Margarite’s Enterprises is considering a new project. The project will require $200,000 for new fixed assets and $15,000 for additional investments in net working capital. The project has a 3-year life. The fixed assets will be depreciated using 3-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 5 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 180 units and the selling price per unit is $2,000. Variable cost per unit is expected to be $900 and annual fixed costs are expected to be $10,000. The tax rate is 34 percent and the required rate of return (cost of capital) is 15 percent. (A) Calculate the project’s initial investment costs, annual operating cash flows and terminal cash flows. What are project’s NPV and IRR? (B) Should Margarite accept the project?

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Margarite’s Enterprises is considering a new project. The project will require $250,000 for new fixed assets and $11,000 for additional investments in net working capital. The project has a 3-year life. The fixed assets will be depreciated using 3-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 190 units and the selling price per unit is $1,900. Variable cost per unit is expected to be $800 and annual fixed costs are expected to be $11,000. The tax rate is 34 percent and the required rate of return (cost of capital) is 14 percent.

(A) Calculate the project’s initial investment costs, annual operating cash flows and terminal cash flows. What are project’s NPV and IRR?

(B) Should Margarite accept the project?

Assume activity A will actually take 5 weeks, what is the new critical path and new expected duration? (4 Marks

New Audit Report & CAMs:

1. Are you in favor of the PCAOBs new audit report?

2. Do you see any issues with including CAMs in the audit report?

1...

Fairfax Pizza is considering buying a new oven. The new oven would be purchased today for 17,600 dollars. It would be depreciated straight-line to 1,200 dollars over 2 years. In 2 years, the oven would be sold for an after-tax cash flow of 1,700 dollars. Without the new oven, costs are expected to be 11,700 dollars in 1 year and 15,200 in 2 years. With the new oven, costs are expected to be -500 dollars in 1 year and 9,300 in 2 years. If the tax rate is 50 percent and the cost of capital is 11.22 percent, what is the net present value of the new oven project?

Chicago Manufacturing Co. is looking to purchase a new Forklift that costs $15,000. This new machine will replace their current fully depreciated Forklift that they think they can sell for $1,500. The new Forklift will allow the company to produce more flats which will result in new sales of $7,500 per year with increased costs of $1,500 per year. They expect to be able to sell the Forklift at the end of 10 years for $1,500 and will be straight-lined depreciated over the 10-year period to zero.

Chicago Manufacturing Co. has a marginal tax rate of 34% and its required rate of return is 15%.  What is the NPV of the project?

A car manufacturer wants to test a new engine to determine whether it meets new air pollution standard (true mean emission must be less than 20 parts per million of carbon). Ten engines manufactured for testing purposes yield the following emission levels: 15.9, 16.2, 21.5, 19.5, 16.4, 18.4, 19.8, 17.8, 12.7, 14.8 Assume that the normal distribution assumption is satisfied for this sample. Do the data supply sufficient evidence to allow the manufacturer to conclude that this type of engine meets the pollution standard? Use α=0.01.

A new fuel injection system has been engineered for pickup trucks. The new system and the old system both produce about the same average miles per gallon. However, engineers question which system (old or new) will give better consistency in fuel consumption (miles per gallon) under a variety of driving conditions. A random sample of 41 trucks were fitted with the new fuel injection system and driven under different conditions. For these trucks, the sample variance of gasoline consumption was 53. Another random sample of 27 trucks were fitted with the old fuel injection system and driven under a variety of different conditions. For these trucks, the sample variance of gasoline consumption was 34.6. Test the claim that there is a difference in population variance of gasoline consumption for the two injection systems. Use a 5% level of significance. How could your test conclusion relate to the question regarding the consistency of fuel consumption for the two fuel injection systems?

(a) What is the level of significance?


State the null and alternate hypotheses.

H_o: σ₁² = σ₂²; H₁: σ₁² > σ₂²

H_o: σ₁² > σ₂²; H₁: σ₁² = σ₂²   

H_o: σ₂² = σ₁²; H₁: σ₂² > σ₁²

H_o: σ₁² = σ₂²; H₁: σ₁² ≠ σ₂²

(b) Find the value of the sample F statistic. (Round your answer to two decimal places.)


What are the degrees of freedom?

What assumptions are you making about the original distribution?

The populations follow dependent normal distributions. We have random samples from each population.

The populations follow independent normal distributions.    

The populations follow independent chi-square distributions. We have random samples from each population.

The populations follow independent normal distributions. We have random samples from each population.

(c) Find or estimate the P-value of the sample test statistic.

P-value > 0.200

0.100 < P-value < 0.200   

0.050 < P-value < 0.100

0.020 < P-value < 0.050

0.002 < P-value < 0.020

P-value < 0.002

(d) Based on your answers in parts (a) to (c), will you reject or fail to reject the null hypothesis?

At the α = 0.05 level, we reject the null hypothesis and conclude the data are not statistically significant.

At the α = 0.05 level, we reject the null hypothesis and conclude the data are statistically significant.  

   At the α = 0.05 level, we fail to reject the null hypothesis and conclude the data are not statistically significant.

At the α = 0.05 level, we fail to reject the null hypothesis and conclude the data are statistically significant.

(e) Interpret your conclusion in the context of the application.

Fail to reject the null hypothesis, there is sufficient evidence that the variance in consumption of gasoline is greater in the new fuel injection systems.

Reject the null hypothesis, there is insufficient evidence that the variance in consumption of gasoline is greater in the new fuel injection systems.   

Reject the null hypothesis, there is sufficient evidence that the variance in consumption of gasoline is different in both fuel injection systems.

Fail to reject the null hypothesis, there is insufficient evidence that the variance in consumption of gasoline is different in both fuel injection systems.

Judson Industries is considering a new project. The project will initially require $749,000 for new fixed assets, $238,000 for additional inventory, and $25,000 for additional accounts receivable. Accounts payable is expected to increase by $70,001. The fixed assets will belong in a 30% CCA class. At the end of the project, in four years' time, the fixed assets can be sold for 40% of their original cost. The net working capital will return to its original level at the end of the project. The project is expected to generate annual sales of $944,000 with related cash expenses of $620,000. The tax rate is 35% and the required rate of return is 14%.

What is the amount of the earnings before interest and taxes for the first year of this project?

A, -$276

B. -$425,000

C. $32,900

D. $211,650

E. $113,400