Exam 10: Project Analysis and Evaluation

You are working on a bid to build two city parks a year for the next three years.This project requires the purchase of $185,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the 3-year project life.The equipment can be sold at the end of the project for $34,000.You will also need $20,000 in net working capital for the duration of the project.The fixed costs will be $18,000 a year and the variable costs will be $168,000 per park.Your required rate of return is 15 percent and your tax rate is 34 percent.What is the minimal amount you should bid per park? (Round your answer to the nearest $100)

Bernie's Beverages purchased some fixed assets classified as 5-year property for MACRS.The assets cost $94,000.What will the accumulated depreciation be at the end of year three?

The top-down approach to computing the operating cash flow:

Precision Tool is analyzing two machines to determine which one it should purchase.The company requires a 15 percent rate of return and uses straight-line depreciation to a zero book value over the life of its equipment.Machine A has a cost of $892,000, annual operating costs of $28,200, and a 4-year life.Machine B costs $1,118,000, has annual operating costs of $19,500, and has a 5-year life.Whichever machine is purchased will be replaced at the end of its useful life.Precision Tool should purchase Machine _____ because it lowers the firm's annual cost by approximately _______ as compared to the other machine.

The Card Shoppe needs to maintain 20 percent of its sales in net working capital.Currently, the shoppe is considering a 6-year project that will increase sales from its current level of $379,000 to $421,000 the first year and to $465,000 a year for the following 5 years of the project.What amount should be included in the project analysis for net working capital in year 6 of the project?

What is the formula for the tax-shield approach to OCF? Explain the two key points the formula illustrates.

Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment.The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project.The equipment can be scraped at the end of the project for 5 percent of its original cost.Annual sales from this project are estimated at $420,000.Net working capital equal to 20 percent of sales will be required to support the project.All of the net working capital will be recouped.The required return is 16 percent and the tax rate is 35 percent.What is the amount of the aftertax salvage value of the equipment?

The difference between a firm's future cash flows if it accepts a project and the firm's future cash flows if it does not accept the project is referred to as the project's: