**BUSI 530 Week 4 Homework 4 (Solutions, 3 Sets) New Work**

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**Question 1**

**The following are the cash flows of two projects:**

**Question 2**

**The following are the cash flows of two projects:**

**Question 3**

**The following are the cash flows of two projects:**

**Question 4**

**The following are the cash flows of two projects:**

**Question 5**

**A project that costs $3,300 to install will provide annual cash flows of $830 for each of the next 6 years.**

**Question 6**

**A project that costs $2,400 to install will provide annual cash flows of $590 for the next 5 years. The firm accepts projects with payback periods of less than 5 years**

**Question 7**

**Consider projects A and B:**

**Question 8**

**a. Calculate the net present value of the following project for discount rates of 0, 50, and 100%: (Leave no cells blank ¬ be certain to enter “0″ wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)**

**Question 9**

**A precision lathe costs $14,000 and will cost $24,000 a year to operate and maintain. If the discount rate is 12% and the lathe will last for 3 years, what is the equivalent annual cost of the tool? (Do not round intermediate calculations. Round your answer to 2 decimal places.)**

**Question 10**

**A new project will generate sales of $73.6 million, costs of $41.6 million, and depreciation expense of $9.6 million in the coming year. The firm’s tax rate is 30%.**

**Question 11**

**Canyon Tours showed the following components of working capital last year:**

**Question 12**

**Tubby Toys estimates that its new line of rubber ducks will generate sales of $6.7 million, operating costs of $3.7 million, and a depreciation expense of $0.7 million. Assume the tax rate is 40%.**

**Question 13**

**The owner of a bicycle repair shop forecasts revenues of $180,000 a year. Variable costs will be $55,000, and rental costs for the shop are $35,000 a year. Depreciation on the repair tools will be $15,000. Prepare an income statement for the shop based on these estimates. The tax rate is 30%. (Input all amounts as positive values.)**

**Question 14**

**The owner of a bicycle repair shop forecasts revenues of $188,000 a year. Variable costs will be $57,000, and rental costs for the shop are $37,000 a year. Depreciation on the repair tools will be $17,000. The tax rate is 40%.**

**Question 15**

**A house painting business had revenues of $17,600 and expenses of $10,600. There were no depreciation expenses. However, the business reported the following changes in working capital:**

**Question 16**

**Talia’s Tutus bought a new sewing machine for $85,000 that will be depreciated using the MACRS**

**Question 17**

**The only capital investment required for a small project is investment in inventory. Profits this year were $9,400, and inventory increased from $5,300 to $7,600. What was the cash flow from the project?**

**Question 18**

**Quick Computing installed its previous generation of computer chip manufacturing equipment 3 years ago. Some of that older equipment will become unnecessary when the company goes into production of its new product. The obsolete equipment, which originally cost $42.5 million, has been depreciated straight¬line over an assumed tax life of 5 years, but it can be sold now for $18.5 million. The firm’s tax rate is 30%. What is the after¬tax cash flow from the sale of the equipment? (Enter your answer in millions rounded to 2 decimal places.)**

**Question 19**

**Bottoms Up Diaper Service is considering the purchase of a new industrial washer. It can purchase the washer for $8,500 and sell its old washer for $4,500. The new washer will last for 5 years and save $2,200 a year in expenses. The opportunity cost of capital is 14%, and the firm’s tax rate is 30%. What is the equivalent annual cost of the washer, if the firm uses straight¬line depreciation? (Do not round intermediate calculations. Round your answer to 2 decimal places.)**

**Question 20**

**Johnny’s Lunches is considering purchasing a new, energy¬efficient grill. The grill will cost $38,000 and will be depreciated according to the 3¬year MACRS schedule. It will be sold for scrap metal after 3 years for $9,500. The grill will have no effect on revenues but will save Johnny’s $19,000 per year in energy expenses. The tax rate is 30%. Use MACRS depreciation schedule.**

**Question 21**

**Revenues generated by a new fad product are forecast as follows:**

**Question 22**

**Blooper Industries must replace its magnoosium purification system. Quick & Dirty Systems sells a relatively cheap purification system for $25 million. The system will last 5 years. Do¬It¬Right sells a sturdier but more expensive system for $28 million; it will last for 7 years. Both systems entail $3 million in operating costs; both will be depreciated straight¬line to a final value of zero over their useful lives; neither will have any salvage value at the end of its life. The firm’s tax rate is 40%, and the discount rate is 16%.**

**Question 23**

**The following table presents sales forecasts for Golden Gelt Giftware. The unit price is $40. The unit cost of the giftware is $20.**

**Question 24**

**In a slow year, Deutsche Burgers will produce 2.0 million hamburgers at a total cost of $3.6 million. In a good year, it can produce 4.5 million hamburgers at a total cost of $5.1 million. What are the variable and fixed costs of hamburger production? (Enter your answers in dollars not in millions. Round “Variable cost” to 2 decimal places.)**

**Question 25**

**In a slow year, Deutsche Burgers will produce 5 million hamburgers at a total cost of $5.2 million. In a good year, it can produce 10 million hamburgers at a total cost of $6.2 million**

**Question 26**

**A project currently generates sales of $11.5 million, variable costs equal to 40% of sales, and fixed costs of $3.5 million. The firm’s tax rate is 35%.**

**Question 27**

**A project currently generates sales of $11.5 million, variable costs equal to 40% of sales, and fixed costs of $2.2 million. The firm’s tax rate is 40%.**

**Question 28**

**Emperor’s Clothes Fashions can invest $6 million in a new plant for producing invisible makeup. The plant has an expected life of 5 years, and expected sales are 7 million jars of makeup a year. Fixed costs are $1.8 million a year, and variable costs are $2.5 per jar. The product will be priced at $3.4 per jar. The plant will be depreciated straight¬line over 5 years to a salvage value of zero. The opportunity cost of capital is 12%, and the tax rate is 40%**

**Question 29**

**The most likely outcomes for a particular project are estimated as follows:**

**Question 30**

**Dime a Dozen Diamonds makes synthetic diamonds by treating carbon. Each diamond can be sold for $120. The materials cost for a standard diamond is $60. The fixed costs incurred each year for factory upkeep and administrative expenses are $211,000. The machinery costs $2.0 million and is depreciated straight¬line over 10 years to a salvage value of zero**

**Question 31**

**Modern Artifacts can produce keepsakes that will be sold for $50 each. Nondepreciation fixed costs are $1,500 per year and variable costs are $30 per unit.**

**Question 32**

**A silver mine can yield 16,000 ounces of silver at a variable cost of $34 per ounce. The fixed costs of operating the mine are $56,000 per year. In half the years, silver can be sold for $50 per ounce; in the other years, silver can be sold for only $25 per ounce. Ignore taxes**

**Question 33**

**An auto plant that costs $170 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $230 million if the line is successful but only $100 million if it is unsuccessful. You believe that the probability of success is only about 50%. You learn whether the line is successful immediately after building the plant**

**Question 34**

**Hit or Miss Sports is introducing a new product this year. If its see¬at¬night soccer balls are a hit, the firm expects to be able to sell 54,000 units a year at a price of $60 each. If the new product is a bust, only 34,000 units can be sold at a price of $55. The variable cost of each ball is $30, and fixed costs are zero. The cost of the manufacturing equipment is $6.9 million, and the project life is estimated at 10 years. The firm will use straight¬line depreciation over the 10-year life of the project. The firm’s tax rate is 35%, and the discount rate is 10%.**

**Question 35**

**Hit or Miss Sports is introducing a new product this year. If its see¬at¬night soccer balls are a hit, the firm expects to be able to sell 54,000 units a year at a price of $60 each. If the new product is a bust, only 34,000 units can be sold at a price of $55. The variable cost of each ball is $30, and fixed costs are zero. The cost of the manufacturing equipment is $6.9 million, and the project life is estimated at 10 years. The firm will use straight¬line depreciation over the 10-year life of the project. The firm’s tax rate is 35%, and the discount rate is 10%.**

**Hit or Miss Sports can expand production if the project is successful. By paying its workers overtime, it can increase production by 29,000 units; the variable cost of each ball will be higher, however, equal to $35 per unit. By how much does this option to expand production increase the NPV of the project? (Assume the probability the see¬at¬night soccer balls will be a hit is 50%). (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)**

**Question 36**