Thornley Machines is considering a 3-year project with an initial cost of $618,000. The project will not directly produce any sales but will reduce operating costs by $265,000 a year. The equipment is depreciated straight-line to a zero book value over the life of the project. At the end of the project the equipment will be sold for an estimated $60,000. The tax rate is 34%. The project will require $23,000 in extra inventory for spare parts and accessories.
Should this project be implemented if Thornley's requires a 9% rate of return? Why or why not?

Please show all work without excel

Show all work. Use a MARR of 2% !

1. The cost projections for two alternatives for a proposed bridge are provided below. Which alternative would you recommend in order to minimize cost? (Use a MARR of 2%)

Your bank will lend you $9,600 for 30 days at a cost of $102 interest.

a. What is your annual rate of interest? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Annual rate of interest              %

b. What is your effective annual rate? (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Effective annual rate              %

Dr. Painkiller is going to borrow $6,500 for one year at 8 percent interest.

What is the annual rate of interest if the loan is discounted? (Use 365 days in a year. Do not round intermediate calculation. Round the final answer to 2 decimal places.)

Annual rate of interest              %

The Reynolds Company buys from its suppliers on terms of 4/10, net 51. Reynolds has not been utilizing the discount offered and has been taking 62 days to pay its bills. The suppliers seem to accept this payment pattern, and Reynold’s credit rating has not been hurt.

Mr. Duke, Reynolds Company’s vice-president, has suggested that the company begin to take the discount offered. Mr. Duke proposes the company borrow from its bank at a stated rate of 22 percent. The bank requires a 10 percent compensating balance on these loans. Current account balances would not be available to meet any of this required compensating balance.

a. Calculate the cost of not taking a cash discount. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Cost of not taking a cash discount              %

b. Calculate the annual rate of interest if the company borrows from the bank. (Use 365 days in a year. Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Annual rate of Interest              %

c. Do you agree with Mr. Duke's proposal?

• Yes

• No

Periodic Inventory by Three Methods; Cost of Merchandise Sold

The units of an item available for sale during the year were as follows:

There are 80 units of the item in the physical inventory at December 31. The periodic inventory system is used.

Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar.

Consider the market for ice cream. Suppose that this market is perfectly competitive. The cost structure of the typical ice cream producer is as follows. Average total cost is equal to ???(?)=50?+12?, average variable cost is equal to ???(?)=12?, and marginal cost is equal to ??(?)=?.

a.) Give a formula for the typical ice cream producer’s average fixed cost ???(?). What is the typical ice cream producer’s total fixed cost?

b.) How many ice cream cones will each producer sell in a long-run equilibrium in the market for ice cream?

c.) What is the long-run market equilibrium price for ice cream?

Suppose that demand for ice cream cones is given by ??=403−1300×??.

d.) How many firms will operate in the market for ice cream in a long run equilibrium?

Now, suppose that a new scientific study comes out that shows that soil pollution from rock salt (a key input for making ice cream) is extremely hazardous to human health. In response, the government decides to impose harsh re-zoning restrictions on any land once used for making ice cream. This reduces the market rent for land used to make ice cream, which in turn lowers the opportunity cost of operating an ice cream factory. This reduction in the opportunity cost of capital causes the total fixed cost of ice cream production to fall to 32, but there is no change to variable cost.

e.) Give formulas for the typical ice cream producer’s new average total cost curve ???(?) and marginal cost curve ??(?).

f.) If the market for ice cream cones starts in its initial long run equilibrium, with the number of firms computed in d.), how much profit will ice cream firms make in the short run?

g.) How many firms will operate in the market for ice cream in the new long-run equilibrium?

Zankel Incorp is considering replacing its old machine with a new machine. The cost of a new machine is RM 300,000 with a useful life of 4 years. The machine has an estimated salvage value of RM 45,000. The cost of installing this new machine will be RM 20,000. In the initial period, RM 125,000 in net working capital is required and to be recovered at the ending life of the machine.The company was using the present machine for 4 years and it has a remaining useful life of 2 years. The machine was bought at RM 200,000 and has a salvage value of RM 20,000. Currently, the machine can be sold at RM 90,000 and normally the company adopts straight- line method as a depreciation strategy.The new machine is expected to result in changes as follows: • Increase in annual sales by RM 80,000. • Reduction in annual defect cost by RM 6,000. • Increase in annual operating cost by RM20,000 If corporate tax is 30%, the capital gain tax rate is 15%, and the required rate of return is 10%, determine:

a) Determine the net initial cash outlay

b) Determine the net annual cash flows

c) Determine the net terminal cash flows

d) Determine the net present value for the new machine

e) What is the replacement decision for the company?

Zankel Incorp is considering replacing its old machine with a new machine. The cost of a new machine is RM 300,000 with a useful life of 4 years. The machine has an estimated salvage value of RM 45,000. The cost of installing this new machine will be RM 20,000. In the initial period, RM 125,000 in net working capital is required and to be recovered at the ending life of the machine. The company was using the present machine for 4 years and it has a remaining useful life of 2 years. The machine was bought at RM 200,000 and has a salvage value of RM 20,000. Currently, the machine can be sold at RM 90,000 and normally the company adopts straight- line method as a depreciation strategy. The new machine is expected to result in changes as follows:

• Increase in annual sales by RM 80,000.

• Reduction in annual defect cost by RM 6,000.

• Increase in annual operating cost by RM20,000

If corporate tax is 30%, the capital gain tax rate is 15%, and the required rate of return is 10%, determine:

a) Determine the net initial cash outlay

b) Determine the net annual cash flows

c) Determine the net terminal cash flows

d) Determine the net present value for the new machine

e) What is the replacement decision for the company?

An unlevered company with a cost of equity of 12% generates $7 million in earnings before interest and taxes (EBIT) each year. The decides to alter its capital structure to include debt by adding $1 million in debt with a pre-tax cost of 6% to its capital structure and using the proceeds to reduce equity by a like amount as to keep total invested capital unchanged. The firm pays a tax rate of 26%.

Assuming that the company's EBIT stream can be earned into perpetuity and that the debt can be perpetually issued (or rolled), what will be the firm's new cost of equity?

An unlevered company (just common stock, no preferred) with a cost of equity of 12% generates $1 million in earnings before interest and taxes (EBIT) each year. The decides to alter its capital structure to include debt by adding $2 million in debt with a pre-tax cost of 6% to its capital structure and using the proceeds to reduce equity by a like amount as to keep total invested capital unchanged. The firm pays a tax rate of 33%. Assuming that the company's EBIT stream can be earned into perpetuity and that the debt can be perpetually issued (or rolled), what is the firm's new weighted average cost of capital?

An unlevered company with a cost of equity of 15% generates $7 million in earnings before interest and taxes (EBIT) each year. The decides to alter its capital structure to include debt by adding $2 million in debt with a pre-tax cost of 8% to its capital structure and using the proceeds to reduce equity by a like amount as to keep total invested capital unchanged. The firm pays a tax rate of 39%.

Assuming that the company's EBIT stream can be earned into perpetuity and that the debt can be perpetually issued (or rolled), what is the value of the equity of the levered company?

An unlevered company with a cost of equity of 16% generates $4 million in earnings before interest and taxes (EBIT) each year. The decides to alter its capital structure to include debt by adding $2 million in debt with a pre-tax cost of 4% to its capital structure and using the proceeds to reduce equity by a like amount as to keep total invested capital unchanged. The firm pays a tax rate of 39%.

Assuming that the company's EBIT stream can be earned into perpetuity and that the debt can be perpetually issued (or rolled), what is the firm's new debt-to-equity ratio?

Dean made a statistical estimation of the cost-output relationship for a shoe store. The data for the firm is given in the following table. x 4.5 7 9 10 15 20 33 50 y 3 3.3 3.4 3.5 4.5 5.5 7.5 12 Here x is the output in thousands of pairs of shoes, and y is the cost in thousands of dollars. A. Determine the best-fitting line (using least squares). S1(x) = Incorrect: Your answer is incorrect. r2 = B. Determine the best-fitting quadratic (using the least squares) and the square of the correlation coefficient. S2(x) =