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16 Jun 2019

What is the NPV of project A? The project would require an initial investment in equipment of 56,000 dollars and would last for either 3 years or 4 years (the date when the project ends will not be known until it happens and that will be when the equipment stops working in either 3 years from today or 4 years from today). Annual operating cash flows of 20,720 dollars per year are expected each year until the project ends in either 3 years or 4 years. In 1 year, the project is expected to have an after-tax terminal value of 45,007 dollars. The cost of capital for this project is 10.82 percent.

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Lelia Lubowitz
Lelia LubowitzLv2
17 Jun 2019

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44. Middlefield Motors is evaluating project Z. The project would require an initial investment of 55,000 dollars that would be depreciated to 10,500 dollars over 7 years using straight-line depreciation. The project is expected to have operating cash flows of 18,500 dollars per year forever. Middlefield Motors expects the project to have an after-tax terminal value of 373,000 dollars in 4 years. The tax rate is 30 percent. What is (X+Y)/Z if X is the project’s relevant expected cash flow in year 4, Y is the project’s relevant expected cash flow in year 5, and Z is the project’s relevant expected cash flow in year 3? Round your answer to 2 decimal places (for example, 2.89, 0.70, or 1.00).

35.Fairfax Pizza is evaluating a project that would require an initial investment in equipment of 400,000 dollars and that is expected to last for 9 years. MACRS depreciation would be used where the depreciation rates in years 1, 2, 3, and 4 are 44 percent, 34 percent, 16 percent, and 6 percent, respectively. For each year of the project, Fairfax Pizza expects relevant, incremental annual revenue associated with the project to be 600,000 dollars and relevant, incremental annual costs associated with the project to be 520,000 dollars. The tax rate is 50 percent. What is (X plus Y) if X is the relevant operating cash flow (OCF) associated with the project expected in year 1 of the project and Y is the relevant OCF associated with the project expected in year 4 of the project?

40.For project A, the cash flow effect from the change in net working capital is expected to be -500 dollars at time 2, the level of net working capital is expected to be 1,200 dollars at time 0, and the level of net working capital is expected to be 1,800 dollars at time 2. What is the cash flow effect from the change in net working capital expected to be at time 1?

Only answers should be fine. Thank you! :)

Fairfax Paint is evaluating a 2-year project that would involve buying equipment for 380,000 dollars that would be depreciated to 50,000 dollars over 2 years using straight-line depreciation. Cash flows from capital spending would be 0 dollars in year 1 and 63,000 dollars in year 2. To finance the project, Fairfax Paint would borrow 380,000 dollars. The firm would receive 380,000 dollars from the bank today and would pay the bank $0 in 1 year and 429,400 dollars in 2 years (consisting of an interest payment of 49,400 dollars and a principal payment of 380,000 dollars). Relevant annual revenues are expected to be 346,000 dollars in year 1 and 306,000 dollars in year 2. Relevant annual costs are expected to be 78,000 dollars in year 1 and 79,000 dollars in year 2. The tax rate is 50 percent. The cost of capital is 9.42 percent. What is the net present value of the project?

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