# Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to

## Question:

Winnebago Corp. currently sells 40,000 motor homes per year at $78,000 each, and 17,000 luxury motor coaches per year at $115,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 35,000 of these campers per year at $19,000 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 2,500 units per year, and reduce the sales of its motor coaches by 1,200 units per year. What is the amount to use as the annual sales figure when evaluating this project? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.)

An asset used in a four-year project falls in the five-year MACRS class for tax purposes. The asset has an acquisition cost of $6,200,000 and will be sold for $1,400,000 at the end of the project. If the tax rate is 30 percent, what is the aftertax salvage value of the asset? Refer to Table 10.7. (Do not round intermediate calculations. Round your answer to the nearest whole dollar. Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.)

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.91 million. 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 $2,150,000 in annual sales, with costs of $845,000. If the tax rate is 30 percent, what is the OCF for this project? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g. 1,234,567.)

Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.88 million. 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 $2,140,000 in annual sales, with costs of $835,000. The tax rate is 35 percent and the required return on the project is 10 percent. What is the project’s NPV? (Enter your answer in dollars, not millions of dollars, e.g. 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $63,000 at the end of that time. You will save $225,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $78,000 (this is a one-time reduction). If the tax rate is 35 percent, what is the IRR for this project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $208,000, has a four-year life, and requires $67,000 in pretax annual operating costs. System B costs $294,000, has a six-year life, and requires $61,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will |

Calculate the NPV for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |

Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $236,000, has a four-year life, and requires $74,000 in pretax annual operating costs. System B costs $336,000, has a six-year life, and requires $68,000 in pretax annual operating costs. Suppose LISC always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 30 percent and the discount rate is 9 percent.

Calculate the EAC for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Fill in the missing numbers for the following income statement. (Input all amounts as positive values. Do not round intermediate calculations.) |

Sales | $ | 692,900 | |

Costs | 447,800 | ||

Depreciation | 120,400 | ||

EBIT | $ | ||

Taxes (35%) | |||

Net income | $ | ||

Calculate the OCF. |

OCF | $ |

What is the depreciation tax shield? |

Depreciation tax shield | $ |

You are evaluating two different silicon wafer milling machines. The Techron I costs $261,000, has a three-year life, and has pretax operating costs of $70,000 per year. The Techron II costs $455,000, has a five-year life, and has pretax operating costs of $43,000 per year. For both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $47,000. If your tax rate is 35 percent and your discount rate is 9 percent, compute the EAC for both machines. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

**Related Book For**

## Essentials of Corporate Finance

ISBN: 9780073382463

7th edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan