1. Robert, a new client of yours, is a self-employed caterer in Santa Fe, New Mexico. Robert drives his personal van when delivering catered meals to customers. You have asked him to provide the amount of business miles driven using his vehicle. You are planning on using the standard mileage method to calculate Robert’s deduction for transportation costs. Robert has responded by saying, “Well, I don’t really keep track of my miles. I guess I drove around 3,000 miles last year for the business.” Please let us know how you would respond to Robert.
2. Your supervisor has asked you to research a potential tax deduction for a client, Nancy Fradette. Nancy is a seat-filler at a number of the award shows that are filmed in the greater Los Angeles area. Although typically seat-fillers are not compensated, Nancy is so good at the job that many of the events are willing to pay for her services. As a result, her level of seat-filling activity now rises to the level of a business, not just a hobby. In 2018, Nancy is hoping to take a trip to the National Award Show Association (NASA) Annual Conference being held in Koror, Palau, a small island country in the Pacific. Although the conference is specifically focused on the presentation of award shows, a large number of the producers of these shows attend each year. Nancy wanted to attend so she could understand the challenges an award show producer faces and thus better perform her seat-filler job. The conference is held in a remote location each year as award show producers generally prefer a high level of secrecy around the inner-workings of the shows, and the scuba-diving and weather are also pretty good. The costs to attend the conference are $1,200 for conference registration, $2,300 for air travel, $2,400 for lodging. All the meals are included in the cost of the registration and are valued at $400. Please prepare a letter to Nancy that describes the issues that Nancy will face in trying to deduct the cost of this trip. Use IRS Publication 463 (available at www.irs.gov (Links to an external site.)) to assist you.

FIN343 Bank estimates that building a new branch office in the newly developed New Heaven township will yield an annual expected return of 10 percent with an estimated standard deviation of 6 percent. The bank's marketing department estimates that cash flows from the proposed New Heaven branch will be strongly positively correlated (with a correlation coefficient of + 0.70) with the bank's other sources of cash flow. The expected annual return from the bank's existing facilities and other assets is 8 percent with a standard deviation of 5 percent. The branch will represent just 15 percent of Lifetime's total assets. Will the proposed branch increase FIN343's overall rate of return? Its overall risk?

Creative Ideas Company has decided to introduce a new product. The new product can be manufactured by either a capital-intensive method or a labor-intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as follows.

Capital-Intensive Labor-Intensive
Direct materials $6 per unit $6.50 per unit
Direct labor $7 per unit $9.00 per unit
Variable overhead $3 per unit $5.00 per unit
Fixed manufacturing costs $2,877,000 $1,767,000

Creative Ideas’ market research department has recommended an introductory unit sales price of $36. The incremental selling expenses are estimated to be $572,000 annually plus $2 for each unit sold, regardless of manufacturing method.

With the class divided into groups, answer the following.

(a)

Calculate the estimated break-even point in annual unit sales of the new product if Creative Ideas Company uses the: (Round answers to 0 decimal places, e.g. 5,275.)

(1) Capital-intensive manufacturing method.
(2) Labor-intensive manufacturing method.

Capital-Intensive Labor-Intensive
Break-even point in units

(b)

Determine the annual unit sales volume at which Creative Ideas Company would be indifferent between the two manufacturing methods. (Round answer to 0 decimal places, e.g. 5,275.)

Annual unit sales volume ____________ units

Snow Inc. has just completed development of a new cell phone. The new product is expected to produce annual revenues of $1,400,000. Producing the cell phone requires an investment in new equipment, costing $1,500,000. The cell phone has a projected life cycle of 5 years. After 5 years, the equipment can be sold for $180,000. Working capital is also expected to decrease by $200,000, which Snow will recover by the end of the new product’s life cycle. Annual cash operating expenses are estimated at $820,000. The required rate of return is 8%. Required:

1. Prepare a schedule of the projected annual cash flows.

2. Calculate the NPV using only discount factors from the Present Value of a Single Amount table shown in Present Value Tables.

3. Calculate the NPV using discount factors from both of the tables shown in Present Value Tables.

I really need help with the second question, please and thank you!

Suppose the federal government is considering requiring all new trucks to meet a new higher efficiency standard of 50 miles per gallon. Give an example of a cost and a benefit that might arise from this policy change.

The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.15 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 20,000 tents per year at a price of $57 and variable costs of $18 per tent. The fixed costs will be $325,000 per year. The project will require an initial investment in net working capital of $165,000 that will be recovered at the end of the project. The required rate of return is 9.9 percent and the tax rate is 35 percent. What is the NPV?

A project will reduce costs by $41,200 but increase depreciation by $20,100. What is the operating cash flow if the tax rate is 35 percent?

The Bruin's Den Outdoor Gear is considering making and selling custom kites in two sizes. The small kites would be priced at $11.50 and the large kites would be $24.50. The variable cost per unit is $5.55 and $12.10, respectively. Jill, the owner, feels that she can sell 3,100 of the small kites and 1,850 of the large kites each year. The fixed costs would be $2,120 a year and the depreciation expense is $1,400. The tax rate is 35 percent. What is the annual operating cash flow?

The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.29 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 15 percent of its initial cost. The company believes that it can sell 23,500 tents per year at a price of $64 and variable costs of $25 per tent. The fixed costs will be $395,000 per year. The project will require an initial investment in net working capital of $193,000 that will be recovered at the end of the project. The required rate of return is 10.7 percent and the tax rate is 35 percent. What is the NPV?

The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.29 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 15 percent of its initial cost. The company believes that it can sell 23,500 tents per year at a price of $64 and variable costs of $25 per tent. The fixed costs will be $395,000 per year. The project will require an initial investment in net working capital of $193,000 that will be recovered at the end of the project. The required rate of return is 10.7 percent and the tax rate is 35 percent. What is the NPV?

Multiple Choice

• $918,509

• $545,989

• $403,416

• $635,749

• $457,864

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $10 million, and production and sales will require an initial $5 million investment in net operating working capital. The company's tax rate is 35%.

What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000.

The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer?

Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for $1.5 million after taxes and real estate commissions. How would this affect your answer?