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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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