15. 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. $20,398.29= $8,798.29CF0-$11,600C01$7,300F012C02$10,800F021I = 11%NPV CPT$8,798.29 Difficulty level: Medium Topic: Project NPV 16. Matty's Place is considering the installation of a new computer system that will cut annual operating costs by $12,000. 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: Medium Topic: Cost-Cutting 8-8
17. The Wolf's Den Outdoor Gear is considering replacing the equipment it uses to produce tents. The equipment would cost $1.2 million and lower manufacturing costs by an estimated $225,000 a year. The equipment will be depreciated using straight-line depreciation to a book value of zero. The life of the equipment is 6 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: Medium Topic: Cost-Cutting 18. Jeff's Stereo Sound is expanding its product offerings to reach a wider range of customers. The expansion project includes increasing the floor inventory by $150,000 and increasing its debt to suppliers by 50% of that amount. The company will also spend $200,000 for a building contractor to expand the size of the showroom. As part of the expansion plan, the company will be offering credit to its customers and thus expects accounts receivable to rise by $25,000. For the project analysis, what amount should be used as the initial cash flow for net working capital? Difficulty level: Medium Topic: Net Working Capital 8-9
Margarite's Enterprises is considering a new project. The project will require $325,000 for new fixed assets, $160,000 for additional inventory and $35,000 for additional accounts receivable. Short-term debt is expected to increase by $100,000 and long-term debt is expected to increase by $300,000. The project has a 5-year life. The fixed assets will be depreciated straight-line to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 25% of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of $554,000 and costs of $430,000. The tax rate is 35% and the required rate of return is 15%.19. What is the initial cost of this project? A. $325,000B.$420,000C. $425,000D. $520,000E. $620,000Initial cash outflow = $325,000 + $160,000 + $35,000 - $100,000 = $420,000 Difficulty level: Medium Topic: Relevant Costs
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