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Unformatted text preview: QUIZ #4
HADM225
11/3/2008 NOTE: THERE ARE PROBLEMS ON BOTH SIDES OF THE PA GE. Net Working Capital (NWC) : Current Assets — Current Liabilities Aftertax Salvage Value :7 Market Value — (Market Value — Book Value)*t OCF = = IZBIT + Depreciation » Taxes OCF = N1 + Depreciation (if interest expense = 0)
OCF = [(PVC)Q — FC]*(1t) + Depr.*(t) OCF = (Sales — Costs)*(1—t) + Depr.*(t) 1. (8 points) A four—year project has an initial ﬁxed asset investment of $400,000, an initial NWC investment of $45,000, and an annual OCF of—$53,000. The ﬁxed asset is depreciated straightline to
zero over the four year period and will have a salvage value of $71 ,000. lfthe required return is 10.5%,
the tax rate is 34%, and the NWC is returned at the end of the project, what is the EAC (Equivalent Annual Cost) of this project? , C’ l. :l """‘ . ,c} 5270
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. n ,1" I“ ewe :Pt wk ""1"th 2. (8 points) You are bidding on a contract to supply sunroofs to BMW for their Spartanburg, South
Carolina production plant. BMW needs 450,000 sunroofs per year during this 4year contract. It will
cost you $1 1000000 to reconﬁgure your production line to build these sunroofs to BMW’s
specifications, and you will need to invest $1,000,000 in initial net working capital. Your depreciation
will be $2,750,000 per year, and your after—tax salvage value will be $1,320,000. Your ﬁxed costs are
$750,000 per year and your variable costs are $200 per sunroof. Your required return is 12%, your tax
rate is 34% and NWC is returned at the end ofthe project. a. (4 points) What OCF will you need per year? ’0 Q
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10V 7" " + to; 52.5; mi (“in lb PWCl’ r (I $ c in“ S égﬁ 31L
(M 'v" if." J — O; l l b. (4 points) What is the lowest price you would bid for this project? '  'I C; 55505 515i) ‘ g _'  I I‘. v! ., f i. I_ . legal m f? .1“.  ('30. “3.50 f 000  I524? 4r 53315 {1er
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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.
 Fall '07
 JWELLMAN

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