. What is the equipment's after-tax net salvage value?
The Campbell Company is considering adding a robotic paint sprayer to its production line. The sprayer's base price is $900,000, and it would cost another $24,500 to install it. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $579,000. The MACRS rates for the first three years are 0.3333, 0.4445, and 0.1481. The machine would require an increase in net working capital (inventory) of $14,500. The sprayer would not change revenues, but it is expected to save the firm $344,000 per year in before-tax operating costs, mainly labor. Campbell's marginal tax rate is 25%. (Ignore the half-year convention for the straight-line method.) Cash outflows, if any, should be indicated by a minus sign. Do not round intermediate calculations.
-What is the Year-0 net cash flow?
-What are the net operating cash flows in Years 1, 2, and 3?
-Year 1:$ Year 2:$ Year 3:$
-What is the additional Year-3 cash flow (i.e, the after-tax salvage and the return of working capital)?A)If the project's cost of capital is 12%, what is the NPV of the project?
B) Should the machine be purchased?
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