Finance Problems For: Dr. Willian

Details Finance 450: Complete the following problems from Chapter 11 in the textbook: 

1. P11-4

2. P11-8

3. P11-17

4. P11-23 

Follow these instructions for completing and submitting your assignment: 

1. Do all work in Excel. Do not submit Word files or *.pdf files.

2. Submit a single spreadsheet file for this assignment. Do not submit multiple files.

3. Place each problem on a separate spreadsheet tab.

4. Label all inputs and outputs and highlight your final answer.

P11–4 Sunk costs and opportunity costs Masters Golf Products, Inc., spent 3 years and

$1,000,000 to develop its new line of club heads to replace a line that is becoming obsolete.

To begin manufacturing them, the company will have to invest $1,800,000 in new equipment. The new clubs are expected to generate an increase in operating cash inflows of $750,000 per year for the next 10 years. The company has determined that the existing line could be sold to a competitor for $250,000.

a. How should the $1,000,000 in development costs be classified?

b. How should the $250,000 sale price for the existing line be classified?

c. Depict all the known relevant cash flows on a time line.

P11–8 Book value and taxes on sale of assets Troy Industries purchased a new machine

3 years ago for $80,000. It is being depreciated under MACRS with a 5-year recovery period using the percentages given in Table 4.2 on page 000. Assume a 40% tax rate.

a. What is the book value of the machine?

b. Calculate the firm’s tax liability if it sold the machine for each of the following

amounts: $100,000; $56,000; $23,200; and $15,000.

P11–17 Incremental operating cash flows Richard and Linda Thomson operate a local lawn

maintenance service for commercial and residential property. They have been using a John Deere riding mower for the past several years and believe that it is time to buy a new one. They would like to know the incremental (relevant) cash flows associated with the replacement of the old riding mower. The following data areavailable:

There are 5 years of remaining useful life on the old mower.

The old mower has a zero book value.

The new mower is expected to last 5 years.

The Thomsons will follow a 5-year MACRS recovery period for the new mower.

Depreciable value of the new mower is $1,800.

They are subject to a 40% tax rate.

The new mower is expected to be more fuel efficient, maneuverable, and durable

than previous models and can result in reduced operating expenses of $500 per year.

The Thomsons will buy a maintenance contract that calls for annual payments

of $120.

Create an incremental operating cash flow statement for the replacement of Richard

and Linda’s John Deere riding mower. Show the incremental operating cash flow for

the next 6 years.

P11-23

campaign, sales are expected to rise to the levels shown in the accompanying table for each of the next 5 years; cost of goods sold is expected to remain at 80% of sales; general and administrative expense (exclusive of any marketing campaign outlays) is expected to remain at 10% of sales; and annual depreciation expense is expected to remain at $500,000. Assuming a 40% tax rate, find the relevant cash flows over the next 5 years associated with the proposed marketing campaign.