1. Which of the following cash flows are NOT considered in the calculation of the initial outlay for a capital investment proposal?
- Equipment Cost
- All of the above should be considered
- Increase in net working capital requirements
- Cost of Installing new equipment
- Interest expense related to financing a project
2. ABC Company purchased some new equipment 2 years ago for $175,870. Today, it is selling this equipment for $73,998. What is the aftertax cash flow from this sale if the tax rate is 25 percent? The MACRS allowance percentages are as follows, commencing with year one: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.
3. ABC Inc. has estimated the following revenues and expenses related phase I of a proposed new housing development? Incremental sales= $682,242, total cash expenses $341,299, depreciation $32,351, taxes 27%. What are the operating cash flows?
4. ABC Company purchased $36,598 of equipment 5 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $7,870. What is the aftertax cash flow from this sale if the tax rate is 38 percent? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.
5. ABC Company purchased $19,480 of equipment 4 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $6,379. What is the aftertax cash flow from this sale if the tax rate is 36 percent? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.
6. The net working capital invested in a project is generally:
- depreciated to a zero balance over the life of the project.
- an opportunity cost.
- recovered at the start of the project.
- a sunk cost.
- recovered at the end of the project.
7. ABC Compay has the following projections for Year 1 of a capital budgeting project.
Year 1 Incremental Projections:
Sales $421,608
Variable Costs $25,544
Fixed Costs $43,673
Depreciation Expense $93,419
Tax Rate 29%
Calculate the operating cash flow for Year 1.
8. ABC Company has a proposed project that will generate sales of 437 units annually at a selling price of $177 each. The fixed costs are $7,495 and the variable costs per unit are $89. The project requires $29,574 of equipment that will be depreciated on a straight-line basis to a zero book value over the 4-year life of the project. That is, depreciation each year is $29,574/4. The salvage value of the fixed assets is $6,900 and the tax rate is 26 percent. What is the operating cash flow for year four?
9. A project has an initial requirement of $234,703 for new equipment and $12,219 for net working capital. The fixed assets will be depreciated to a zero book value over the 3-year life of the project and have an estimated salvage value of $108,009. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $68,463 and the cost of capital is 6% What is the project's NPV if the tax rate is 38%?
10. A project has an annual operating cash flow of $14,379. Initially, this 4-year project required $2,967 in net working capital, which is recoverable when the project ends. The firm also spent $10,000 on equipment to start the project. This equipment will have a book value of $2,688 at the end of year 4. What is the total cash flow for year 4 of the project if the equipment can be sold for $4,720 and the tax rate is 30%?
11. A project requires $329,948 of equipment that is classified as 7-year property. What is the depreciation expense in year 3 given the following MACRS depreciation allowances, starting with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?
12. Sunk costs are a type of incremental cash flow that should be included in all capital-budgeting decisions.
True
False
13. A project requires $420,975 of equipment that is classified as 7-year property. What is the book value of this asset at the end of year 3 given the following MACRS depreciation allowances, starting with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?
14. ABC Inc. has estimated the following revenues and expenses related phase I of a proposed new housing development? Incremental sales= $5,724,896, total cash expenses $3,487,852, depreciation $799,971, taxes 35%, interest expense, $200,000. What are the operating cash flows?
15. ABC Corporation is considering an expansion project. The necessary equipment could be purchased for $20,528 and shipping and installation costs are another $1,756. The project will also require an initial $5,399 investment in net working capital. The company's tax rate is 40%. What is the project's initial investment outlay?
16. A project has an initial requirement of $184,951 for new equipment and $13,297 for net working capital. The installation costs to get the new equipment in working condition are 4,899. The fixed assets will be depreciated to a zero book value over the 4-year life of the project and have an estimated salvage value of $144,292. All of the net working capital will be recouped at the end of the project. The annual operating cash flow is $102,870 and the cost of capital is 15% What is the project's NPV if the tax rate is 34%?
17. ABC has a proposed project which will generate sales of 176 units at a selling price of $273 each. The fixed costs are $11,334 and the variable costs per unit are $58. The project requires $195,871 of machinery which will be depreciated on a straight-line basis over the 5-year life of the project. That is, depreciation each year is $195,871/5.The tax rate is 30%. What is the operating cash flow for year 5?
18. A project requires $113,828 of equipment that is classified as 7-year property. What is the book value of this asset at the end of year 5 given the following MACRS depreciation allowances, starting with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?