need an answer to question number 2

connect o sem the straight line ke and prices the company ons 1-10) QUESTIONS AND PROBLEMS 1. Calculating Project NPV Creole Restaurant is considering the purchase of a 333.000 sout The souffle maker has an economic life of six years and will be fully depreciated by the stra method. The machine will produce 2,400 souffles per year, with each costing $2 to make a at $7. Assume that the discount rate is 14 percent and the tax rate is 34 percent. Should the make the purchase? 2. Calculating Project NPV The Freeman Manufacturing Company is considering a new invest Financial projections for the investment are tabulated below. The corporate tax rate is 34 per Assume all sales revenue is received in cash, all operating costs and income taxes are paid all cash flows occur at the end of the year. All net working capital is recovered at the end of th ring a new investment paid in cash and he end of the project YEAR O YEAR 1 YEAR 2 YEAR 3 YEAR 4 $31,000 Investment Sales revenue Operating costs Depreciation Net working capital spending $14,200 2.100 7,750 175 $15.900 2,100 7.750 250 $15,700 2.100 7.750 275 $12.900 2.100 7.750 450 a. Compute the incremental net income of the investment for each year. b. Compute the incremental cash flows of the investment for each year. c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project? 3. Calculating Project NPV Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $3,950,000. The fixed asset will be depreciate straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate $3.175,000 in annual sales, with costs of $1,455,000. The tax rate is 35 perces and the required return is 10 percent. What is the project's NPV? 4. Calculating Project Cash Flow from Assets In the previous problem, suppose the project requires an initial investment in net working capital of $450.000 and the fixed asset will have a market value of $575,000 at the end of the project. What is the project's Year O net cash flow? Year 1? Year 2? Year 37 What is the new NPV? 5. NPV and Modified ACRS In the previous problem, suppose the fixed asset actually falls into the three year MACRS class. All the other facts are the same. What is the project's Year 1 net cash flow now? Yer 2? Year 3? What is the new NPV? 6. Project Evaluation Your firm is contemplating the purchase of a new $625,000 computer-based or entry system. The system will be depreciated straight-line to zero over its five-year life. It will be wort $60.000 at the end of that time. You will save $235.000 before taxes per year in order processing.com and you will be able to reduce working capital by $55.000 (this is a one time reduction). If the taxe 35 percent, what is the IRR for this project? Project Evaluation Symon Meats is looking at a new $267.000. This cost will be