New project NPV Answer: b Diff: M . Stanton Inc. is considering the purchase of a new machine that will reduce manufacturing costs by $5,000 annually and increase earnings before depreciation and taxes by $6,000 annually. Stanton will use the MACRS method to depreciate the machine, and it expects to sell the machine at the end of its 5-year operating life for $10,000 before taxes. Stanton’s marginal tax rate is 40 percent, and it uses a 9 percent cost of capital to evaluate projects of this type. The applicable depreciation rates are 20 percent, 32 percent, 19 percent, 12 percent, 11 percent, and 6 percent. If the machine’s cost is $40,000, what is the project’s NPV?a. $1,014b. $2,292c. $7,550d. $ 817e. $5,040 New project NPV Answer: a Diff: M . Maple Media is considering a proposal to enter a new line of business. In reviewing the proposal, the company’s CFO is considering the following facts:• The new business will require the company to purchase additional fixed assets that will cost $600,000 at t = 0. For tax and accounting purposes, these costs will be depreciated on a straight-line basis over three years. (Annual depreciation will be $200,000 per year at t = 1, 2, and 3.)• At the end of three years, the company will get out of the business and will sell the fixed assets at a salvage value of $100,000.• The project will require a $50,000 increase in net operating working capital at t = 0, which will be recovered at t = 3.• The company’s marginal tax rate is 35 percent.• The new business is expected to generate $2 million in sales each year (at t = 1, 2, and 3). The operating costs excluding deprecia-tion are expected to be $1.4 million per year.• The project’s cost of capital is 12 percent.What is the project’s net present value (NPV)?a. $536,697b. $ 86,885c. $ 81,243d. $ 56,331e. $561,609 New project NPV Answer: b Diff: M . MacDonald Publishing is considering entering a new line of business. In analyzing the potential business, their financial staff has accumulated the following information:• The new business will require a capital expenditure of $5 million at t = 0. This expenditure will be used to purchase new equipment.• This equipment will be depreciated according to the following depreciation schedule: MACRS DepreciationYear Rates 1 0.33 2 0.45 3 0.15 4 0.07• The equipment will have no salvage value after four years.• If MacDonald goes ahead with the new business, inventories will rise by $500,000 at t = 0, and its accounts payable will rise by $200,000 at t = 0. This increase in net operating working capital will be recovered at t = 4.• The new business is expected to have an economic life of four years. The business is expected to generate sales of $3 million at t = 1, $4 million at t = 2, $5 million at t = 3, and $2 million at t = 4. Each year, operating costs excluding depreciation are expected to be 75 percent of sales.• The company’s tax rate is 40 percent.• The company’s weighted average cost of capital is 10 percent.• The company is very profitable, so any accounting losses on this project can be used to reduce the company’s overall tax burden.What is the expected net present value (NPV) of the new business?a. $ 740,298b. -$1,756,929c. -$1,833,724d. -$1,961,833e. –$5,919,974 New project NPV Answer: a Diff: M . Rio Grande Bookstores is considering a major expansion of its business. The details of the proposed expansion project are summarized below:• The company will have to purchase $500,000 in equipment at t = 0. This is the depreciable cost.• The project has an economic life of four years.• The cost can be depreciated on a MACRS 3-year basis, which implies the following depreciation schedule: MACRS DepreciationYear Rates 1 0.33 2 0.45 3 0.15 4 0.07• At t = 0, the project requires that inventories increase by $50,000 and accounts payable increase by $10,000. The change in net operating working capital is expected to be fully recovered at t = 4.• The project’s salvage value at the end of four years is expected to be $0.• The company forecasts that the project will generate $800,000 in sales the first two years (t = 1 and 2) and $500,000 in sales during the last two years (t = 3 and 4).• Each year the project’s operating costs excluding depreciation are expected to be 60 percent of sales revenue.• The company’s tax rate is 40 percent.• The project’s cost of capital is 10 percent.What is the net present value (NPV) of the proposed project?a. $159,145b. $134,288c. $162,817d. $150,776e. -$257,060
đang được dịch, vui lòng đợi..