Ch_10_Inclass_Exercises_Solutions - Ch 10 Inclass Exercises...

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1 Ch 10 Inclass Exercises Solutions Relevant Cash Flows 1. Your firm is considering converting an old plant to produce a new product. It purchased this plant 8 years ago for $3 million. It will cost $10 million to convert this plant and additional $1 million must be spent to prepare the site for the conversion. The firm had contemplated selling the plant a few months ago when it was appraised for $6 million. What is the proper cash flow to use as the initial outlay for this project ($millions)? (17) Convert Plant 10 Prepare Site 1 Site Market Value 6 17 2. Your firm sells flooring materials and the following sales last year: Sq Ft Price Extended (sq ft) Presto Hardwood Veneer Flooring 135,600 3.75 508,500 Neverclean Flooring 255,000 1.98 504,900 Plastikote Flooring 142,500 2.90 413,250 1,426,650 Your firm wants to add a new line of flooring called Slips-a-lot. It expects to sell 110,000 sq ft at a price of 2.25 per sq ft. It is estimated that adding the new line will increase the Neverclean flooring sales by 30,000 sq ft and reduce the Plastikote flooring sales by 50,000 sq ft. What amount should be used as next year’s Revenues in the project evaluation? (161,900) Sq Ft Price Extended (sq ft) Slips-a-lot 110,000 2.25 247,500 Neverclean 30,000 1.98 59,400 Plastikote -50,000 2.90 -145,000 161,900 Project Evaluation Your firm is considering replacing their old metal stamping machine with a new one. The cost of the new machine is $14,000. The expected life of the machine and of this project is 5 years. Working Capital requirements on the new machine are $500 immediately and will reverse at the end of the project. The replaced machine will be discarded; its book value is zero. Your firm has a marginal tax rate of 30%. The new machine your firm is considering buying will increase revenues by $2,000/yr and increase costs by $1,000/yr.
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This note was uploaded on 11/29/2011 for the course FINANCE 332 taught by Professor Linney during the Fall '11 term at Guilford Tech.

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Ch_10_Inclass_Exercises_Solutions - Ch 10 Inclass Exercises...

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