Question

**Problem 11-1**

A project that is expected to last six years will generate incremental profit and cash flow before taxes and depreciation of $23,000 per year. It requires the initial purchase of equipment costing $60,000, which will be depreciated over four years. The relevant tax rate is 28%. Calculate the project's cash flows. Enter your answers in thousands. For example, an answer of $1 thousand should be entered as 1, not 1,000. Round your intermediate calculations and final answer to the nearest thousand dollars. Use a minus sign to indicate negative cash flows or decreases in cash, if required.

Year |
Cash Flow ($000) |

0 | $ |

1 | $ |

2 | $ |

3 | $ |

4 | $ |

5 | $ |

6 | $ |

Answer #1

The Olson Company plans to replace an old machine with a new one
costing $85,000. The old machine originally cost $55,000 and has
six years of its expected 11-year life remaining. It has been
depreciated straight-line assuming zero salvage value and has a
current market value of $22,000. Olson's effective tax rate is 32%.
Calculate the initial outlay associated with selling the old
machine and acquiring the new one.
$________
____________________________________________________________________
A project that is expected to last six years...

Hamilton Control Systems will invest $86,000 in a temporary
project that will generate the following cash inflows:
Year
Cash Flow
1
$23,000
2
35,000
3
60,000
The firm will also be required to spend $11,000 to close the
project at the end of the three years.
a. Compute the net present value if the cost of
capital is 8 percent. (Do not round intermediate
calculations. Round the final answer to the nearest whole dollar.
Negative answer should be indicated by...

Project A would require an initial outlay of $60,000 and is
expected to generate positive cash flows in years one through six
of $18,838; $12,133; $17,123; $13,007; $17,559; and $17,907. Using
a discount rate of 13.2%, what is the NPV of this project? If the
answer is negative, include the negative sign, and show the answer
to the nearest dollar.

A company is considering a project that is expected to generate
its first cash flow in the amount of $1 million in 6 years. The
cash flows thereafter are expected to grow 15% a year until the
last cash flow in year 24. Appropriate discount rate of the project
is 13%.
What is the maximum investment the company should dedicate for
this project today?
A reevaluation of the project shows that starting from year 25
the project is going to...

Project A would require an initial outlay of $56,000 and is
expected to generate positive cash flows in years one through six
of $16,542; $14,677; $15,035; $19,167; $19,796; and $12,120. Using
a discount rate of 17.1%, what is the NPV of this project? If the
answer is negative, include the negative sign, and show the answer
to the nearest dollar.

Nano Specialist is considering an upgrade project. The estimated
cash flows from the upgrade project appear below. What is the
project's payback period? Note that year 0 and year 1 cash flows
are negative. (Answer in years, round to 2 places) Year 0 cash flow
= -85,000 Year 1 cash flow = -55,000 Year 2 cash flow = 11,000 Year
3 cash flow = 41,000 Year 4 cash flow = 30,000 Year 5 cash flow =
25,000 Year 6 cash...

A given project requires a $21,411 investment and is expected to
generate end of period annual cash flows as follows: Year 1 Year 2
Year 3 $16,633 $8,000 $10,000 Assuming a discount (interest) rate
of 10%, what is the net present value of this investment? Use the
table in your book and do not round the numbers from the table. You
can round your answer to the nearest dollar, but do not include a
dollar sign in your answer. If...

A given project requires a $24,217 investment and is expected to
generate end of period annual cash flows as follows:
Year 1
Year 2
Year 3
$11,439
$8,000
$10,000
Assuming a discount (interest) rate of 10%, what is the net
present value of this investment? Use the table in your book and do
not round the numbers from the table. You can round your answer to
the nearest dollar, but do not include a dollar sign in your
answer. If...

A given project requires a $29,602 investment and is expected to
generate end of period annual cash flows as follows:
Year 1
Year 2
Year 3
$14,944
$8,000
$10,000
Assuming a discount (interest) rate of 10%, what is the net
present value of this investment? Use the table in your book and do
not round the numbers from the table. You can round your answer to
the nearest dollar, but do not include a dollar sign in your
answer. If...

A production project will generate an expected operating cash
flow of $50,000 per year for 4 years (years 1 – 4). Undertaking the
project will require an increase in the company’s net working
capital (inventory) of $10,000 today (year 0). At the end of the
project (year 4), inventory will return to the original level. The
project would cost $150,000. The marginal tax rate is 35%. The
weighted average cost of capital for the firm is 9%. Sketch a
timeline...

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