1. Farfetched, Inc. thinks it can save $12,000 per year, after tax, over a four-year period if it starts using direct email instead of direct snail mail. A consultant that they’ve been working with will set up the spam email process for them for a fee of $40,000. There will be no changes in any of the capital asset or current accounts. Farfetched requires a return of 9%. Should they make the investment?
2. An analyst at Squirtle Corp. is working on a capital project proposal. The project is expected to require purchasing long-term assets with an installed cost of $600,000. It will also require an increase in Net Working Capital of $75,000. At the end of the 5th year, the project will be terminated, at an after-tax cost of $15,000. The project is expected togenerate annual after-tax operating cash flows of $150,000 each year for 5 years. Squirtle requires a return on capital projects of 10%. Should they make the investment?
3. Hyper Mega Awesome Value Inc. is evaluating a project proposal. The project is expected to require purchasing long-term assets with an installed cost of $400,000. It will also require an increase in Net Working Capital of $25,000. At the end of the 4th year, the project will be terminated. Selling the assets will result in an after-tax gain of $15,000.The project is expected to generate annual after-tax operating cash flows of $160,000 each year for 4 years. Hyper Mega Awesome Value Inc requires a return on capital projects of 11%. Should they make the investment?