Analytical Methods in Finance Review for Quiz 2 041711

# Analytical Methods in Finance Review for Quiz 2 041711 -...

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Analytical Methods in Finance Study Guide for Quiz 2 1. Robert Montoya, Inc. is planning a new wine offering and has to produce new production facilities. New machinery is estimated at \$2,200,000 with shipping costs of \$80,000 and installation of \$120,000. New inventories of oak barrels would have to be added of \$100,000. The machinery has an economic life of 4 years but a special tax ruling has allowed Robert Montoya to depreciate the equipment using a MACRS 3-year class life. The depreciation allowances are 0.33, 0.45, 0.15, and 0.07 in years 1 – 4, respectively. Robert Montoya expects to sell 100,000 bottles per year for the next four years with a wholesale price of \$40 per bottle and a operating cost of \$32 per bottle. If the new wine is produced an existing Montoya wine will lose sales of \$60,000 but also reduce production costs by \$40,000. The federal-plus- state tax rate is 40% and the WACC is 10%. Fill in the following tables and answer the questions below. Year MACRS Factor Depreciation Expense End-of year Book Value 1 2 3 4 Total Cash Flow Statement Time 0 Year 1 Year 2 Year 3 Year 4 Unit Price Unit Sales Revenue Operating costs Depreciation Other Project costs Total Costs EBIT Taxes Net Income Plus Depreciation Net Cash Flow Salvage Value Salvage Val Taxes Recovery of NOWC Project NCF 9/6/2011 0:00 a9/p9 1

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Analytical Methods in Finance Study Guide for Quiz 2 a. What is Year 0 net investment outlay on this project? b.
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## This note was uploaded on 09/05/2011 for the course FIN 4405 taught by Professor Cowan during the Spring '11 term at Fairleigh Dickinson.

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Analytical Methods in Finance Review for Quiz 2 041711 -...

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