The annual maintenance and operating (M&O) cost was estimated to be $2,500 in Year 1 through Year 4, and $4,400 in Year 5 through Year 9. Estimate the future value of the M&O cost (at t=9) with an interest rate of 11% per year.

ou are evaluating a project for your company. You estimate the sales price to be $290 per unit and sales volume to be 3,900 units in year 1; 4,900 units in year 2; and 3,400 units in year 3. The project has a three-year life. Variable costs amount to $140 per unit and fixed costs are $195,000 per year. The project requires an initial investment of $228,000 in assets which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $39,000. NWC requirements at the beginning of each year will be approximately 14 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 8 percent. What is the operating cash flow for the project in year 2?

• $442,560

• $464,000

• $474,480

• $366,560

Capital Investment Appraisal Techniques X construction is considering two projects to develop. The estimated net cash flow from each project is as follows: Project X Project Y Year 1 110,000 75,000 Year 2 65,000 150,000 Year 3 100,000 60,000 Year 4 115,000 55,000 Year 5 35,000 60,000 Project requires an investment of $200,000. A rate of 15% has been selected for the NPV analysis. Requires to

a) Calculate Payback period, ARR, Net Present Value and Profitability Index

b) Which Project is to be recommended to develop based on NPV, Profitability Index, Payback period and ARR? Suggest

You are evaluating a project for your company. You estimate the sales price to be $200 per unit and sales volume to be 3,000 units in year 1; 4,000 units in year 2; and 2,500 units in year 3. The project has a three-year life. Variable costs amount to $50 per unit and fixed costs are $150,000 per year. The project requires an initial investment of $200,000 in assets which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $30,000. NWC requirements at the beginning of each year will be approximately 10 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 10 percent. What is the operating cash flow for the project in year 2?

You are evaluating a project for your company. You estimate the sales price to be $630 per unit and sales volume to be 3,300 units in year 1; 4,300 units in year 2; and 2,800 units in year 3. The project has a three-year life. Variable costs amount to $430 per unit and fixed costs are $265,000 per year. The project requires an initial investment of $390,000 in assets which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $63,000. NWC requirements at the beginning of each year will be approximately 30 percent of the projected sales during the coming year. The tax rate is 35 percent and the required return on the project is 9 percent. What change in NWC occurs at the end of year 1?

$189,000

$122,850

$529,200

$343,980

You are evaluating a project for The Farpour golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $400 per unit and sales volume to be 1000 units in year 1; 1500 units in year 2; and 1325 units in year 3. The project has a three-year life. Variable costs amount to $225 per unit and fixed costs are $100,000 per year. The project requires an initial investment of $165,000 in assets which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $35,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 10 percent. What change in NWC occurs at the end of year 1?

?

A company has to choose between two different investments.

Investment A: This investment requires an immediate outlay of $60,000 and another investment of $50,000 in year 3. The investment will return annual profits of $45,000 from year 2 to year 8. At the end of year 8, the investment has a residual value of $20,000.

Investment B: This investment requires an immediate outlay of $25,000 and additional investments of $10,000 per year from year 1 to year 3. The investment will return annual profits of $28,000 from year 4 to year 8. At the end of year 8, the investment has a residual value of $20,000.

The cost of capital is 7.5%.

a. Calculate the NPV for investment A.

Round to the nearest cent

b. Calculate the NPV for investment B.

Round to the nearest cent

c. Which investment should the company choose?

Investment A

Investment B

Niether

Your company has spent $180,000 on research to develop a new computer game. The firm is planning to spend $40,000 on a machine to produce the new game. Shipping and installation costs of $5,000 for the machine will be capitalized and depreciated. The machine has an expected life of five years, a $25,000 estimated resale value, and falls under the MACRS five-year class life. Revenue from the new game is expected to be $200,000 per year, with costs of $100,000 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 14 percent, and it expects net working capital to increase by $50,000 at the beginning of the project. What will be the operating cash flow (OCF) for year two of this project?

MACRS rates:

   Year 1: 20.00%

   Year 2: 32.00%

   Year 3: 19.20%

   Year 4: 11.52%

   Year 5: 11.52%

   Year 6: 5.76%