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Week 3 Questions and Answers
Ch 91 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 92 a Calculate the NPV with a 14% required rate of return and state whether the project should be accepted or rejected.
Ch 92 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 101 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 101 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 fiveyear 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 102 If the tax rate is 36 percent and the discount rate is 12 percent, what is the NPV of this project?
Calculating BreakEven [LO3] In each of the following cases:
Calculate the accounting breakeven and the cash breakeven points. Ignore any tax effects in calculating the cash breakeven.
Ch 111a Ch 112 a Ch 113 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 BreakEven Analysis [LO3] Consider a project with the following data: accounting breakeven quantity = 15,400 units; cash breakeven 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 112 Find the financial breakeven quantity.
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