Ch12ClassProblems6th

Ch12ClassProblems6th - 1 . Klang Audio Systems Klang Audio...

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1. Klang Audio Systems Klang Audio Systems is planning an expansion that involves buying more showroom space and acquiring a prufung, the latest in testing equipment. The prufbng costs $42,000 and would be depreciated to a salvage value of zero in 7 years, even though it is expected to last 10 years. It is expected to have a market value of $5,000 in year 10. The company spent $7,000 to test the prufung, and the results were very favorable. The showroom space will cost $100,000 and would be depreciated in 10 years to a salvage value of $60,000. The showroom is expected to have a market value of $40,000 in 10 years. This expansion will increase Klang's operating profits by $30,000 a year. The company's marginal tax rate is 35% and its required rate of return is 12%. What are the annual cash flows for this project? What is the NPV of the expansion? What will the NPV be if the fm's required return were 16%? Based solely on your answers to the previous two questions, can you comment on the IRR of the project? Depreciation on prufung
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Ch12ClassProblems6th - 1 . Klang Audio Systems Klang Audio...

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