Quiz__4_Solutions

Quiz__4_Solutions - QUIZ #4 HADM225 11/3/2008 NOTE: THERE...

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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 After-tax Salvage Value :7 Market Value — (Market Value — Book Value)*t OCF = = I-ZBIT + Depreciation » Taxes OCF = N1 + Depreciation (if interest expense = 0) OCF = [(P-VC)Q — FC]*(1-t) + 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 straight-line 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 r 5171’? 553 m b) t of) ‘L‘looj ' i + Llg‘ln + __ «- “lblgeofl *‘"""L J" w _ r'o CMs 00f) "53.1mm HEW m l i t ('07 - PC); a , kw I. are Col 2; F0 ' 51‘: 10.5 101 .1} ‘— SitI "i NJ?" I PAC -, .t ma, } 2,3923": at? 1/ (PU, .4-‘W-v-VLCLLM I N / HY at? NWC” T5 \J A {,6 v: m 6 {o qiégg'flof} Mp ,ATSV’ ’2’— Nwfl " NO Eflt “Lg; '— 2. mil O‘i/‘J‘f arm . 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 4-year 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 All filliLolDU‘Q ATSV ‘5' “92°12; j lifif‘ Nous, - I ‘1 a y 1 'ler,000 Tfiblbim W) A gr"?! _-:_3 PVC“ CAROL??- 001K: _ , go 5:15] 5155' Cf: :2 whit (WI (YEW é h i}. j . 10V 7" " + to; 52.5; mi (“in lb PWC-l’ 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 {1-er f . , x 3‘35 7‘ #529 F m cf in (3l rm"? .. "30;"; W. {4. f . fills) Ll ' l ' 5 U f r) anjm‘ cfrr'r' _ E; 4i ~ ‘_ all a’fmx- twva . a .6 -',l0 . l l “' ‘l f . I 5 A ’\ (3— in ...
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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.

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Quiz__4_Solutions - QUIZ #4 HADM225 11/3/2008 NOTE: THERE...

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