On January 1, 2017, Sunland Industries had stock outstanding as follows.

To acquire the net assets of three smaller companies, Sunland authorized the issuance of an additional 160,800 common shares. The acquisitions took place as shown below.

On May 14, 2017, Sunland realized a $93,600 (before taxes) insurance gain on discontinued operations.

On December 31, 2017, Sunland recorded income of $282,000 from continuing operations (after tax).

Assuming a 50% tax rate, compute the earnings per share data that should appear on the financial statements of Sunland Industries as of December 31, 2017. (Round answer to 2 decimal places, e.g. $2.55.)

1. Iris reads a media article in the New York times that describes how CRISPR is being used to treat genetic disease. She asks her friend if CRISPR could someday be used to cure Wilson’s disease. For CRISPR to be a viable option for curing Wilson’s disease, which of the following must be possible? SELECT ALL

The full sequence of the mutated atp7b gene must be known.

The full sequence of the normal ATP7B gene must be known.

Patients’ liver cells would have to be able to be removed and later reintroduced into the body.

The STRs flanking either side of the mutated atp7b gene must be known.

2.

At which point during ATPB7B gene expression does the copper-transporting ATPase 2 ER signal get manufactured? What would be the result if the SRP is inhibited such that it cannot bind to the ER signal?

Rump Industries is considering the purchase of a new production machine for $100,000. The introduction of the machine will result in an increase in earnings before interest and tax of $25,000 per year. Set-up of the machine will involve installation costs of $5,000 after-tax. Additionally, the machine will require workers to undergo training that will cost the company $5,000 after-tax. An initial increase in raw materials and inventory of $25,000 will also be required. The machine has an expected life of 10 years and is expected to have no salvage value at the end of its life. To purchase the new machine the company will have to borrow $80,000 at 10 per cent interest from the bank, which will require interest payments of $8,000 per year. The company will depreciate the machine straight-line over its life. The tax rate is 30 per cent and tax is paid in the year of income. Rump Industries’ required rate of return (WACC) is 12 per cent.

Required: 1. Calculate the initial outlay associated with the project

2. Calculate the annual after-tax cash flows for years 1-9

3. Calculate the after-tax cash flow in year 10

4. Calculate the Net Present Value.

Ducks inc has provided the following data to be used to evaluate a proposed investment project:

                        Investment $880,000

                        Annual Cash Receipt $660,000

                        Life of the project 8 years

                        Annual cash expenses $330,000

                        Salvage value $88,000

                        Tax rate 30%

For tax purpose the entire initial investment without any reduction for salvage value will be depreciated over 7 years. The company uses a discount rate of 12%.

1. When computing the net present value of the project, what are the annual after-tax cash expense before discounting?

1. $462,000
2. $396,000
3. $198,000
4. $69,300

2. When computing the net present value of the project, what are the annual after-tax cash expenses after discounting?

1. 429,000
2. $242,000
3. $99,000
4. $231,000

3. When computing the net present value of the project, what is the annual amount of the depreciation tax-shield? In other words, by how much does the depreciation deduction reduce taxes each year in which the depreciation deduction reduce taxes each year in which the depreciation deduction is taken?

1. $37,714
2. $242,000
3. $99,000
4. $231,000

4. When computing the net present value of the project, what is the after-tax cash from the salvage value in the final year

1. $0
2. $88,000
3. $26,400
4. $61,600

Firm C currently has 250,000 shares outstanding with current market value of $47.40 per share and generates an annual EBIT of $1,250,000. Firm C also has $1 million of debt outstanding. The current cost of equity is 8 percent and the current cost of debt is 5 percent. The firm is considering issuing another $2 million of debt and using the proceeds of the debt issue to repurchase shares (a pure capital structure change). It is estimated that the cost of the new debt will be 5.5 percent and that the cost of equity will rise to 9 percent with the additional debt. The marginal tax rate is 21 percent.

1. What is the current market value of the firm?

2. Before the capitalization, what is the firm's weighted average cost of capital? Answer in decimal form.

3. What will the firm’s market value be after the announcement of the new debt issue?

4. What will the estimated new share price be after the capital structure change announcement?

5. What is the firm's net income after the recapitalization?

Note: The total interest costs that must be subtracted from EBIT must be calculated in two parts and then added.

6. How many shares are outstanding after the repurchase?

A bank wants to know if the enrollment for new savings accounts has improved at various branches after offering a free iPhone X to customers. Use the data from "iphoneX" sheet in excel

Run the appropriate statistical test with α=0.05. Which of the following are correct? More than one answer is possible.

(Calculating project cash flows and​ NPV)  The Chung Chemical Corporation is considering the purchase of a chemical analysis machine. Although the machine being considered will result in an increase in earnings before interest and taxes of

$ 34 comma 000$34,000

per​ year, it has a purchase price of

​$85 comma 00085,000​,

and it would cost an additional

​$8 comma 0008,000

after tax to correctly install this machine. In​ addition, to properly operate this​ machine, inventory must be increased by

​$3 comma 5003,500.

This machine has an expected life of

1010

​years, after which it will have no salvage value. ​ Also, assume simplified​ straight-line depreciation, that this machine is being depreciated down to​ zero, a

3636

percent marginal tax​ rate, and a required rate of return of

99

percent.

a.  What is the initial outlay associated with this​ project?

b.  What are the annual​ after-tax cash flows associated with this project for years 1 through

99​?

c.  What is the terminal cash flow in year

1010

​(that is, the annual​ after-tax cash flow in year

1010

plus any additional cash flows associated with termination of the​ project)?

d.  Should this machine be​ purchased?

a.  The initial cash outlay associated with this project is

​$nothing.

​ (Round to the nearest​ dollar.)

(Calculating project cash flows and​ NPV)  ​Weir's Trucking, Inc. is considering the purchase of a new production machine for $115,000.

The purchase of this new machine will result in an increase in earnings before interest and taxes of $21,000 per year. To operate this machine​ properly, workers would have to go through a brief training session that would cost

$4,250 after tax. In​ addition, it would cost ​$5,500 after tax to install this machine correctly. ​ Also, because this machine is extremely​ efficient, its purchase would necessitate an increase in inventory of ​$20,000 This machine has an expected life of 10 ​years, after which it will have no salvage value. ​ Finally, to purchase the new​ machine, it appears that the firm would have to borrow ​$90,000 at 10 percent interest from its local​ bank, resulting in additional interest payments of $9,000 per year. Assume simplified​ straight-line depreciation, that this machine is being depreciated down to​ zero, a 32

percent marginal tax​ rate, and a required rate of return of 11 percent.

a.  What is the initial outlay associated with this​ project?

b.  What are the annual​ after-tax cash flows associated with this project for years 1 through 9​?

c.  What is the terminal cash flow in year 10 ​(that is, the annual​ after-tax cash flow in year 10 plus any additional cash flows associated with termination of the​ project)?

d.  Should this machine be​ purchased?

Example 6:

Technology Tools

is evaluating the purchase of a new type of technology that would cost $1.5 million to

purchase, ship, and install. Still, investment in this machine is expected to increase sales revenues by $400,000, and

reduce operating expenses before depreciation and taxes by $125,000 per year. To operate this machine properly,

workers would have to go through a brief training session that would cost $14,000 on an after tax basis. Also, because

this machine is extremely efficient, its purchase would necessitate an increase in inventories of $80,000, which will be

partially offset by a $25,000 increase in accounts payable. This machine has an expected life of 10 years, after which

the after tax market (salvage) value of the machine will just equal the cost to remove and sell the equipment. Assume

simplified straight-line depreciation and that this machine is being depreciated down to zero. The firm has a 40%

marginal tax rate, and a cost of capital for this very risk project is 22.0% for this type of investment.

a.

What is the initial cost associated with this project?

b.

What are the annual after-tax cash flows associated with this project, for years 1 through 9?

c.

What is the terminal cash flow in Year 10 (i.e., what is the annual after-tax cash flow in Year 10 plus any

additional cash flows associated with termination of the project)?

(Calculating project cash flows and NPV)?? Weir's Trucking, Inc. is considering the purchase of a new production machine for $115,000. The purchase of this new machine will result in an increase in earnings before interest and taxes of $27,000 per year. To operate this machine properly, workers would have to go through a brief training session that would cost $5500 after tax. In addition, it would cost 5500 after tax to install this machine correctly. Also, because this machine is extremely efficient, its purchase would necessitate an increase in inventory of $27,000. This machine has an expected life of 10 years, after which it will have no salvage value. Finally, to purchase the new machine, it appears that the firm would have to borrow $90,000 at 10 percent interest from its local bank, resulting in additional interest payments of $9,000 per year. Assume simplified straight-line depreciation, that this machine is being depreciated down to zero, a 32 percent marginal tax rate, and a required rate of return of 15 percent.

a.??What is the initial outlay associated with this project?

b.??What are the annual after-tax cash flows associated with this project for years 1 through 9 ?

c.??What is the terminal cash flow in year 10 (that is, the annual after-tax cash flow in year 10

plus any additional cash flows associated with termination of the project)?

d.??Should this machine be purchased?