Problems 1-5

Homework Set 5: Capital Budgeting Applications Name Problem 1 Assume your firm has an unused machine that originally cost $75,000, has a book value of $20,000, and is currently worth $35,000. Ignoring taxes, the correct opportunity cost for this machine in capital budgeting decisions is: Problem 2 What is the net effect on a firm's working capital if a new project requires: 50,000 increase in inventory, $10,000 increase in accounts receivable, $35,000 increase in machinery, and a $20,000 increase in accounts payable? Problem 3 If a project is expected to increase inventory by $13,000, increase accounts payable by $10,000, and decrease accounts receivable by $1,700, what effect does working capital have during the life of the project? Problem 4 For a profitable firm in the 30% marginal tax bracket with $150,000 of annual depreciation expense, the depreciation tax shield would be: Problem 5 What is the present value at a 15% discount rate of the depreciation tax shield for a firm in the 35% tax bracket that purchases a $50,000 asset being depreciated straight-line over a five-year life to a