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(Solved) Slow Ride Corp. is evaluating a project with the following cash flows: Year 0 1 2 3 4 5 Cash Flow -$29,900 12,100 14,800 16,700 13,800 -10,300 The...

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Slow Ride Corp. is evaluating a project with the following cash flows:

Year

0

1

2

3

4

5 Cash Flow

â€“$29,900

12,100

14,800

16,700

13,800

â€“10,300 The company uses a 10 percent interest rate on all of its projects. Calculate the MIRR of the project

using all three methods.

Required:

(a) MIRR using the discounting approach.(Do not round your intermediate calculations.)

(Click to select) (b) MIRR using the reinvestment approach. (Do not round your intermediate calculations.)

(Click to select) (c) MIRR using the combination approach. (Do not round your intermediate calculations.)

(Click to select) 2. An investment project costs $19,900 and has annual cash flows of $4,300 for six years.

Required :

(a) What is the discounted payback period if the discount rate is zero percent?

(Click to select) (b) What is the discounted payback period if the discount rate is 4 percent?

(Click to select) (c) What is the

discounted payback

period if the

discount rate is 20

percent?

(Click to select) 3. An investment project has annual cash inflows of $5,000, $6,100, $6,900, and $8,200, and a discount

rate of 17 percent. Required:

What is the discounted payback period for these cash flows if the initial cost is $8,000?

your intermediate calculations.) rev: 09_18_2012

3.68 years

1.34 years

2.59 years

0.84 years

1.84 years

4.

A firm evaluates all of its projects by using the NPV decision rule.

Year

0

1

2

3 Cash Flow

â€“$28,000

24,000

16,000

7,000 Required:

(a) At a required return of 27 percent, what is the NPV for this project?

(Click to select) (b) At a required return of 33 percent, what is the NPV for this project?

(Click to select) 5.

For the following set of cash flows,

Year

0

1

2

3 Cash Flow

â€“$8,100

6,100

3,400

3,500 Required:

(a) What is the NPV at a discount rate of 0 percent?

(Click to select) (b) What is the NPV at a discount rate of 13 percent? (Click to select) (c) What is the NPV at a discount rate of 18 percent?

(Click to select) (d) What is the NPV at a discount rate of 23 percent?

(Click to select) 6.

Consider the following two mutually exclusive projects:

Year

0

1

2

3

4 Cash Flow (A)

â€“$282,346

25,300

56,000

60,000

423,000 Cash Flow (B)

â€“$16,100

5,866

8,212

13,091

9,270 Whichever project you choose, if any, you require a 6 percent return on your investment.

Required:

(a) What is the payback period for Project A?

(Click to select) (b) What is the payback period for Project B?

(Click to select) (c) What is the discounted payback period for Project A?

(Click to select) (d) What is the discounted payback period for Project B?

(Click to select) (e) What is the NPV for Project A?

(Click to select) (f) What is the NPV for Project B ? (Click to select) (g) What is the IRR for Project A?

(Click to select) (h) What is the IRR for Project B?

(Click to select) (i) What is the profitability index for Project A?

(Click to select) (j) What is the profitability index for Project B?

(Click to select) 7.

What is the payback period for the following set of cash flows?

Year

0

1

2

3

4 Cash Flow

âˆ’$ 2,800

1,900

1,500

2,400

2,400 rev: 09_18_2012

1.55 years

1.90 years

1.62 years

1.68 years

1.60 years

8.

Year

0

1

2

3 Cash Flow

âˆ’$7,700

3,200

5,100

5,100 Required :

(a) What is the profitability index for the cashflows if the relevant discount rate is 9 percent?

(Click to select) (b) What is the profitability index for the cashflows if the relevant discount rate is 17 percent?

(Click to select) (c) What is the profitability index for the cashflows if the relevant discount rate is 26 percent?

(Click to select) 9.

Slow Ride Corp. is evaluating a project with the following cash flows:

Year

0

1

2

3

4

5 Cash Flow

â€“$12,800

5,600

6,600

6,300

5,200

â€“4,600 The company uses a 11 percent discount rate and an 9 percent reinvestment rate on all of its projects.

Calculate the MIRR of the project using all three methods using these interest rates.

Required:

(a) MIRR using the discounting approach.(Do not round your intermediate calculations.)

(Click to select) (b) MIRR using the reinvestment approach.(Do not round your intermediate calculations.)

(Click to select) (c) MIRR using the combination approach.(Do not round your intermediate calculations.)

(Click to select) 10.

An investment project provides cash inflows of $800 per year for 12 years.

Required:

(a) What is the project payback period if the initial cost is 2,400?

3 years (b) What is the project payback period if the initial cost is 5,760? 7.2 years (c) What is the project payback period if the initial cost is 10,400?

Never 11.

Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new

machine press for $624,000 is estimated to result in $208,000 in annual pretax cost savings. The press

falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the

project of $91,000. The press also requires an initial investment in spare parts inventory of $26,000,

along with an additional $3,900 in inventory for each succeeding year of the project.

Required :

If the shop's tax rate is 32 percent and its discount rate is 15 percent, what is the NPV for this

project? (Do not round your intermediate calculations.) rev: 09_18_2012

$-57,030.01

$-54,814.94

$-118,827.79

$-59,881.51

$-54,178.51

12.

Dog Up! Franks is looking at a new sausage system with an installed cost of $319,800. This cost will be

depreciated straight-line to zero over the project's 5-year life, at the end of which the sausage system

can be scrapped for $49,200. The sausage system will save the firm $98,400 per year in pretax

operating costs, and the system requires an initial investment in net working capital of $22,960.

Required:

If the tax rate is 32 percent and the discount rate is 13 percent, what is the NPV of this project? rev: 09_18_2012

$-12,467.15

$5,691.43

$-22,965.38

$-5,047.14

$-4,806.80

13.

A 5-year project has an initial fixed asset investment of $22,260, an initial NWC investment of $2,120,

and an annual OCF of -$33,920. The fixed asset is fully depreciated over the life of the project and has

no salvage value.

Required:

If the required return is 15 percent, what is the project's equivalent annual cost, or EAC? your intermediate calculations.) rev: 09_18_2012

$-27,406.22

$-34,746.73

$-38,834.58

$-40,878.50

$-42,922.43

14.

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset

investment of $4.752 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax

life, after which time it will be worthless. The project is estimated to generate $4,224,000 in annual sales,

with costs of $1,689,600.

Required:

If the tax rate is 33 percent, what is the OCF for this project? rev: 09_18_2012

$2,331,806

$2,220,768

$2,109,730

$636,768

$2,534,400

15. Vandalay Industries is considering the purchase of a new machine for the production of latex.

Machine A costs $1,910,000 and will last for 3 years. Variable costs are 39 percent of sales, and fixed

costs are $158,000 per year. Machine B costs $4,620,000 and will last for 6 years. Variable costs for this

machine are 27 percent of sales and fixed costs are $89,000 per year. The sales for each machine will

be $9.24 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines

will be depreciated on a straight-line basis.

Required:

(a) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC

for machine A? (Do not round your intermediate calculations.)

(Click to select) (b) If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC

for machine B? (Do not round your intermediate calculations.)

(Click to select) 16.

Your firm is contemplating the purchase of a new $610,500 computer-based order entry system. The

system will be depreciated straight-line to zero over its 5-year life. It will be worth $59,400 at the end of

that time. You will be able to reduce working capital by $82,500 (this is a one-time reduction). The tax

rate is 32 percent and your required return on the project is 18 percent and your pretax cost savings are $179,550 per year.

Requirement 1:

What is the NPV of this project?

(Click to select) Requirement 2:

What is the NPV if the pretax cost savings are $249,350 per year?

(Click to select) Requirement 3:

At what level of pretax cost savings would you be indifferent between accepting the project and not

accepting it?

(Click to select) 17.

Your firm is contemplating the purchase of a new $1,344,000 computer-based order entry system. The

system will be depreciated straight-line to zero over its 5-year life. It will be worth $120,000 at the end of

that time. You will save $528,000 before taxes per year in order processing costs and you will be able to

reduce working capital by $206,897 (this is a one-time reduction).

Required :

If the tax rate is 35 percent, what is the IRR for this project? (Do not round your intermediate

calculations.) rev: 09_18_2012

23.86%

24.85%

26.09%

16.42%

23.68% 18.

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset

investment of $3.996 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax

life, after which time it will have a market value of $310,800. The project requires an initial investment in

net working capital of $444,000. The project is estimated to generate $3,552,000 in annual sales, with

costs of $1,420,800. The tax rate is 32 percent and the required return on the project is 8 percent.

Required:

(a) What is the project's year 0 net cash flow? (Click to select) (b) What is the project's year 1 net cash flow?

(Click to select) (c) What is the project's year 2 net cash flow?

(Click to select) (d) What is the project's year 3 net cash flow?

(Click to select) (e) What is the NPV?

(Click to select) 19.

Parker & Stone, Inc., is looking at setting up a new manufacturing plant in South Park to produce garden

tools. The company bought some land 6 years ago for $6 million in anticipation of using it as a

warehouse and distribution site, but the company has since decided to rent these facilities from a

competitor instead. If the land were sold today, the company would net $9.2 million. The company wants

to build its new manufacturing plant on this land; the plant will cost $13.2 million to build, and the site

requires $1,288,000 worth of grading before it is suitable for construction.

Required :

What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this

project? rev: 09_18_2012

$24,872,400

$23,688,000

$19,540,480

$22,400,000

$21,112,000 20.

Consider an asset that costs $220,000 and is depreciated straight-line to zero over its 12-year tax life.

The asset is to be used in a 7-year project; at the end of the project, the asset can be sold for $27,500.

Required :

If the relevant tax rate is 30 percent, what is the aftertax cash flow from the sale of this asset? (Do not

round your intermediate calculations.) rev: 09_18_2012 $46,750.00

$44,412.50

$19,250.00

$49,087.50

$365,762.00

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