Fall_2008_Prelim2_Solutions

# Fall_2008_Prelim2_Solutions - 1c 2b 3b 4a 5a 6b 7a 8d 9e 10...

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1 c 2 b 3 b 4 a 5 a 6 b 7 a 8 d 9 e 10 b

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Problem 1 Input area: Installed cost \$370,000 Salvage value \$80,000 Initial NWC \$50,000 Tax rate 35% Required return 12% MACRS 33.33% 44.44% 14.82% 7.41% Output area: Aftertax salvage value \$52,000.00 Year 1 depreciation \$123,321.00 Year 2 depreciation \$164,428.00 Year 3 depreciation \$54,834.00 Year 4 depreciation \$27,417.00 Year 1 depreciation CF \$43,162.35 Year 2 depreciation CF \$57,549.80 Year 3 depreciation CF \$19,191.90 Year 4 depreciation CF \$9,595.95 Initial cash outlay \$(420,000.00) NPV net of OCF \$(257,947.48) Pretax cost savings \$110,087.91
Problem 2a Input area: Quantity 800,000 Installation costs \$1,475,000 Pretax salvage value \$250,000 Fixed costs \$265,000 Variable production cost per carton \$1.25 Net working capital \$38,000 Tax rate 35% Required return 15% *Depreciation staight-line over life 5 Output area: Aftertax salvage value \$162,500.00 Depreciation tax shield \$103,250.00 Initial cash outlay \$(1,513,000.00) NPV w/o OCF \$(1,413,316.06) Necessary OCF \$421,614.16 OCF net of dep. tax shield \$318,364.16 Bid price \$2.19

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Problem 2bc Input area: Quantity 800,000 Installation costs \$1,475,000 Pretax salvage value \$250,000 Fixed costs \$265,000 Variable production cost per carton \$1.25 Net working capital \$38,000 Tax rate 35% Required return 15% *Depreciation straight-line over life 5 Price per carton \$4.00 Output area: Aftertax salvage value \$162,500 a. Year 0 1 Sales \$3,200,000 Variable costs 1,000,000 Fixed costs 265,000 Depreciation 295,000 EBIT 1,640,000 Taxes 574,000 Net income 1,066,000 Depreciation 295,000 Operating cash flow \$1,361,000 Net cash flows Operating cash flow \$- \$1,361,000 Change in NWC (38,000) - Capital spending (1,475,000) - Total cash flow \$(1,513,000) \$1,361,000
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## This homework help was uploaded on 02/20/2009 for the course H ADM 225 taught by Professor Jwellman during the Fall '07 term at Cornell University (Engineering School).

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Fall_2008_Prelim2_Solutions - 1c 2b 3b 4a 5a 6b 7a 8d 9e 10...

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