Chapter 12 Additional Problems

Chapter 12 Additional Problems - 36,799.8 +...

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Chapter 12 Problems 1. The Sicilian Loan Company is considering opening a new office. The company owns the building, free and clear, and would sell it for $100,000 after taxes if it decides not to open the new loan office. The equipment that would be used has a 3-year tax life, would be depreciated using straight line depreciation to a zero salvage value. No new working capital would be required, and revenues and other operating costs would be constant over the project’s 3 year life. What is the project’s NPV? WACC: 10.5% Opportunity cost: $100,000 Net investment cost: $68,000 Sales: $102,500 Operating costs, excluding depreciation: $26,500 Tax rate: 31% Year 0 Cash outflows: Opportunity cost -$100,000 Equipment cost - 68,000 Total -$168,000 Years 1 to 3 Depreciation: 68,000/3 = 22,667 Sales: 102,500 Costs -26,500 Depreciation -22,667 Taxable income 53,333 Taxes - 16,533.2 Net income
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Unformatted text preview: 36,799.8 + depreciation-22,667 Cash from from ops 59,467 Npv(10.5,-168000,{59467},{3}) Enter -$21,407 2. Given the following information, what is the required cash outflow associated with the acquisition of a new machine what is the cash flow at time t = 0? Purchase price of new machine: $7,000 Installation charge: 1,500 Market value of old machine: 2,000 Book value of old machine: 1,000 Inventory decrease if new machine 1,000 is installed Accounts payable increase if new 500 machine is installed Tax rate: 40% Cost of capital: 15% Relevant cash flows: Purchase price:-$7,000 Installation-1,500 Sale of old machine +2,000 Decrease in asset +1,000 Increase in liability + 500 Tax impact of sale- 400 Total cash flow-$5,400 Tax impact of sale: Market value 2,000 Book value 1,000 Capital gain (loss) +1,000 Tax rate x 0.4 Additional tax -$400...
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This note was uploaded on 03/02/2011 for the course BMGT 340 taught by Professor White during the Spring '08 term at Maryland.

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Chapter 12 Additional Problems - 36,799.8 +...

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