Parker 8: 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 $8.3 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 $111 million, The company now wants to build its new manufacturing plant on this land; the plant will cost $223 million to build, and the site requires $980Y000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in xed assets when evaluating this project? Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1.234.567. Winnebagel Corporation currently sells 29,400 motor homes per year at $80,000 each and 8,400 luxury motor coaches per year at $122,000 each, The company wants to introduce a new portable camper to ll out its product line; it hopes to sell 24,400 otthese campers per year at $26,000 each. An independent consultant has determined that ifthe company introduces the new campers, it should boost the sales of its existing motor homes by 4,000 units per year and reduce the sales of its motor coaches by 990 units per year. What is the amount to use as the annual sales figure when evaluating this project? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g.. 32. 3 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 $7,700,000 and will be sold for $1,820,000 at the end of the project. If the tax rate is 24 percent, what is the aftertax salvage value of the asset? 2 Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. points Aftertax salvage value Esfandairi Enterprises is considering a new three-year expansion project that requires an initial xed asset investment of $3,000,000. The xed asset will be depreciated straightline to zero over its threeyear tax life, after which time it will be worthless. The project is estimated to generate $3,250,000 in annual sales, with costs of $2,2?0,000. If the tax rate is 22 percent, what is the OCF for this project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. OCF Stinnett Transmissions, Incorporated, has the following estimates for its new gear assembly project: Price = $1,110 per unit variable cost = $330 per unit; fixed costs = $4.84 million; quantity = ?'4,000 units. Suppose the company believes all of its estimates are accurate onlyr to within :13 percent. What values should the company use for the four variables given here when it performs its best-case and worstscase scenario analysis? Note: Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g.,1,234,567. Scenario Unit Sales Unit Price Unit Variable Cost Fixed Costs Base case r4000 $ 1,110 S 330 S 4,840,000 Best case Worst case We are evaluating a project that costs $2,100,000, has a 7-year life, and has no salvage value. Assume that depreciation is straightline to zero over the lite ofthe project. Sales are projected at 98,600 units per year. Price per unit is $37.79, variable cost per unit is $23.90, and fixed costs are $85?,000 per year. The tax rate is 24 percent, and we require a return of 10 percent on this project. paints 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. E b. What is the sensitivity of NPV to changes in the sales figure? 8 k Note: Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161. e 00 _ c. If there is a BOOunit decrease in projected sales, how much would the NPV change? E! Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer Print to 2 decimal places, e.g., 32.16. [[1 d. What is the sensitivity of OCF to changes in the variable cost gure? R f I Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer 9 erences 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? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. a. Base-case operating cash flow Base-case NPV . NPV sensitivity NP'v' change . OCF senSItIVIty .OCF change mnpa' References Pappy's Potato has come up with a new product, the Potato Pet (they are freezeedried to last longer}. Pappy's paid $205,000 for a marketing survey to determine the Viability of the product It is felt that Potato Pet will generate sales of $920,000 per year. The fixed costs associated with this will be $238,000 per year, and variable costs will amount to 18 percent of sales. The equipment necessary for production of the Potato Pet will cost $1,020,000 and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt the sales will end quickly]. This is the only initial cost for the production. Pappy's has a tax rate of 22 percent and a required return of13 percent. a. Calculate the payback period for this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. Calculate the NPV for this project. Note: Do not round intermediate calculations and round your answer to 2 decimal places. e.g.. 32.16. c. Calculate the IRR for this project. Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16. a. Payback period years b. NPV c. IRR %

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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 $8.3 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 $11.1 million. The company now wants to build its new manufacturing plant on this land; the plant will cost $22.3 million to build, and the site requires $980,000 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? Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567. Cash flow 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 $8.3 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 $11.1 million. The company now wants to build its new manufacturing plant on this land; the plant will cost $22.3 million to build, and the site requires $980,000 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? Note: Do not round intermediate calculations and enter your answer in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567. Cash flow