1. Parker & Stone, Incorporated, is looking at setting up a new manufacturing plant in South Park to produce garden tools. The company bought some land six years ago for $7.5 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent facilities elsewhere. If the land were sold today, the company would net $10.3 million. The company now wants to build its new manufacturing plant on this land; the plant will cost $21.5 million to build, and the site requires $900,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

2. An asset used in a four-year project falls in the five-year MACRS class (MACRS schedule) for tax purposes. The asset has an acquisition cost of $8,200,000 and will be sold for $2,020,000 at the end of the project. If the tax rate is 24 percent, what is the aftertax salvage value of the asset?

3. Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,350,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,470,000 in annual sales, with costs of $1,490,000. If the tax rate is 24 percent, what is the OCF for this project?

4. Esfandairi Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2,430,000. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $2,770,000 in annual sales, with costs of $1,790,000. Assume the tax rate is 24 percent and the required return on the project is 10 percent. What is the projects NPV?

5.

We are evaluating a project that costs $1,710,000, has a 6-year life, and has no salvage value. Assume that depreciation is straight-line to zero over the life of the project. Sales are projected at 86,400 units per year. Price per unit is $38.01, variable cost per unit is $23.25, and fixed costs are $818,000 per year. The tax rate is 21 percent, and we require a return of 9 percent on this project.

a.) Calculate the base-case operating cash flow and NPV.

Note: Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.

b.) What is the sensitivity of NPV to changes in the sales figure?

Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.

c.) If there is a 200-unit decrease in projected sales, how much would the NPV change?

Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

d.) What is the sensitivity of OCF to changes in the variable cost figure?

Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.

e.) If there is a $1 decrease in estimated variable costs, how much would the OCF change?