an additional investment of $217,000. This investment will be depreciated using MACRS and a 3-year life. After 4 years, the equipment will have an economic and book value of zero. The firm’s tax rate is 30%. What is the net present value of the project? The discount rate is 10%. (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

should be used for the actual calculations.
All figures in thousands
0
1
2
3
4
Net
worki
ng
capita
l
$ 351
$423
$ 144
$
81
$
0
Inve
stmen
t in
NWC
351
72
−279
−63
−81
Inve
stmen
t in
plant
&
equip
ment
217
0
0
0
0
Cash
flow
from
invest
ment
activit
y
$
−568
$−72
$
+279
$ +63
$ +81
All figures in thousands
0
1
2
3
4
Reven
ue
$
1,170.0
0
$
1,410.0
0
$
480.00
$
270.00
Cost
390.00
470.00 160.00
90.00
Depre
ciation
72.30
96.50 32.10
16.08
Pretax
profit
707.67
843.54 287.86
163.92
Taxes
212.30
253.06 86.36
49.18
Net
income
495.37
590.48 201.50
114.74

Depre
ciation
72.33
96.46 32.14
16.08
Operat
ing cash
flow
$567.70
$686.94
$
233.64
$
130.82
Total
cash
flow
$−568
$495.70
$965.94
$
296.64
$
211.82
NPV = −$568 +
$495.70
+
$965.94
+
$296.64
+
$211.82
= $1,048.480, or
$1,048,477
1.10
1.10
2
1.10
3
1.10
4Ilana Industries, Inc., needs a new lathe. It can buy a new high-speed lathe for $1.3 million. The lathe will cost $48,000 per year to run, but will save the firm $141,000 in labor costs, and will be useful for 10 years. Suppose that for tax purposes, the lathe will be depreciated on a straight-line basis over its 10-year life to a salvage value of $370,000. The actual market value of the lathe at that time also will be $370,000. The discount rate is 8%, and the corporate tax rate is 35%. What is the NPV of buying the new lathe? (Negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions. Do not round intermediate calculations. Round your answer to 2 decimal places.)

10]In a slow year, Deutsche Burgers will produce 2.9 million hamburgers at a total cost of $5.4 million. In a good year, it can produce 5.4 million hamburgers at a total cost of $6.1 million. What are the variable and fixed costs of hamburger production? (Enter your answers in dollars not in millions. Round "Variable cost" to 2 decimal places.)

#### You've reached the end of your free preview.

Want to read all 62 pages?

- Spring '14
- Depreciation, Net Present Value, decimal places, intermediate calculations