B. $4,518.47; -$321.76

Use npv(7, -17,000,{4,500, 8700, 11900}) = $4,518.47

Use npv(20, -17,000,{4,500, 8700, 11900}) = $-321.76 A. $1,587.61

Use npv(8, -97,000,{46,900, 62,300, -24,600, 18300, 11500})

= $1,587.61 A project has expected cash inflows, starting with year 1, of $2,200, $2,900, $3,500, and finally in year 4, $4,000.

The profitability index is 1.14 and the discount rate is 12 percent. What is the initial cost of the project?

A. $7,899.16

B. $8,098.24

C. $8,166.19

D. $9,211.06

E. $9,250.00 C. Yes, because the AAR is greater than 9.5 percent

Average net income = ($14,500 + $16,900 + $19,600 + $23,700)/4 = $18,675

Average book value = ($300,000 + $240,000 + $180,000 + $120,000 + $60,000)/5 = $180,000

AAR = $18,675/$180,000 = 10.38 percent

The project should be accepted because the AAR is greater than the required return C. 3.92 years; 3.79 years; $780.85; -$7,945.93; accept Project A only

Payback A = 3 + ($82,000 - $15,700 - $18,300 - $23,900)/$26,200 = 3.92 years

Payback B = 3 + ($125,000 - $38,600 - $33,400 - $31,200)/$27,500 = 3.79 years

Use npv( ) on calculator to find NPV values Isabella is considering three mutually exclusive options for the additional space she just added to her specialty women's store. The cost of the expansion was $127,000. She can use this additional space to add a fabric and quilting section, add an exclusive gifts department, or expand into imported decorator items for the home. She estimates the present value of these options at $114,000 for fabric and quilting, $163,000 for exclusive gifts, and $138,000 for decorator items. Which option(s), if any, should Isabella accept?

A. None of these options

B. Fabric and quilting only

C. Exclusive gifts only

D. Exclusive gifts and decorator items only

E. All three options The Green Tomato purchased a parcel of land six years ago for $299,500. At that time, the firm invested $64,000

grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided

to lease the land for $28,000 a year. The Green Tomato is now considering building a hotel on the site as the

rental lease is expiring. The current value of the land is $355,000. The firm has no loans or mortgages secured by

the property. What value should be included in the initial cost of the hotel project for the use of this land?

A. $0

B. $299,500

C. $355,000

D. $363,500

E. $419,000 A debt-free firm has net income of $228,400, taxes of $46,200, and depreciation of $21,300. What is the

operating cash flow?

A. $182,200

B. $103,500

C. $107,100

D. $249,700

E. $295,900 . A project has an annual operating cash flow of $45,000. Initially, this four-year project required $3,800 in net

working capital, which is recoverable when the project ends. The firm also spent $21,500 on equipment to start

the project. This equipment will have a book value of $4,300 at the end of year 4. What is the cash flow for year 4

of the project if the equipment can be sold for $5,400 and the tax rate is 34 percent?

A. $51,724

B. $52,038

C. $53,826

D. $53,862,900

E. $53,900 . A project has sales of $462,000, costs of $274,000, depreciation of $26,000, interest expense of $3,400, and a

tax rate of 35 percent. What is the value of the depreciation tax shield?

A. $9,100

B. $9,564

C. $10,650

D. $10,800

E. $11,350 A project has annual depreciation of $16,200, costs of $87,100, and sales of $123,000. The applicable tax rate is

40 percent. What is the operating cash flow according to the tax shield approach?

A. $21,540

B. $27,667

C. $27,458

D. $28,020

E. $29,878 Classic Cars is considering a project that requires $148,000 of fixed assets that are classified as five-year

property for MACRS. What is the book value of these assets at the end of year 3? The MACRS allowance

percentages are as follows, commencing with year 1: 20.00, 32.00, 19.20, 11.52, 11.52, and 5.76 percent.

A. $34,210

B. $36,667

C. $42,624

D. $43,450

E. $44,504 . You are analyzing a project and have developed the following estimates: unit sales = 2,600, price per unit = $56,

variable cost per unit = $39, fixed costs = $24,700. The depreciation is $15,800 a year and the tax rate is 35

percent. What effect would a decrease of $1 in the variable cost per unit have on the operating cash flow?

A. -$2,600

B. -$1,742

C. -$912

D. $1,690

E. $2,600 Fig Newton Industries is considering a project and has developed the following estimates: unit sales = 7,300,

price per unit = $149, variable cost per unit = $91, fixed costs = $216,400. The depreciation is $94,700 a year

and the tax rate is 40 percent. What effect would an increase of $1 in the selling price have on the operating cash

flow?

A. $4,380

B. $4,823

C. $5,316

D. $5,448

E. $7,300 Outdoor Sports is considering adding a miniature golf course to its facility. The course would cost $138,000,

would be depreciated on a straight-line basis over its five-year life, and would have a zero salvage value. The

estimated income from the golfing fees would be $72,000 a year with $24,000 of that amount being variable cost.

The fixed cost would be $11,600. In addition, the firm anticipates an additional $14,000 in revenue from its

existing facilities if the golf course is added. The project will require $3,000 of net working capital, which is

recoverable at the end of the project. What is the net present value of this project at a discount rate of 12 percent

and a tax rate of 34 percent?

A. $11,309

B. $11,628

C. $12,737

D. $14,439

E. $14,901 Bob's is a retail chain of specialty hardware stores. The firm has 21,000 shares of stock outstanding that are currently valued at $68 a share and provide a 13.2 percent rate of return. The firm also has 500 bonds outstanding that have a face value of $1,000, a market price of $1,068, and a 7 percent coupon. These bonds mature in 6 years and pay interest semiannually. The tax rate is 35 percent. The firm is considering expanding by building a new superstore. The superstore will require an initial investment of $12.3 million and is expected to produce cash inflows of $1.1 million annually over its 10-year life. The risks associated with the superstore are comparable to the risks of the firm's current operations. The initial investment will be depreciated on a straight line basis over the life of the project. At the end of the 10 years, the firm expects to sell the superstore for $6.7 million. Should the firm accept or reject the superstore project and why?

A. Accept, the project's NPV is $1.27 million.

B. Accept, the NPV is $4.89 million.

C. Reject, the NPV is $1.06 million.

D. Reject, the NPV -$3.27 million.

E. Reject, the NPV is -$5.71 million. Casper's is analyzing a proposed expansion project that is much riskier than the firm's current operations. Thus, the project will be assigned a discount rate equal to the firm's cost of capital plus 3 percent. The proposed project has an initial cost of $17.2 million that will be depreciated on a straight-line basis over 20 years. The project also requires additional inventory of $687,000 over the project's life. Management estimates the facility will generate cash inflows of $2.78 million a year over its 20-year life. After 20 years, the company plans to sell the facility for an estimated $1.3 million. The company has 60,000 shares of common stock outstanding at a market price of $49 a share. This stock just paid an annual dividend of $1.84 a share. The dividend is expected to increase by 3.5 percent annually. The firm also has 10,000 shares of 12 percent preferred stock with a market value of $98 a share. The preferred stock has a par value of $100. The company has a 9 percent, semiannual coupon bond issue outstanding with a total face value of $1.1 million. The bonds are currently priced at 102 percent of face value and mature in 16 years. The tax rate is 33 percent. Should the firm pursue the expansion project at this point in time? Why or why not?

A. Accept, the NPV is $2.648 million.

B. Accept, the NPV is $4.507 million.

C. Reject, the NPV is -$3.241 million.

D. Reject, the NPV is -$3.027 million.

E. Reject, the NPV is -$1.040 million.