With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,600 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $57,000 in net working capital to start. Total fixed costs are $143,000 per year, variable production costs are $17 per unit, and the units are priced at $60 each. The equipment needed to begin production will cost $605,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 21 percent and the required rate of return is 17 percent. What is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

A friend of yours is working toward a master of business administration (MBA) degree. He e-mails you the following note:

"Hey! How are things going? I need your help! We are studying income taxes in my Financial Accounting class and just finished talking about deferred taxes. I think the professor said something about adjusting the value of deferred taxes when it's an asset but not when it's a liability. When I looked at my homework problem, the balance sheet shows both a deferred tax asset and a deferred tax liability. Shouldn't it be one or the other? And why would one need the value adjusted for one, but not the other? Help!"

You want to help your friend, but you remember having some questions yourself:

• Analyze why FASB requires companies to report both deferred tax assets and deferred tax liabilities instead of netting them.
• Examine why the FASB requires valuation adjustments for deferred tax assets but does not for deferred tax liabilities.

Consider the following marginal benefit (demand) curves of two individuals for a certain good: MB_A(q) = 100 – q and MB_B(q) = 300 – q.

Consider the Marginal Private Costs of providing Fireworks in The Park, MC(q) = 50 + q.

1. Find q^M, the amount of Fireworks in the Park provided by the Market, when individuals provide the good with no co-operation and act only in their self-interest.
2. What is the efficient level of Fireworks in the Park, q*?
3. Person B brings a friend to the park (person C), with the same MB curve as theirs (MB_C = 300 – q). Find the new quantity provided by the Market (q^M) and the new efficient level of Fireworks in the Park (q*).
4. Despite being visually appealing, fireworks are known to cause negative externalities such as noise pollution and increased deaths by heart attacks in dogs. We estimated the marginal external costs of Fireworks in the Park, MEC (q) = 70 + q. What is the new efficient level of Fireworks in the Park? Consider the MSB curve found in part f, which includes person C. How does this new efficient allocation compare to the Market equilibrium, q^M, found in f?

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this causal surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 10,900 in the first year, with growth of 8 percent each year for the next five years. Production of these lamps will require $63,000 in net working capital to start. Total fixed costs are $152,000 per year, variable production costs are $20 per unit, and the units are priced at $63 each. The equipment needed to begin production will cost $620,000. The equipment will be depreciated using the straight-line method over a 5-year life and is not expected to have a salvage value. The tax rate is 24 percent and the required rate of return is 16 percent. What is the NPV of this project?

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,700 in the first year, with growth of 5 percent each year for the next five years. Production of these lamps will require $52,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $112,000 per year, variable production costs are $25 per unit, and the units are priced at $55 each. The equipment needed to begin production will cost $192,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 34 percent and the required rate of return is 30 percent.

What is the NPV of this project?

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,400 in the first year, with growth of 5 percent each year for the next five years. Production of these lamps will require $49,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $109,000 per year, variable production costs are $20 per unit, and the units are priced at $48 each. The equipment needed to begin production will cost $189,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 38 percent and the required rate of return is 20 percent. What is the NPV of this project?

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,300 in the first year, with growth of 4 percent each year for the next five years. Production of these lamps will require $48,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $108,000 per year, variable production costs are $16 per unit, and the units are priced at $44 each. The equipment needed to begin production will cost $188,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 39 percent and the required rate of return is 25 percent.

What is the NPV of this project?

With the growing popularity of casual surf print clothing, two recent MBA graduates decided to broaden this casual surf concept to encompass a “surf lifestyle for the home.” With limited capital, they decided to focus on surf print table and floor lamps to accent people’s homes. They projected unit sales of these lamps to be 8,100 in the first year, with growth of 5 percent each year for the following four years (Years 2 through 5). Production of these lamps will require $46,000 in networking capital to start. Total fixed costs are $106,000 per year, variable production costs are $12 per unit, and the units are priced at $40 each. The equipment needed to begin production will cost $186,000. The equipment will be depreciated using the straight-line method over a five-year life and is not expected to have a salvage value. The effective tax rate is 40 percent, and the required rate of return is 20 percent. What is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)