Additional Problems Ch 9, 10, 11 (17 Questions, Page 1 through 4)

#1

What is the net present value of a project with the following cash flows if the required rate of return is 12 percent? Year 0 investment of $42,398, Year 1 inflow of $13,407, Year 2 inflow of $21,219, Year 3 inflow of $17,800.

#2

For the above question, what is the IRR for the project?

#3

You are analyzing two mutually exclusive projects. The required rate of return is 14.6 percent per year for project A and 13.8 percent per year for project B. Which project should you accept and why? Here are the cash flows for both projects. Although both projects require an initial $50,000 investment in Year 0 (now), the Year 1 through 3 cash inflows are different. For the project A, Year 1 through 3 cash inflows are $24,800, $36,200, and $21,000. For the project B, Year 1 through 3 cash inflows are $41,000, $20,000, and $10,000.

#4

It will cost $6,000 to acquire an ice cream cart. Cart sales are expected to be $3,600 a year for three years. After the three years, the cart is expected to be worthless as the expected life of the refrigeration unit is only three years. If you want the project to produce positive cash flows in 3 years (i.e., the payback period cannot be more than three years), should the cart be purchased?

USE THE FOLLOWING INFORMATION FOR QUESTIONS 5-6

An investment project has the following cash flows: Year 0 requires an investment of $1,000,000; Year 1 through 8 will generate cash inflows of $200,000 each year.

#5

If the required rate of return is 12%, what decision should be made using NPV?

#6

a) What is the IRR?

b) What decision should be made if the required rate of return is 10%?

#7.

Which methods result always takes precedence over other methods?

A. NPV need explaination)

B. IRR

C. Payback Period

D. None of them should have precedence over any of the others

#8

Which method produces an erroneous result when a project has unconventional cash flows?

A. NPV

B. IRRneed explaination)

C. Payback Period

D. None of them

#9

Which method should NEVER be used as a decision-making method?

A. NPV

B. IRR

C. Payback Period

D. None of themneed explaination)

#10

Marie's Fashions is considering a project that will require $28,000 in net working capital and $87,000 in fixed assets. The project is expected to produce annual sales of $75,000 with associated costs of $57,000. The project has a 5-year life. The company uses straight-line depreciation to a zero-book value over the life of the project. The tax rate is 30 percent. What is the operating cash flow for this project?

A. -$1,520

B. -$580

C. $420

D. $15,680

E. $17,820need explaination)

#11

Bruno's Lunch Counter is expanding and expects operating cash flows of $26,000 a year for 4 years as a result. This expansion requires an investment of $39,000 in fixed asset at the beginning (this investment does require depreciation but is worthless in the end with zero cash flow implication). In addition, the project requires $3,000 of net working capital, 100% of which will be recovered at the end of the project. What is the net present value of this expansion project at a required rate of return of 16 percent?

A. $18,477.29

B. $21,033.33

C. $28,288.70

D. $29,416.08

E. $32,409.57need explaination)

#12

Jasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of $73,000 a year for 7 years. At the beginning of the project, $10,000 in additional net working capital will be needed. All net working capital will be recovered at the end of the project. The initial cost of the molding machine is $249,000. The equipment will be depreciated straight-line to a zero-book value over the life of the project. The equipment will be salvaged at the end of the project creating a $48,000 after-tax cash flow. What is the net present value of this project given a required return of 14.5 percent?

A. $71,801.34need explaination)

B. $79,418.80

C. $82,336.01

D. $84,049.74

E. $87,925.54

#13

Kelly's Corner Bakery purchased a lot in Oil City 6 years ago at a cost of $280,000. Today, that lot has a market value of $340,000. At the time of the purchase, the company spent $15,000 to level the lot and another $20,000 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1.47 million. What amount should be used as the initial cash flow for this project?

A. -$1,470,000

B. -$1,810,000need explaination)

C. -$1,825,000

D. -$1,845,000

E. -$1,860,000

#14

Precise Machinery is analyzing a proposed project. The company expects to sell 2,100 units. The expected variable cost per unit is $260 and the expected fixed costs are $589,000. The depreciation expense is $129,000. The sales price is estimated at $755 per unit. The tax rate is 35 percent.

Part a. What is operating cash flow for the project?

Part b. What is the accounting break-even quantity?

Part c. What is the cash break-even quantity?

Part d. What is the financial break-even point? (Assume that the operating cash flow calculated in part a. is the OCF where NPV is zero.)

#15

At the accounting break-even point, Swiss Mountain Gear sells 14,600 ski masks at a price of $10 each. At this level of production, the depreciation is $58,000 and the variable cost per unit is $4. What is the amount of the fixed costs at this production level?

#16

The Coffee Express has computed its fixed costs to be $0.34 for every cup of coffee it sells given annual sales of 212,000 cups. Depreciation is $56,920, and Operating Cash Flow where NPV equals zero is 94,244. The sales price is $1.49 per cup while the variable cost per cup is $0.63. The companys tax rate is 30%. How many cups of coffee must it sell to break-even on an accounting basis? How many cups of coffee must it sell to break-even on a financial basis?

#17

A project requires an initial investment of $1,000,000 and is depreciated straight-line to zero salvage over its 10-year life. The project produces items that sell for $1,000 each, with variable costs of $700 per unit. Fixed costs are $350,000 per year. What is the accounting break-even quantity?