Which of the following statements is correct regarding the admission of a new partner?

A new partner must purchase a partnership interest directly from the business.

A new partner always pays book value.

The right to participate in management of the business cannot be conveyed without the consent of other existing partners.

The right to share in profits and losses can be sold to a new partner without the consent of other existing partners.

Your Company is considering a new project that will require $880,000 of new equipment at the start of the project. The equipment will have a depreciable life of 5 years and will be depreciated to a book value of $300,000 using straight-line depreciation. The cost of capital is 13%, and the firm's tax rate is 21%. Estimate the present value of the tax benefits from depreciation.

• $116,000

• $91,640

• $85,680

• $24,360

DT is evaluating an alternative for a new piece of equipment. They estimate the new equipment will cost $164,000, last 4 years, and have a maintenance and operation cost of $55,000 per year with no salvage value. Using a MARR of 22% per year, what is the present worth?

New drugs are expensive in the U.S.

For example, there are new pain relievers to treat severe arthritis, but they cost $150 a month, nearly 20 times more than previous pain relievers. A new biotech drug, Enbrel, to treat rheumatoid arthritis can cost $1,500 a month.

Which factors have contributed most to the sharp increase in drug expenditures? Discuss all possible factors. Are rising drug expenditures necessarily bad? And how to control drug costs?

Kerfuffle Corporation is considering the purchase of a new computer system. The cost for the new system, net of set-up and delivery costs, will be $1.6 million. The new system will provide annual before-tax cost savings of $500,000 for the next five years. The increased efficiency of the new system will lower net working capital by $200,000 today. The CCA rate on the new system will be 30%. At the end of five years, the system can be salvaged for $100,000. The firm’s required rate of return is 15%, and its marginal tax rate is 35%. What is the NPV of this cost-cutting project?

Select one:

a. -$224,011.86

b. -$22,882.55

c. $15,174.10

d. $76,552.80

e. $563,744.59

Lemington Enterprises is considering a project to replace its fleet of 10 vehicles. The company makes its fleet replacement decision every five years. Its current fleet of 10 vehicles was purchased five years ago at $50,000 each, and can be sold for $8,000 each today. The new vehicles will cost $60,000 each and will bring cost savings of $100,000 per year. In five years, the new vehicles can be sold for $9,000 each. If the fleet is not replaced today, the current fleet will have no salvage value in five years’ time. The CCA rate on these vehicles is 30%, and the company’s marginal tax rate is 35%. What is the PV(CCATS) for this replacement project, assuming a required rate of return of 10%? Round your answer to the nearest dollar.

Select one:

a. $115,626

b. $135,672

c. $130,295

d. $13,567

e. $148,711

Monsoon Inc. is considering bidding on a government project. To do the project, the company must make an initial investment of $8 million to purchase the necessary equipment. The project will last for five years, at the end of which the equipment can be salvaged for $500,000. The equipment has a CCA rate of 30%. The bidding process for the project requires the firm to submit a bid for a constant amount of $X before-tax, to be remitted by the government to the winning bidder each year. The firm’s marginal tax rate is 40%, and the required rate of return on similar projects is 18%. What is the minimum bid that the firm should submit for this project? Round your answer to the nearest dollar.

Select one:

a. $8,000,000

b. $3,191,717

c. $1,915,030

d. $3,308,198

e. $5,988,626

gladstone is about to launch a new product. depedning on the success of the new product, gladstone may have one of four values next year: $155 million, $130 million, $97 million, or $82 million. these outcomes are equally likely and the risk is diversifiable. gladstone will not make any payouts to investors during the year. suppose the risk-free interest rate is 5.2% and assume perfect capital markets.

a) the intitial value of gladstones equity withut leverage is $______ million.

b) now suppose gladstone has zero-coupon debt with $100 million face value due next year. the initial value of gladstones debt is $_______

c) the yield-to-maturity of gladstones debt is $_______

d) the initial value of gladstones equity is $_______

e) gladstones total value with leverage is $________

Your company is considering a new project that will require $10,000 of new equipment at the start of the project. The equipment will have a depreciable life of five years and will be depreciated to a book value of $3,000 using straight-line depreciation. The cost of capital is 9 percent, and the firm's tax rate is 34 percent. Estimate the present value of the tax benefits from depreciation.

Which statement is true regarding cost-cutting proposals?

Kerfuffle Corporation is considering the purchase of a new computer system. The cost for the new system, net of set-up and delivery costs, will be $1.6 million. The new system will provide annual before-tax cost savings of $500,000 for the next five years. The increased efficiency of the new system will lower net working capital by $200,000 today. The CCA rate on the new system will be 30%. At the end of five years, the system can be salvaged for $100,000. The firm’s required rate of return is 15%, and its marginal tax rate is 35%. What is the NPV of this cost-cutting project?

Balon Enterprises is looking to invest in a new product to extend their operations. The new project is expected to require an initial cash investment of $350,000 plus additional working capital of $50,000 will be required and this will be recovered at the end of year 6. At the end of the project the initial investment will have an expected salvage value of $0.
Cash inflows of $100,000 are expected at the end of each year for 5 years and then in year 6 the inflows are expected to drop off to $30,000. The company’s required rate of return of any project is 12%.

Assume cash returns occur at the end of each year apart from the initial investment.

Use the required rate of return as the discount rate and use the tables at the back of this booklet to find the discount rates.
Ignore tax.

(a) Conduct a net present value analysis for the new project. Show your workings.

(b) Based on the NPV analysis, state whether Balon Enterprises should invest in this new project and explain why.

(c) The Chief Financial Officer is concerned that the effects of COVID19 will mean that the forecasted cash inflows will only be $80,000 each year for years 1 to 5 and all other cash flows remain the same. Describe the effect of this change in estimate on the NPV. No calculation is required.

considering a new project will require $800,000 for new fixed assets. There is a total of $6,000 combined increase in inventories and account receivables and $2,000 increase in account payables. The project has a 6-year life. The fixed assets will be depreciated using 5-year MACRS to a zero book value over the life of the project. At the end of the project, the fixed assets can be sold for 4 percent of their original cost. The net working capital returns to its original level at the end of the project. The project is expected to generate annual sales of 9,500 units and the selling price per unit is $250 while the variable cost per unit is expected to be $160. Annual fixed costs are expected to be $30,000. The tax rate is 35 percent and the required rate of return (cost of capital) is 13 percent. Calculate the project’s initial investment costs, annual operating cash flows and terminal cash flows. What are project’s NPV and IRR?