Quiz= Cash flow

1.Brock Florist Company bought a new delivery truck for $29,000.  It was classified as a light-duty truck.  . The company sold its delivery truck after three years of service.  If a five-year life and MACRS,  it used for the depreciation schedule, what is the after-tax cash flow from the sale of the truck (use a 40% tax rate)

If  the sales price was $16,000, what would be the after-tax cash flow?

If the sales price was $9,000, what would be the after-tax cash flow?

If the sales price was $4,000, what would be the after-tax cash flow?

2.Cool Water, Inc. sells bottled water.  The firm keeps in inventory plastic bottles at 9% of the monthly projected sales.  These plastic bottles cost $0.006 each.  The monthly sales for the first four months of the coming year are as follows:

January:2,000,000

February:2,500,000

March:2,700,000

April:3,300,000

What is the change in working capital for January?

What is the change in working capital for February?

What is the change in working capital for March?

3.Grady Precision Measurement Tools has forecasted the following sales and costs for a new GPS system:  annual sales of 40,000 units at $19 a unit, production costs at 36% of sales price, annual fixed costs for production at $130,000, and straight-line depreciation expense of $210,000 per year.  The company tax rate is 35%.  What is the annual operating cash flow of the new GPS system?

4.Fat Tire Bicycle Company currently sells 40,000 bicycles per year.  The current bike is a standard balloon-tire bike selling for $120, with a production and shipping cost of $35.  The company is thinking of introducing an off-road bike with a projected selling price of $375 and a production and shipping cost of $300.  The projected annual sales for the off-road bike are 14,000.  The company will lose sales in fat-tire bikes of 8,500 units per year if it introduces the new bike, however.  What is the erosion cost from the new bike?  Should Fat Tire start producing the off-road bike?

What is the erosion cost from the new bike?

Should Fat Tire start producing the off-road bike?  (Select the best response.)

A.Yes, because it contributes an additional $327,500 of cash flow.

B.No, because it does not improve the profitability of the company.

5. Grady Precision Measurement Tools has forecasted the following sales and costs for a new GPS system:  annual sales of 47,000 units at $18 a unit, production costs at 39% of sales price, annual fixed costs for production at $190,000.  The company tax rate is 35%.  What is the annual operating cash flow of the new GPS system?  Should Grady Precision Measurement Tools add the GPS system to its set of products?  The initial investment is $1,340,000 for manufacturing equipment, which will be depreciated over six years (straight line) and will be sold at the end of five years for $380,000.  The cost of capital is 11%.

What is the annual operating cash flow of the new GPS system?

What is the after-tax cash flow of the GPS system at disposal?

What is the NPV of the new GPS syatem?

Should Grady Precision Measurement Tools add the GPS system to its set of products?  (Select the best response.)

A.No, because the NPV is negative which means the projected annual rate of return on the project is less than the cost of capital.

B.Yes, because the project will generate enough wealth to give investors an adequate yield.