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1. Raphael Restaurant is considering the purchase of a $12,000 souffl maker. The souffl maker has an economic life of five years and will be fully

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1. Raphael Restaurant is considering the purchase of a $12,000 soufflé maker. The soufflé maker has an economic life of five years and will be fully depreciated by the straight-line method. The machine will produce 1,900 soufflés per year, with each costing $2.20 to make and priced at $5. Assume that the discount rate is 14 percent and the tax rate is 34 percent. Required: (a) What is the operating cash flow of the project? (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16)) OCF $ (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 $ 2. Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.4 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which it will be worthless. The project is estimated to generate $2,050,000 in annual sales, with costs of $950,000. The tax rate is 35 percent and the required return is 12 percent. The project requires an initial investment in net working capital of $285,000 and the fixed asset will have a market value of $225,000 at the end of the project. Required: (a) What are the net cash flows of the project for the following years? (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign.) Net cash flows Year 0 $ Year 1 $ Year 2 $ Year 3 $ (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 $ 3. Down Under Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.4 million. The fixed asset falls into the three-year MACRS class ( MACRS Table ). The project is estimated to generate $2,050,000 in annual sales, with costs of $950,000. The tax rate is 35 percent and the required return is 12 percent. The project requires an initial investment in net working capital of $285,000 and the fixed asset will have a market value of $225,000 at the end of the project. Required: (a) What is the net cash flow of the project for the following years? (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign.) Net cash flow Year 0 $ Year 1 $ Year 2 $ Year 3 $
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(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 $
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