(b)
What is the NPV of the project?
(Do not include the dollar sign ($). Round your answer to 2
decimal places. (e.g., 32.16))
NPV
$
4.
Your firm is contemplating the purchase of a new $850,000 computer-based order entry system.
The system will be depreciated straight-line to zero over its five-year life. It will be worth $75,000 at the
end of that time. You will save $320,000 before taxes per year in order processing costs, and you will be
able to reduce working capital by $105,000 (this is a one-time reduction).
Required:
If the tax rate is 35 percent, what is the IRR for this project?
(Do not include the percent sign (%).
Round your answer to 2 decimal places. (e.g., 32.16))
IRR
%
5.
An asset used in a four-year project falls in the five-year MACRS class (
MACRS Table
) for tax
purposes. The asset has an acquisition cost of $8,400,000 and will be sold for $1,900,000 at the end of
the project.
Required:
If the tax rate is 35 percent, what is the aftertax salvage value of the asset?
(Do not include the dollar
sign ($).)
Aftertax salvage value
$
6.
Howell Petroleum is considering a new project that complements its existing business. The machine
required for the project costs $1.8 million. The marketing department predicts that sales related to the
project will be $1.1 million per year for the next four years, after which the market will cease to exist. The
machine will be depreciated down to zero over its four-year economic life using the straight-line method.
Cost of goods sold and operating expenses related to the project are predicted to be 25 percent of sales.
Howell also needs to add net working capital of $150,000 immediately. The additional net working capital
will be recovered in full at the end of the project’s life. The corporate tax rate is 35 percent. The required
rate of return for Howell is 16 percent.
Required:
(a)
What is the NPV of the project?
(Do not include the dollar sign ($). Round your answer to 2
decimal places. (e.g., 32.16))
NPV
$
7.
You are evaluating two different silicon wafer milling machines. The Techron I costs $270,000, has a
three-year life, and has pretax operating costs of $45,000 per year. The Techron II costs $370,000, has a
five-year life, and has pretax operating costs of $48,000 per year. For both milling machines, use
straight-line depreciation to zero over the project’s life and assume a salvage value of $20,000. Assume
the tax rate is 35 percent and the discount rate is 12 percent.
Requirement 1:
Compute the EAC for both the machines.
(Do not include the dollar signs ($). Negative amounts
should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))
EAC
Techron I
$
Techron II
$