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65.A project will produce an operating cash flow of $7,300 a year for three years. The initial cash investment in the project will be $11,600. The net after-tax salvage value is estimated at $3,500 and will be received during the last year of the project’s life. What is the net present value of the project if the required rate of return is 11%?a.$8,798.29b.$9,896.87c.$10,072.72d.$13,353.41e.$20,398.29Difficulty level: Medium20
COST-CUTTINGc66.Matty’s Place is considering the installation of a new computer system that will cut annual operating costs by $11,000. The system will cost $48,000 to purchase and install. This system is expected to have a 5-year life and will be depreciated to zero using straight-line depreciation. What is the amount of the earnings before interest and taxes for this project?Difficulty level: MediumCOST-CUTTINGb67.The Wolf’s Den Outdoor Gear is considering replacing the equipment it uses to produce tents. The equipment would cost $1.4 million and lower manufacturing costs by an estimated $215,000 a year. The equipment will be depreciated using straight-line depreciation to a book value of zero. The life of the equipment is 8 years. The required rate of return is 13% and the tax rate is 34%. What is the net income from this proposed project?Difficulty level: MediumCOST-CUTTINGb68.Thornley Machines is considering a 3-year project with an initial cost of $618,000. The project will not directly produce any sales but will reduce operating costs by $265,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $60,000. The tax rate is 34%. The project will require $23,000 in extra inventory for spare parts and accessories. Should this project be implemented if Thornley’s requires a 9% rate of return? Why or why not?Difficulty level: Challenge7-21
CHAPTER 10EQUIVALENT ANNUAL COSTc69.Tool Makers, Inc. uses tool and die machines to produce equipment for other firms. The initial cost of one customized tool and die machine is $850,000. This machine costs $10,000 a year to operate. Each machine has a life of 3 years before it is replaced. What is the equivalent annual cost of this machine if the required return is 9%? (Round your answer to whole dollars.)a.$325,797b.$340,002c.$345,797d.$347,648e.$351,619Difficulty level: ChallengeEQUIVALENT ANNUAL COSTb