Question 1. An investment requires an initial outlay of $1,500,000 and generates cash flows of $200,000 at the end of each year for ten years. The required return is 10%. Find the net present value, profitability index and the payback period. Is the investment desirable?
Question 2.
|
Year
|
1
|
2
|
3
|
4
|
5
|
|
|
|
|
|
|
|
|
Revenues
|
$16,000
|
$20,000
|
$38,000
|
$48,000
|
$35,000
|
|
Cash Expenses
|
$ 8,000
|
$ 5,000
|
$14,000
|
$19,000
|
$19,000
|
|
Depreciation
|
$ 3,000
|
$ 4,000
|
$ 3,000
|
$ 3,000
|
$ 3,000
|
40% tax bracket. Compute the after-tax cash flows for the attached table.
Question 3. XYZ which is a C corporation, bought its own building for $200,000 on January 1, 2000. BS sold the building on January 1, 2003, a year in which BS was in the 40% marginal tax bracket. Compute the after tax cash proceeds from sale if the building was sold for
a) $150,000; b) $250,000?
Question 4. An automobile manufacturer is considering the addition of a new automobile. Which of the following are relevant cash flows? (Explain why for each).
(a) the company president's salary
(b) lost sales of the car that this car would replace
(c) design expenditures that have already occurred
(d) a training program to teach dealers how to sell the new car
Question 5. A Company purchased a machine $15,600 and placed it into service on January 1, 200X. This machine is expected to last for 5 years, during which it will produce approximately 200,000 copies each year. Copies will sell for an average of 6 cents each. Variable costs will be approximately 3 cents a copy. Working capital needs will be negligible, as printing with this machine will be almost all on a cash basis and current liabilities will offset the supplies inventory need. The machine will be disposed of at the end of 5 years for $1,500.00. Calculate the NPV of this investment. 40% tax rate and a 10% cost of capital.