Problem 1. Your firm is considering buying a new machine that costs $200,000, is expected to generate $110,000 in new revenue each year and will cost $45,000 a year to operate. If your firm's marginal income tax rate is 35% what is the Net Cash Flow your firm will realize from the new machine during the first year? Assume the MACRS depreciation rate for the machine for year 1 is 20%. Note - do not include the cost of the machine in your answer.
Problem 2. What is the payback period of the following project?
Initial Investment: $50,000
Projected life: 8 years
Net cash flows each year: $10,000
Problem 3. Consider the following income statement and answer the questions that follow:
Sales (100 units) $200
Variable costs ($.80 ea) 80
Fixed Costs 20
EBIT 100
Interest Expense 30
EBT 70
Income tax 24
Net Income 46
a. What is the firm's Breakeven Point in units?
b. Draw a breakeven chart for this firm.
Problem 4. Your firm is looking at a new investment opportunity, Project Alpha, with net cash flows as follows:
---- Net Cash Flows ----
Project Alpha
Initial Cost at T-0 (Now) ($10,000)
cash inflow at the end of year 1 6,000
cash inflow at the end of year 2 4,000
cash inflow at the end of year 3 2,000
Calculate project Alpha's Net Present Value (NPV), assuming your firm's required rate of return is 10%.
Problem 5. Calculate the IRR of the following project:
Year Cash Flow
0 -$30,000
1 $40,000