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Week 3 Questions and Answers
Ch 9-1 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.
The expected cash flows for a project are shown below.
Ch 9-2 a Calculate the NPV with a 14% required rate of return and state whether the project should be accepted or rejected.
Ch 9-2 b Calculate the NPV with a 20% required rate of return and state whether the project should be accepted or rejected.
Ch 10-1 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 10-1 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 five-year 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 10-2 If the tax rate is 36 percent and the discount rate is 12 percent, what is the NPV of this project?
Calculating Break-Even [LO3] In each of the following cases:
Calculate the accounting break-even and the cash break-even points. Ignore any tax effects in calculating the cash break-even.
Ch 11-1a Ch 11-2 a Ch 11-3 a
variable cost per unit
Using Break-Even Analysis [LO3] Consider a project with the following data: accounting break-even quantity = 15,400 units; cash break-even 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 11-2 Find the financial break-even quantity.