Part A: New Equipment

1. Rhonda is debating about buying a new ice cream machine for one of her stores. The current machine is valued at $10,000 this year and will generate $2,500 of profit for the store. The value of the machine at the end of the year will be $8,250. Her other option is to purchase a new piece of equipment for $15,000. The new equipment will generate $4,000 in profit and will be valued at $12,500. Calculate the holding period return for both assets.
2. Rhonda also has the option of purchasing a new espresso maker that will allow her to expand her offerings at one location. She has the savings to purchase the equipment, but would lose the 4.5% annual interest that the savings generates. She expects the espresso machine to generate profits of $3,000 each year over the next 5 years. After five years she could sell the machine for $4,000. What is the present value of the machine to her?

1. Based on the holding period returns calculated in Part A.1 which option should Rhonda choose?
2. If she can purchase the espresso machine in Part A.2 for $20,000, should she?

Please show your work so I can understand the formulas. Thank you!!

The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.35 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 25,000 tents per year at a price of $67 and variable costs of $27 per tent. The fixed costs will be $425,000 per year. The project will require an initial investment in net working capital of $205,000 that will be recovered at the end of the project. The required rate of return is 12.6 percent and the tax rate is 35 percent. What is the NPV? $639,997 $362,602 $417,859 $522,276 $962,718

Investment Outlay

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $19 million, and production and sales will require an initial $4 million investment in net operating working capital. The company's tax rate is 30%.

1. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000.
   $   
   
2. The company spent and expensed $150,000 on research related to the project last year. Would this change your answer?
   -Select-Yes No Item 2
   
3. 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?
   The project's cost will -Select-increase decreasenot changeItem 3.

Woodbridge Manufacturing is also considering developing a new assembly line on which to build another new product (not covered in the text). In what category should the costs listed below be placed:

Initial investment outlay (time0)
Supplemental annual cash flows (time1 through timeN)
Terminal value (timeN), or Disregarded?

Also state your reasoning for choosing that classification. Consider each element individually.
This product has been developed over the past three years, at a total cost of $125,000.
The building that Woodbridge is planning to be used is currently rented out to another company for $10,000 per month, and they are on a month-to-month lease so the lease can be terminated with 90 days' notice.
The new product will replace a current product, which is currently generating $12,000 per month in free cash flow (cash earnings less applicable costs).
The machines will cost $750,000.
Travel to see similar machines in operation at another company's factory costed $3,500.
Freight and installation for the machines will cost $75,000.
It is projected that the additional inventories valued at $80,000 will be required to support sales of the product.
Woodbridge will offer 90 day credit terms to purchasers of the new product which are expected to expand accounts receivable by an average of $145,000.
The gross profit (or gross margin) on the sales of the product is expected to be $360,000 per year for the five years of the project.
Purchases of material for the project is expected to increase the balance of the accounts payable by $32,000 during the project life.
Interest on a loan taken out around the time of starting the project will be $12,000 per year.
The salvage value of the machines is expected to be $236,000 at the end of the project.

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $16 million, and production and sales will require an initial $1 million investment in net operating working capital. The company's tax rate is 35%.

1. What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000.
   $
   
2. The company spent and expensed $150,000 on research related to the new project last year. Would this change your answer?
   -Select-YesNoItem 2
   
3. 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?
   The project's cost will -Select-increasedecreasenot changeItem 3 .

NEW PROJECT ANALYSIS

You must evaluate a proposal to buy a new milling machine. The base price is $104,000, and shipping and installation costs would add another $20,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $57,200. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $4,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $54,000 per year. The marginal tax rate is 35%, and the WACC is 13%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.

1. How should the $5,000 spent last year be handled?
   1. Only the tax effect of the research expenses should be included in the analysis.
   2. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
   3. Last year's expenditure is considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   4. Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   5. The cost of research is an incremental cash flow and should be included in the analysis.
   
   =______?

2. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.
   $_____?

3. What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Do not round your intermediate calculations.

   Year 1 $____?

   Year 2 $____?

   Year 3 $____?

4. Should the machine be purchased?
   =YES/NO?

NEW PROJECT ANALYSIS

You must evaluate a proposal to buy a new milling machine. The base price is $112,000, and shipping and installation costs would add another $10,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $72,800. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $3,000 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $38,000 per year. The marginal tax rate is 35%, and the WACC is 10%. Also, the firm spent $5,000 last year investigating the feasibility of using the machine.

1. How should the $5,000 spent last year be handled?
   1. Last year's expenditure should be treated as a terminal cash flow and dealt with at the end of the project's life. Hence, it should not be included in the initial investment outlay.
   2. Last year's expenditure is considered as an opportunity cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   3. Last year's expenditure is considered as a sunk cost and does not represent an incremental cash flow. Hence, it should not be included in the analysis.
   4. The cost of research is an incremental cash flow and should be included in the analysis.
   5. Only the tax effect of the research expenses should be included in the analysis.

b. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Round your answer to the nearest cent.
$

c. What are the project's annual cash flows during Years 1, 2, and 3? Round your answer to the nearest cent. Do not round your intermediate calculations.

Year 1 $

Year 2 $

Year 3 $

d. Should the machine be purchased?

The Bruin's Den Outdoor Gear is considering a new 7-year project to produce a new tent line. The equipment necessary would cost $1.59 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 26,000 tents per year at a price of $69 and variable costs of $29 per tent. The fixed costs will be $445,000 per year. The project will require an initial investment in net working capital of $213,000 that will be recovered at the end of the project. The required rate of return is 11.2 percent and the tax rate is 34 percent. What is the NPV?

Multiple Choice

• $816,841

• $1,186,611

• $660,072

• $510,939

• $548,380

• open up a new Java project on Eclipse named Review and create a new class called Review.java.
• Copy and paste the below starter code into your file:

/**

* @author

* @author

* CIS 36B
*/

//write your two import statements here

public class Review {
  
    public static void main(String[] args) { //don't forget IOException
        File infile = new File("scores.txt");
        //declare scores array
        //Use a for or while loop to read in data from scores.txt to the array
        //call method
        //Use a for loop to write data from array into extraCredit.txt
      
    }
    
        
    /**
     * Write complete Javadoc comment here
     */
    //write your addExtraCredit method here   
  
}

• Next, create a new text file named scores.txt
  • Rick-click the project. Go to New->File.
  • Name your file scores.txt
  • Make sure the text file gets saved inside the overall project folder (Review), not in the src folder
• Now, copy and paste the following data (exam scores) into your scores.txt file:

90
95
86
41
79
56
90
83
74
98
56
81
64
99
12

• Your program must declare an array of integers, and populate the array with the contents of the file.
  • You may assume that the length of the array is known to be 15 elements.
• Next, write a method called addExtraCredit:
  • The addExtraCredit method takes in one parameter - an array of integers
  • It adds 2 to each element in the array (hint: think for loop)
  • It returns nothing
• Inside of main, call the addExtraCredit method, passing it the array of exam scores.
• Next, write the contents of the array to a file named extraCredit.txt.
  • Use PrintWriter to write out to the file (see lesson notes above).
• When you are finished, extraCredit.txt should contain the following:
  • Don't forget the title!

Scores with Extra Credit:
92
97
88
43
81
58
92
85
76
100
58
83
66
101
14

• Hint: Your program should include either 3 for loops or 2 for loops and a while loop.
• If you get stuck, review today's lesson notes.
• When extraCredit.txt contains the above data, submit your program to Canvas.
• Both partners must submit to receive credit.

The Bruin's Den Outdoor Gear is considering a new 6-year project to produce a new tent line. The equipment necessary would cost $1.33 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 24,500 tents per year at a price of $66 and variable costs of $26 per tent. The fixed costs will be $415,000 per year. The project will require an initial investment in net working capital of $201,000 that will be recovered at the end of the project. The required rate of return is 10.9 percent and the tax rate is 34 percent. What is the NPV?