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# Answers Homework 3 - Chapter 7 Problems 1-40 Input boxes in...

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Chapter 7 Problems 1-40 Input boxes in tan Output boxes in yellow Given data in blue Calculations in red Answers in green NOTE: Some functions used in these spreadsheets may require that the "Analysis ToolPak" or "Solver Add-in" be installed in Excel. To install these, click on "Tools|Add-Ins" and select "Analysis ToolPak and "Solver Add-In."

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Chapter 7 Question 1 Input area: Initial investment \$10,000 *Depreciation straight-line over life 5 Units sold 2,000 Cost per unit \$2 Price per unit \$5 Tax rate 34% Required return 17% Output area: Sales \$10,000 Costs 4,000 Depreciation 2,000 EBT \$4,000 Tax 1,360 Net income \$2,640 OCF \$4,640 NPV \$4,844.97

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Chapter 7 Question 2 Input area: Year 0 Year 1 Year 2 Year 3 Year 4 Investment \$10,000 - - - Sales revenue - \$7,000 \$7,000 \$7,000 \$7,000 Operating costs - 2,000 2,000 2,000 2,000 Depreciation - 2,500 2,500 2,500 2,500 Net working capital 200 250 300 200 ? Tax rate 34% Required return 12% Output area: Sales \$7,000 \$7,000 \$7,000 \$7,000 Costs 2,000 2,000 2,000 2,000 Depreciation 2,500 2,500 2,500 2,500 EBT \$2,500 \$2,500 \$2,500 \$2,500 Tax 850 850 850 850 Net income \$1,650 \$1,650 \$1,650 \$1,650 OCF - \$4,150 \$4,150 \$4,150 \$4,150 Capital spending \$(10,000) - - - - NWC (200) (250) (300) (200) 950 Incremental cash flow \$(10,200) \$3,900 \$3,850 \$3,950 \$5,100 NPV \$2,404.01

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Chapter 7 Question 3 Input area: Asset investment \$2,700,000 Estimated annual sales \$2,400,000 Costs \$960,000 Tax rate 35% *Depreciation straight-line to zero over tax life 3 Required return 15% Output area: OCF \$1,251,000.00 NPV \$156,314.62
Chapter 7 Question 4 Input area: Asset investment \$2,700,000 Estimated annual sales \$2,400,000 Costs \$960,000 Tax rate 35% Required return 15% *Depreciation straight-line to zero over tax life 3 OCF \$1,251,000 Initial investment in NWC \$300,000 Fixed asset value at end \$210,000 Output area: Year Cash flow 0 \$(3,000,000) 1 \$1,251,000 2 \$1,251,000 3 \$1,687,500 NPV \$143,320.46

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Chapter 7 Question 5 Input area: Asset investment \$2,700,000 Estimated annual sales \$2,400,000 Costs \$960,000 Tax rate 35% Required return 15% Initial investment in NWC \$300,000 Fixed asset value at end \$210,000 *3 yr MACRS 0.3330 0.4440 0.1480 Output area: Year Depreciation Cash flow 0 \$(3,000,000.00) 1 \$899,100.00 \$1,250,685.00 2 \$1,198,800.00 \$1,355,580.00 3 \$399,600.00 \$1,583,235.00 Book value \$202,500 Aftertax salvage value \$207,375 NPV \$153,568.12
Chapter 7 Question 6 Input area: Initial investment \$925,000 Pretax salvage value \$90,000 Cost savings per year \$360,000 Working capital reduction \$(125,000) Tax rate 35% *Depreciation straight-line over life 5 Output area: Annual depreciation charge \$185,000 Aftertax salvage value \$58,500 OCF \$298,750 Year Cash flow 0 \$(800,000) 1 \$298,750 2 \$298,750 3 \$298,750 4 \$298,750 5 \$232,250 IRR 23.85%

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Chapter 7 Question 7 Input area: Installation cost \$390,000 Operating cost per year \$120,000 Initial NWC \$28,000 Pretax salvage value \$60,000 Tax rate 34% Discount rate 10% *Depreciation straight-line over life 5 Output area: Annual depreciation charge \$78,000 Aftertax salvage value \$39,600 OCF \$105,720 NPV \$24,736.26
Chapter 7 Question 8 Input area: Acquisition costs \$9,300,000 Pretax salvage value \$2,100,000 Tax rate 35% *MACRS class for taxes 0.2000 0.3200 0.1920 0.1150 Output area: Book Value \$1,608,900 Aftertax cash flow \$1,928,115

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Chapter 7 Question 9 Input area: Initial investment \$2,000,000 Sales \$1,200,000 *Depreciation straight-line over life 4 Operating expenses 25% Net working capital \$100,000 Tax rate 35% Required return 14% Output area: Initial cash outlay Equipment \$(2,000,000) NWC (100,000) Total \$(2,100,000) Sales \$1,200,000 Costs 300,000 Depreciation 500,000 EBT \$400,000 Tax 140,000 Net income \$260,000 OCF \$760,000 Year Cash flow 0 \$(2,100,000) 1 760,000 2 760,000 3 760,000 4 860,000 NPV \$173,629.38

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Chapter 7 Question 10 Input area: Techron I : Cost \$210,000 Operating costs per year \$34,000 Life 3 Techron II : Cost \$320,000 Operating costs per year \$23,000 Life 5 Both: Salvage value \$20,000 Tax rate 35% Discount rate 14% *Depreciation straight-line Output area: Both cases:
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Answers Homework 3 - Chapter 7 Problems 1-40 Input boxes in...

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