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Question
Modern Flooring is considering a new product line. The new line would require $134,000 of fixed assets and net working capital of $24,000. The firm will apply straight-line depreciation over three years to the fixed assets. The new line is expected to produce an operating cash flow of $35,000 the first year with that amount decreasing by 10 percent annually for two years before the new line will be discontinued. The fixed assets can be sold for $25,000 at the end of the project and all net working capital will be recovered. What is the net present value of the new line at a discount rate of 11.5 percent and a tax rate of 35 percent?A. −$31,209.17
B. $15,311.09
C. $17,456.32
D. $48,548.67
Answer
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Related questions
Q:
You are considering a new project. The project has projected depreciation of $720, fixed costs of $6,000, and total sales of $11,760 at a sales quantity of 300 units. The variable cost per unit is $17.40. What is the accounting break-even level of production?
A. 308.26 units
B. 300.64 units
C. 291.25 units
D. 297.69 units
E. 311.60 units
Q:
Southern Markets is considering a project with total sales of $17,500, total variable costs of $9,800, total fixed costs of $3,500, and estimated production of 400 units. The depreciation expense is $2,400 a year. What is the contribution margin per unit?
A. $4.50
B. $10.50
C. $14.14
D. $19.09
E. $19.25
Q:
At a production level of 5,600 units, a project has total costs of $89,000. The variable cost per unit is $11.20. What is the amount of the total fixed costs?
A. $24,126
B. $26,280
C. $27,090
D. $27,820
E. $28,626
Q:
Anna is reviewing a new 5-year project with expected sales of 3,400 units, give or take 8 percent. The expected variable cost per unit is $22 and the expected fixed costs are $47,500. Cost estimates are considered accurate within a plus or minus 2 percent range. The depreciation expense is $17,800. The sale price is estimated at $45 a unit, give or take 3 percent. The project initially requires $165,000 of fixed assets and $42,000 of net working capital. At The end of the project, the networking capital will be recouped and the fixed assets will produce an aftertax cash inflow of $35,000. The tax rate is 35 percent and the discount rate is 14 percent. What is the net present value of the best-case scenario?
A. −$48,026.15
B. −$48,799.24
C. −$46,365.79
D. $41,202.98
E. $38,566.01
Q:
A project has a projected sales price of $99 a unit, a variable cost per unit of $58, fixed costs of $238,000, and depreciation of $139,000. All values have a range of plus or minus 4 percent. The tax rate is 34 percent. What is the contribution margin for an analysis using sales units of 12,800?
A. $27.06
B. $38.97
C. $22.41
D. $41.00
E. $42.64
Q:
The approach that further attempts to model real world uncertainty by analyzing projects the way one might analyze gambling strategies is called:
A. gambler's approach.
B. blackjack approach.
C. Monte Carlo simulation.
D. scenario analysis.
E. sensitivity analysis.
Q:
Break-even analysis:
A. based on accounting profits is preferable to the financial break-even method.
B. identifies the optimal maximum level of output for any given level of fixed assets.
C. ignores both taxes and interest when computing the financial break-even point.
D. is unaffected by the sources of funds used to finance a project.
E. identifies the optimal sales price for any new product.
Q:
In the present value break-even, the EAC is used to:
A. determine the salvage value of the initial fixed asset investment.
B. allocate depreciation over the life of the project.
C. allocate the initial investment at its opportunity cost over the life of the project.
D. determine the contribution margin to fixed costs.
E. allocate the opportunity and erosion costs over the life of the project.
Q:
If you want the most detailed information possible about the potential outcome of a critical project you should conduct:
A. operating analysis.
B. simulation analysis.
C. financial analysis.
D. decision tree analysis.
E. sensitivity analysis.
Q:
Sensitivity analysis:
A. provides the tradeoff between fixed and variable costs.
B. provides an estimate of the most profitable situation that is reasonably expected.
C. ANSD. can be conducted on any input value used in the computation of a project's NPV.
D. cannot evaluate a change in NPV related to a project's initial investment.
E. should never be conducted if the base-case scenario results in a negative NPV.
Q:
Including the option to expand in your project analysis will tend to:
A. extend the duration of a project but not affect the project's net present value.
B. increase the cash flows of a project but decrease the project's net present value.
C. increase the net present value of a project.
D. decrease the net present value of a project.
E. have no effect on either a project's cash flows or its net present value.
Q:
Last month you introduced a new product to the market. Consumer demand has been overwhelming and it appears that strong demand will exist over the long-term. Given this situation, management should consider the option to:
A. suspend.
B. expand.
C. abandon.
D. contract.
E. withdraw.
Q:
Simulation analysis is based on assigning a _____ and analyzing the results.
A. narrow range of values to a single variable
B. narrow range of values to multiple variables simultaneously
C. wide range of values to a single variable
D. wide range of values to multiple variables simultaneously
E. single value to each of the variables
Q:
Conducting scenario analysis helps managers see the:
A. impact of an individual variable on the outcome of a project.
B. expected range of outcomes from a proposed project.
C. maximum range of outcomes that can occur over the course of a proposed project.
D. various decision points of a specific project.
E. consequences of changing a firm's market share for a specific product.
Q:
An analysis of what happens to the estimate of a project's net present value when you examine a vast number of different likely economic situations is called _____ analysis.
A. forecasting
B. scenario
C. sensitivity
D. simulation
E. break-even
Q:
A project has been assigned a discount rate of 12 percent. If the project starts immediately, it will have an initial cost of $480 and cash inflows of $350 a year for three years. If the start is delayed one year, the initial cost will rise to $520 and the cash flows will increase to $385 a year for three years. What is the value of the option to wait?
A. $.70
B. $1.08
C. $1.67
D. $2.20
E. $.20
Q:
Explain the use of real and nominal discount rates in discounting cash flows. Which is used more often and why?
Q:
When is it appropriate to use the equivalent annual cost (EAC) methodology, and how do you make a decision using it?
Q:
This chapter introduced three new methods for calculating project operating cash flow (OCF). Under what circumstances is each method appropriate?
Q:
Stu is working on a bid for a contract. Thus far, he has determined that he will need $218,000 for fixed assets and another $41,000 for net working capital at Time 0. He had also determined that he can recover $79,900 aftertax for the combined fixed assets and net working capital at the end of the 3-year project. What operating cash flow will be required each year for the project to return 14 percent in nominal terms?
A. $116,079.42
B. $97,487.79
C. $110,220.48
D. $88,330.01
E. $113,360.69
Q:
In working on a bid project you have determined that $318,000 of fixed assets will be required and that they will be depreciated straight-line to zero over the 6-year life of the project. You have also determined that the discount rate should be 18 percent and the tax rate will be 35 percent. In addition, the annual cash costs will be $198,200. After considering all of the project's cash flows you have determined that the required operating cash flow is $92,400. What is the amount of annual sales revenue that is required?
A. $299,811.17
B. $302,006.64
C. $284,849,92
D. $311,815.38
E. $279,407.72
Q:
Schroeder Electronics is considering a project which will require the purchase of $5.68 million in new equipment that will be depreciated straight-line to a zero book value over the 5-year life of the project. Schroeder desires a 12 percent rate of return and the tax rate is 35 percent. What is the value of the depreciation tax shield in Year 5 of the project?
A. $225,608.92
B. $228,406.12
C. $334,800.00
D. $397,600.00
E. $1,136,000.00
Q:
Bruno's is analyzing two machines to determine which one it should purchase. The company requires a rate of return of 14 percent and uses straight-line depreciation to a zero book value. Machine A has a cost of $290,000, annual operating costs of $8,000, and a 3-year life. Machine B costs $180,000, has annual operating costs of $12,000, and has a 2-year life. Whichever machine is purchased will be replaced at the end of its useful life. Which machine should Bruno's purchase and why?
A. Machine A; because it will save the company about $8,600 a year
B. Machine A; because it will save the company about $132,912 a year
C. Machine B; because it will save the company about $200,000 a year
D. Machine B; because it will save the company about $11,600 a year
E. Machine B; because its equivalent annual cost is $199,759
Q:
You are considering two projects with the following cash flows: Assuming both projects have the same initial cost, you know that:
A. there are no conditions under which the projects can have equal values.
B. Project B has a higher net present value than Project A.
C. Project A is more valuable than Project B given a positive discount rate.
D. both projects offer the same rate of return.
E. both projects have equal net present values at any discount rate.
Q:
New Tek has a sustainable growth rate of 11.2 percent. However, the firm's managers are determined that the firm should grow by at least 20 percent next year. What must the firm do if the managers are to reach their desired level of growth for the firm?
Q:
What is the current ratio for 2015?A. 1.95B. .95C. 2.06D. 1.98E. .98
Q:
A firm has a return on equity of 16.2 percent, a debt-equity ratio of 44 percent, a capital intensity ratio of 1.08, a current ratio of 1.25, and current assets of $138,000. What is the profit margin?A. 12.15%B. 9.72%C. 7.48%D. 15.19%E. 13.69%
Q:
Samuelson's has sales of $317,000, a profit margin of 8.6 percent, an equity multiplier of 1.8, and total debt of $144,400. What is the return on equity?A. 15.48%B. 14.46%C. 7.05%D. 15.10%E. 11.25%
Q:
Sun Shade's has sales of $363,000, total assets of $323,500, and a profit margin of 14.6 percent. The firm has a total debt ratio of 54 percent. What is the return on equity?A. 28.45%B. 35.61%C. 23.29%D. 31.74%E. 7.88%
Q:
A firm has sales of $22,400, net income of $3,600, net fixed assets of $18,700, inventory of $2,800, and total current assets of $6,300. What is the common-size statement value of inventory?A. 10.07%B. 13.67%C. 11.20%D. 12.50%E. 9.84%