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FIN_3716_Quiz_7_solution

# FIN_3716_Quiz_7_solution - the minimal amount rounded to...

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FIN 3716 Quiz #7 - solution You are working on a bid to build three amusement parks a year for the next two years. This project requires the purchase of \$52,000 of equipment which will be depreciated using straight- line depreciation to a zero book value over the two years. The equipment can be sold at the end of the project for \$34,000. You will also need \$16,000 in net working capital over the life of the project. The fixed costs will be \$10,000 a year and the variable costs will be \$70,000 per park. Your required rate of return is 10 percent for this project and your tax rate is 35 percent. What is
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Unformatted text preview: the minimal amount, rounded to the nearest \$500, you should bid per amusement park? Depr. = 52000/2 = 26000 0 1 2 O C F O C F NCS -52,000 34,000 X (1-0.35) = 22,100 Change in NWC -16,000 16,000 CFFA -68,000 OCF OCF + 38100 PV = - 68000; N = 2; I = 10; FV = 38,100 <CPT> PMT = OCF = 21,038.1 OCF = (3P -70,000X3 – 10,000)(1-0.35) + 26000 X 0.35 = 21,038.1 (3P – 220,000) X 0.65 + 9100 = 21038.1 1.95P = 154, 938.1 P = 79,455.4359 ~ 79,500...
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