{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Practice_Prelim_2_Solutions

# Practice_Prelim_2_Solutions - 1c 2a 3a 4a 5c 6b 7e 8e 9c 10...

This preview shows pages 1–5. Sign up to view the full content.

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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Chapter 10 Question 15 Input area: Initial investment \$1,200,000 Pretax salvage value \$125,000 Cost savings per year \$450,000 Cost savings per year \$400,000 Working capital reduction \$- Annual depreciation charge \$240,000 Aftertax salvage value \$81,250 Tax rate 35% Required return 18% *Depreciation straight-line over life 5 Output area: \$450,000 cost savings \$400,000 Year Cash flow Year 0 \$(1,200,000) 0 1 376,500 1 2 376,500 2 3 376,500 3 4 376,500 4 5 457,750 5 NPV \$12,895.01 Accept/Reject Accept Required pretax cost savings: NPV w/o OCF (\$1,164,484.88) Required OCF \$372,376.46 OCF less dep. tax shield \$288,376.46 Cost savings \$443,656.09
cost savings Cash flow \$(1,200,000) 344,000 344,000 344,000 344,000 425,250 \$(88,738.04) Reject

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Problem 2 Input Area: Old cost \$1,500,000 New machine cost \$3,000,000 Life of machine 5 Salvage value \$600,000 Old machine depreciation \$500,000 MV old machine \$1,200,000 Old machine value in 2 yrs \$400,000 Saved operating costs \$275,000 Discount rate 15% Tax rate 35% Output Area: a. New kiln: Year 0 1 Ending book value \$3,000,000 \$2,400,000 Cost savings \$178,750 Depreciation \$210,000 Operating CF \$388,750 Change in NWC 0 0 Capital spending \$(3,000,000) 0 Total cash flow \$(3,000,000) \$388,750 Net present value \$(1,502,950.78) EAC \$(448,353.59) Old Kiln: Year 0 1 Ending book value \$1,000,000 Depreciation tax shield \$175,000
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern