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Blue Bison Corporation is considering development of a user- friendly online test bank which would make all old exams for sections of Finance 405

   Blue Bison Corporation is considering development of a user-

friendly online test bank which would make all old exams for

    sections of Finance 405 taught in the past 5 years available

    to students for study and preparation. Under current budget

    crisis circumstances, however, students would have to pay a

    $250 one-time fee to gain database access. Still, the demand

    forecast by an $89,000 independent marketing firm survey is

    expected to be brisk across the technology's four-year life:

    1150 units in year one; 1380 units in the second year; 1600

    subscriptions are expected in year three; 1425 in year four.

    Due to techno-compatibility issues, project adoption would

    force delayed sale of near-obsolete servers until EOY four,

    which are estimated to have a market value of $ 25,000.

    Fixed costs will equal $68,000 per year; and variable costs

    are forecast at $115 per unit. Physical equipment (PP&E) t=0

    initial outlays will require $276,000, to be depreciated on

    straight-line basis to zero book value at end-of-year four.

    However, actual salvage value of server & related machinery

    is predicted to be $32,000 at that time. The project has an

    initial(t=0) working capital requirement of $35,000; added

    infusions may be needed each year to maintain overall NWC

    stockpiles at 15% of annual subscription sales. Blue Bison

    faces a 36% marginal corporate tax rate; its project cost of

    capital(discount rate) is expected to be equal to 14%.

4. Test Bank project EBIT forecast for year four equals:

  a. $124,375 b. $63,375   c. $35,440 d. $55,375 e. $101,773

5. What is operating cash flow (OCF) expected in year three?

  a. $94,080  b. $119,560 c. $109,883 d. $163,080 e. $116,680

6. Changes in Net Working Capital expected in year two are:

  a. +$51,750 b. -$8,625  c. +$8,625 d. +$9641  e. +$43,625

7. The after-tax salvage value (ATSV) of the project's assets is:

  a. $20,480  b. $32,000  c. $11,250 d. $22,742 e. $25,770

8/9. What's the net present value(NPV) of the Test Bank project?  

  a. -$10,591 b. +$7,998  c. -$2,200 d. -$37,725 e. -$14,326

10. According to the "NPV rule", the Test Bank project:

  a. should be rejected, since it has a negative NPV

b. adds to Blue Bison firm value, and thus should be accepted

c. has a misleading accept/reject signal, due to ususal CF's

d. if accepted, would be a project consistent with SWM

e. haven't the foggiest... but sure sounds like a good idea

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