Author: Anonymous

The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $337,000 and expenses by $232,000. The project will require $141,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The company has a marginal tax rate of 34 percent. What is the depreciation tax shield?

A project that costs $18,500 today will generate cash flows of $5,300 per year for seven years. What is the project’s payback period?

The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $317,000 and expenses by $216,000. The project will require $125,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The company has a marginal tax rate of 40 percent. What is the depreciation tax shield?

A project with an initial cost of $39,900 is expected to provide cash flows of $8,950, $11,600, $8,640, and $11,690 over the next four years, respectively. If the required return is 12.4 percent, what is the project’s profitability index?

Blink of an Eye Company is evaluating a 5-year project that will provide cash flows of $40,100, $84,510, $63,330, $61,470, and $44,730, respectively. The project has an initial cost of $188,000 and the required return is 8.6 percent. What is the project’s NPV?

In this political and economic system, most production is carried out by privately owned companies and government provides extensive welfare programs, funded by high taxes.

The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $327,000 and expenses by $224,000. The project will require $133,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 8-year life of the project. The company has a marginal tax rate of 35 percent. What is the depreciation tax shield?

The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $302,000 and expenses by $204,000. The project will require $113,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 7-year life of the project. The company has a marginal tax rate of 40 percent. What is the depreciation tax shield?

Managers at Massive Dynamics are evaluating a new industrial product. The product will sell at $[p] per unit for the next three years. The fixed cost and depreciation will be $[FCx],000 and $[Depx],000 per year, respectively, and variable costs will be $[VC] per unit. The production will not affect the firm’s net working capital, but will require an initial investment of $[ICx],000 in fixed assets. The fixed assets will have an after-tax salvage value of $[ATSx],000 after three years. The managers, though, are not confident about their forecast of the quantity they will sell per year. They expect to sell [qx],000 units per year, but this forecast is only accurate within ±25 percent. If Massive Dynamics’ tax rate is 21 percent and they require a return of [Rx] percent for new industrial products, what is the worst-case NPV? (Enter your answer rounded to the nearest $0.01)  

Managers at Massive Dynamics are evaluating a new industrial product. The product will sell at $[p] per unit for the next three years. The fixed cost and depreciation will be $[FCx],000 and $[Depx],000 per year, respectively, and variable costs will be $[VC] per unit. The production will not affect the firm’s net working capital, but will require an initial investment of $[ICx],000 in fixed assets. The fixed assets will have an after-tax salvage value of $[ATSx],000 after three years. The managers, though, are not confident about their forecast of the quantity they will sell per year. They expect to sell [qx],000 units per year, but this forecast is only accurate within ±25 percent. If Massive Dynamics’ tax rate is 21 percent and they require a return of [Rx] percent for new industrial products, what is the best-case NPV? (Enter your answer rounded to the nearest $0.01)