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Unformatted text preview: FNAN 301, Fall 2010, quiz 4, solutions OCF with MACRS 1. Auburn Corp. is thinking about opening a new store in Tuscaloosa. The new store would require an initial investment of $900,000 and is expected to be in operation for 3 years. MACRS depreciation would be used with a threeyear schedule where the depreciation rates in years 1, 2, 3, and 4 are 33.33%, 44.44%, 14.82%, and 7.41%, respectively. For each year of the project, Auburn expects relevant, incremental revenue associated with the new store to be $470,000 and relevant, incremental costs associated with the new store to be $210,000. The tax rate is 40 percent. What is X if X equals (the operating cash flow (OCF) associated with the Tuscaloosa store expected in year 2 of the project) plus (the OCF associated with the Tuscaloosa store expected in year 3 of the project)? 1. Auburn Corp. is thinking about opening a new store in Tuscaloosa. The new store would require an initial investment of $800,000 and is expected to be in operation for 3 years. MACRS depreciation would be used with a threeyear schedule where the depreciation rates in years 1, 2, 3, and 4 are 33.33%, 44.44%, 14.82%, and 7.41%, respectively. For each year of the project, Auburn expects relevant, incremental revenue associated with the new store to be $480,000 and relevant, incremental costs associated with the new store to be $210,000. The tax rate is 40 percent. What is X if X equals (the operating cash flow (OCF) associated with the Tuscaloosa store expected in year 2 of the project) plus (the OCF associated with the Tuscaloosa store expected in year 3 of the project)? 1. Auburn Corp. is thinking about opening a new store in Tuscaloosa. The new store would require an initial investment of $700,000 and is expected to be in operation for 3 years. MACRS depreciation would be used with a threeyear schedule where the depreciation rates in years 1, 2, 3, and 4 are 33.33%, 44.44%, 14.82%, and 7.41%, respectively. For each year of the project, Auburn expects relevant, incremental revenue associated with the new store to be $460,000 and relevant, incremental costs associated with the new store to be $220,000. The tax rate is 40 percent. What is X if X equals (the operating cash flow (OCF) associated with the Tuscaloosa store expected in year 2 of the project) plus (the OCF associated with the Tuscaloosa store expected in year 3 of the project)? 1. Auburn Corp. is thinking about opening a new store in Tuscaloosa. The new store would require an initial investment of $600,000 and is expected to be in operation for 3 years. MACRS depreciation would be used with a threeyear schedule where the depreciation rates in years 1, 2, 3, and 4 are 33.33%, 44.44%, 14.82%, and 7.41%, respectively. For each year of the project, Auburn expects relevant, incremental revenue associated with the new store to be $450,000 and relevant, incremental costs associated with the new store to be $220,000. The tax rate is 40 percent....
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 Spring '09
 MURRAY
 Depreciation

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