BUSI 530 Week 4 HomeWork 4 (SOLUTIONS) – Liberty University
\$50.00
: 0
• Description

[kkstarratings]Question 1

The following are the cash flows of two projects:

Question 2

The following are the cash flows of two projects:

Question 3

The following are the cash flows of two projects:

Question 4

The following are the cash flows of two projects:

Question 5

A project that costs \$3,300 to install will provide annual cash flows of \$830 for each of the next 6 years.

Question 6

A project that costs \$2,400 to install will provide annual cash flows of \$590 for the next 5 years. The firm accepts projects with payback periods of less than 5 years

Question 7

Consider projects A and B:

Question 8

a. Calculate the net present value of the following project for discount rates of 0, 50, and 100%: (Leave no cells blank ­ be certain to enter “0” wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Question 9

A precision lathe costs \$14,000 and will cost \$24,000 a year to operate and maintain. If the discount rate is 12% and the lathe will last for 3 years, what is the equivalent annual cost of the tool? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Question 10

A new project will generate sales of \$73.6 million, costs of \$41.6 million, and depreciation expense of \$9.6 million in the coming year. The firm’s tax rate is 30%.

Question 11

Canyon Tours showed the following components of working capital last year:

Question 12

Tubby Toys estimates that its new line of rubber ducks will generate sales of \$6.7 million, operating costs of \$3.7 million, and a depreciation expense of \$0.7 million. Assume the tax rate is 40%.

Question 13

The owner of a bicycle repair shop forecasts revenues of \$180,000 a year. Variable costs will be \$55,000, and rental costs for the shop are \$35,000 a year. Depreciation on the repair tools will be \$15,000. Prepare an income statement for the shop based on these estimates. The tax rate is 30%. (Input all amounts as positive values.)

Question 14

The owner of a bicycle repair shop forecasts revenues of \$188,000 a year. Variable costs will be \$57,000, and rental costs for the shop are \$37,000 a year. Depreciation on the repair tools will be \$17,000. The tax rate is 40%.

Question 15

A house painting business had revenues of \$17,600 and expenses of \$10,600. There were no depreciation expenses. However, the business reported the following changes in working capital:

Question 16

Talia’s Tutus bought a new sewing machine for \$85,000 that will be depreciated using the MACRS

Question 17

The only capital investment required for a small project is investment in inventory. Profits this year were \$9,400, and inventory increased from \$5,300 to \$7,600. What was the cash flow from the project?

Question 18

Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost \$42.5 million, has been depreciated straight­line over an assumed tax life of 5 years, but it can be sold now for \$18.5 million. The firm’s tax rate is 30%. What is the after­tax cash flow from the sale of the equipment? (Enter your answer in millions rounded to 2 decimal places.)

Question 19

Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for \$8,500 and sell its old washer for \$4,500. The new washer will last for 5 years and save \$2,200 a year in expenses. The opportunity cost of capital is 14%, and the firm’s tax rate is 30%. What is the equivalent annual cost of the washer, if the firm uses straight­line depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Question 20

Johnny’s Lunches is considering purchasing a new, energy­efficient grill. The grill will cost \$38,000 and will be depreciated according to the 3­year MACRS schedule. It will be sold for scrap metal after 3 years for \$9,500. The grill will have no effect on revenues but will save Johnny’s \$19,000 per year in energy expenses. The tax rate is 30%. Use MACRS depreciation schedule.

Question 21

Revenues generated by a new fad product are forecast as follows:

Question 22

Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for \$25 million. The system will last 5 years. Do­It­Right sells a sturdier but more expensive system for \$28 million; it will last for 7 years. Both systems entail \$3 million in operating costs; both will be depreciated straight­line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm’s tax rate is 40%, and the discount rate is 16%.

Question 23

The following table presents sales forecasts for Golden Gelt Giftware. The unit price is \$40. The unit cost of the giftware is \$20.

Question 24

In a slow year, Deutsche Burgers will produce 2.0 million hamburgers at a total cost of \$3.6 million. In a good year, it can produce 4.5 million hamburgers at a total cost of \$5.1 million. What are the variable and fixed costs of hamburger production? (Enter your answers in dollars not in millions. Round “Variable cost” to 2 decimal places.)

Question 25

In a slow year, Deutsche Burgers will produce 5 million hamburgers at a total cost of \$5.2 million. In a good year, it can produce 10 million hamburgers at a total cost of \$6.2 million

Question 26

A project currently generates sales of \$11.5 million, variable costs equal to 40% of sales, and fixed costs of \$3.5 million. The firm’s tax rate is 35%.

Question 27

A project currently generates sales of \$11.5 million, variable costs equal to 40% of sales, and fixed costs of \$2.2 million. The firm’s tax rate is 40%.

Question 28

Emperor’s Clothes Fashions can invest \$6 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 7 million jars of makeup a year. Fixed costs are \$1.8 million a year, and variable costs are \$2.5 per jar. The product will be priced at \$3.4 per jar. The plant will be depreciated straight­line over 5 years to a salvage value of zero. The opportunity cost of capital is 12%, and the tax rate is 40%

Question 29

The most likely outcomes for a particular project are estimated as follows:

Question 30

Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for \$120. The materials cost for a standard diamond is \$60. The fixed costs incurred each year for factory upkeep and administrative expenses are \$211,000. The machinery costs \$2.0 million and is depreciated straight­line over 10 years to a salvage value of zero

Question 31

Modern Artifacts can produce keepsakes that will be sold for \$50 each. Nondepreciation fixed costs are \$1,500 per year and variable costs are \$30 per unit.

Question 32

A silver mine can yield 16,000 ounces of silver at a variable cost of \$34 per ounce. The fixed costs of operating the mine are \$56,000 per year. In half the years, silver can be sold for \$50 per ounce; in the other years, silver can be sold for only \$25 per ounce. Ignore taxes

Question 33

An auto plant that costs \$170 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of \$230 million if the line is successful but only \$100 million if it is unsuccessful. You believe that the probability of success is only about 50%. You learn whether the line is successful immediately after building the plant

Question 34

Hit or Miss Sports is introducing a new product this year. If its see­at­night soccer balls are a hit, the firm expects to be able to sell 54,000 units a year at a price of \$60 each. If the new product is a bust, only 34,000 units can be sold at a price of \$55. The variable cost of each ball is \$30, and fixed costs are zero. The cost of the manufacturing equipment is \$6.9 million, and the project life is estimated at 10 years. The firm will use straight­line depreciation over the 10­year life of the project. The firm’s tax rate is 35%, and the discount rate is 10%.

Question 35

Hit or Miss Sports is introducing a new product this year. If its see­at­night soccer balls are a hit, the firm expects to be able to sell 54,000 units a year at a price of \$60 each. If the new product is a bust, only 34,000 units can be sold at a price of \$55. The variable cost of each ball is \$30, and fixed costs are zero. The cost of the manufacturing equipment is \$6.9 million, and the project life is estimated at 10 years. The firm will use straight­line depreciation over the 10­year life of the project. The firm’s tax rate is 35%, and the discount rate is 10%.

Hit or Miss Sports can expand production if the project is successful. By paying its workers overtime, it can increase production by 29,000 units; the variable cost of each ball will be higher, however, equal to \$35 per unit. By how much does this option to expand production increase the NPV of the project? (Assume the probability the see­at­night soccer balls will be a hit is 50%). (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Question 36