10.

RAK Corp. is evaluating a project with the following cash flows:

Year Cash Flow

0 –$ 28,600

1 10,800

2 13,500

3 15,400

4 12,500

5 – 9,000

________________________________________

The company uses an interest rate of 9 percent on all of its projects.

Calculate the MIRR of the project using the discounting approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

MIRR %

Calculate the MIRR of the project using the reinvestment approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

MIRR %

Calculate the MIRR of the project using the combination approach. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

MIRR %

11.

Winnebagel Corp. currently sells 42,000 motor homes per year at $63,000 each, and 16,800 luxury motor coaches per year at $119,000 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 26,600 of these campers per year at $16,800 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 6,300 units per year, and reduce the sales of its motor coaches by 1,260 units per year.

Required :

What is the amount to use as the annual sales figure when evaluating this project?

rev: 09_18_2012

A $728,532,000

B $659,148,000

C $993,720,000

D $446,880,000

F $693,840,000

12. Consider the following income statement:

Sales $ 1,021,888

Costs 664,832

Depreciation 151,200

Taxes 33 %

________________________________________

Required:

(a ) Calculate the EBIT.

(b ) Calculate the net income.

(c ) Calculate the OCF.

(d ) What is the depreciation tax shield?

13. A proposed new project has projected sales of $130,900, costs of $66,220, and depreciation of $4,620. The tax rate is 34 percent. Calculate operating cash flow using the four different approaches.

Requirement 1:

The common calculation Approach (Do not round your intermediate calculations):

Requirement 2:

The Bottom-Up Approach (Do not round your intermediate calculations):

Requirement 3:

The Top-Down Approach (Do not round your intermediate calculations):

Requirement 4:

The Tax-Shield Approach (Do not round your intermediate calculations):

14.Summer Tyme, Inc., is considering a new 5-year expansion project that requires an initial fixed asset investment of $4.428 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worthless. The project is estimated to generate $3,936,000 in annual sales, with costs of $1,574,400.

Required:

If the tax rate is 32 percent, what is the OCF for this project?

rev: 09_18_2012

A $1,003,680

B $2,361,600

C $1,794,816

D $1,983,744

F $1,889,280

15.

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $3.5 million. The fixed asset falls into the 3-year MACRS class (MACRS Table) and will have a market value of $268,800 after 3 years. The project requires an initial investment in net working capital of $384,000. The project is estimated to generate $3,072,000 in annual sales, with costs of $1,228,800. The tax rate is 32 percent and the required return on the project is 17 percent. (Do not round your intermediate calculations.)

Required:

(a) What is the project’s year 0 net cash flow?

(b) What is the project’s year 1 net cash flow?

(c) What is the project’s year 2 net cash flow?

(d) What is the project’s year 3 net cash flow?

(e) What is the NPV?

16.

Dog Up! Franks is looking at a new sausage system with an installed cost of $413,400. This cost will be depreciated straight-line to zero over the project’s 8-year life, at the end of which the sausage system can be scrapped for $63,600. The sausage system will save the firm $127,200 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,680.

Required:

If the tax rate is 31 percent and the discount rate is 12 percent, what is the NPV of this project?

rev: 09_18_2012

A $102,208.94

B $107,319.38

C $84,484.92

D $102,177.67

F $119,901.68

17.

Your firm is contemplating the purchase of a new $1,999,200 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $178,500 at the end of that time. You will save $785,400 before taxes per year in order processing costs and you will be able to reduce working capital by $139,442 (this is a one-time reduction).

Required :

If the tax rate is 34 percent, what is the IRR for this project? (Do not round your intermediate calculations.)

rev: 09_18_2012

A 22.15%

B 21.02%

C 23.26%

D 18.39%

F 21.26%

18.

Your firm is contemplating the purchase of a new $943,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $91,800 at the end of that time. You will be able to reduce working capital by $127,500 (this is a one-time reduction). The tax rate is 32 percent and your required return on the project is 21 percent and your pretax cost savings are $300,550 per year.

Requirement 1:

What is the NPV of this project?

Requirement 2:

What is the NPV if the pretax cost savings are $417,400 per year?

Requirement 3:

At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

19.

A 10-year project has an initial fixed asset investment of $9,240, an initial NWC investment of $880, and an annual OCF of -$14,080. The fixed asset is fully depreciated over the life of the project and has no salvage value.

Required:

If the required return is 13 percent, what is the project’s equivalent annual cost, or EAC? (Do not round your intermediate calculations.)

rev: 09_18_2012

A $-15,102.37

B $-13,512.65

C $-16,692.10

D $-15,897.24

F $-8,626.23

20.

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,080,000 and will last for 5 years. Variable costs are 39 percent of sales, and fixed costs are $125,000 per year. Machine B costs $4,240,000 and will last for 8 years. Variable costs for this machine are 26 percent of sales and fixed costs are $71,000 per year. The sales for each machine will be $8.48 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis.

Required:

(a) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.)

(b) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.)