1. Calculate the annual straight-line depreciation for a machine that costs $50,000 and has installation and shipping costs that total $1,000. The machine will be depreciated over a period of 10 years. The company's marginal tax rate is 40 percent.
2. The Cooper Electronics Company has developed the following schedule of potential investment projects that may be undertaken during the next six months:
|
Project
|
Cost (in millions of dollars)
|
Expected Rate of Return
|
|
A
|
$3.0
|
20%
|
|
B
|
1.5
|
22
|
|
C
|
7.0
|
7
|
|
D
|
14.0
|
10
|
|
E
|
50.0
|
12
|
|
F
|
12.0
|
9
|
|
G
|
1.0
|
44
|
a. If cooper requires a minimum rate of return of 10 percent on all investments, which project should be adopted?
b. In general, how would a capital budgeting constraint on the available amount of investment funds influence these decisions?
c. How would differing level of project risk influence these decisions?