FEW FINANCE QUESTIONS

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Summer Tyme, Inc., is considering a new 4-year expansion project that requires an initial fixed asset investment of $3.024 million. The fixed asset will be depreciated straight-line to zero over its 4-year tax life, after which time it will be worthless. The project is estimated to generate $2,688,000 in annual sales, with costs of $1,075,200. If the tax rate is 34 percent and the required return on the project is 14 percent, the NPV for this project isĀ $

 

Summer Tyme, Inc., is considering a new 3-year expansion project that requires an initial fixed asset investment of $3.132 million. The fixed asset will be depreciated straight-line to zero over its 3-year tax life, after which time it will have a market value of $243,600. The project requires an initial investment in net working capital of $348,000. The project is estimated to generate $2,784,000 in annual sales, with costs of $1,113,600. The tax rate is 35 percent and the required return on the project is 14 percent. The NPV for this project is $

 

Dog Up! Franks is looking at a new sausage system with an installed cost of $546,000. This cost will be depreciated straight-line to zero over the project’s 8-year life, at the end of which the sausage system can be scrapped for $84,000. The sausage system will save the firm $168,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $39,200. If the tax rate is 32 percent and the discount rate is 15 percent, the NPV of this project is $

 

Your firm is contemplating the purchase of a new $1,260,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $112,500 at the end of that time. You will save $495,000 before taxes per year in order processing costs and you will be able to reduce working capital by $103,430 (this is a one-time reduction). If the tax rate is 33 percent, the IRR for this project is

 

 

 
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