Week 3 Problem and Answers

  

Ch 9-1 The expected cash flows for a project are as follows. The required return is 12 percent.

Calculate the Internal Rate of Return and state whether the project should be accepted or rejected.

  

year

cash flow

 

0

(32,000)

 

1

14,000 

 

2

15,750 

 

3

11,250 

The expected cash flows for a project are shown below.

Ch 9-2 a Calculate the NPV with a 14% required rate of return and state whether the project should be accepted or rejected.

Ch 9-2 b Calculate the NPV with a 20% required rate of return and state whether the project should be accepted or rejected.

  

year

cash flow

 

0

(38,500)

 

1

16,750 

 

2

20,250 

 

3

17,500 

Ch 10-1 Calculating Projected Net Income [LO1] A proposed new investment has projected sales of $740,000. Variable costs are 46 percent of sales, and fixed costs are $225,000; depreciation is $78,000.

Ch 10-1 Prepare a proforma income statement assuming a tax rate of 32 percent. What is the projected net income?

Project Evaluation [LO1] A company is looking at a new production system with an installed cost of $725,000. This cost will be depreciated in equal installments over the project’s five-year life, at the end of which the system will retain a salvage value of $125,000. The system will save the firm $275,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $38,000.

Ch 10-2 If the tax rate is 36 percent and the discount rate is 12 percent, what is the NPV of this project?

Calculating Break-Even [LO3] In each of the following cases:

Calculate the accounting break-even and the cash break-even points. Ignore any tax effects in calculating the cash break-even.

Ch 11-1a Ch 11-2 a Ch 11-3 a

  

unit price

variable cost per unit

fixed cost

annual depreciation

 

2,200

1,850

6,000,000

2,200,000

 

50

42

150,000

145,000

 

275

210

16,250

18,750

Using Break-Even Analysis [LO3] Consider a project with the following data: accounting break-even quantity = 15,400 units; cash break-even quantity = 12,200 units; project life = 6 years; fixed costs = $220,000; variable costs = $34 per unit; required return = 10 percent. Ignore the effect of taxes.

Ch 11-2 Find the financial break-even quantity.