Posted: April 20th, 2022

A new furnace for your small factory is being installed right now,

Reply the next phrase issues

1. A new furnace for your small factory is being installed right now, will price $29,000, and can be accomplished in a single 12 months. At that time, it is going to require ongoing upkeep expenditures of $1,200 a 12 months. Nevertheless it is way more fuel-efficient than your outdated furnace and can scale back your consumption of heating oil by 2,800 gallons per 12 months. Heating oil this 12 months prices $2 a gallon; the value per gallon is anticipated to extend by $zero.50 a 12 months for the subsequent Three years after which to stabilize for the foreseeable future. The furnace will final for 20 years from preliminary use, at which level it is going to should be changed and can have no salvage worth. (Particularly, the agency pays for the furnace at time zero, after which reaps greater web money flows from that funding on the finish of years 1 – 20.). The low cost charge is 6%.

a. What is the online current worth of the funding within the furnace? (Don’t spherical intermediate calculations. Spherical your reply to the closest entire greenback.)

b. What is the IRR? (Don’t spherical intermediate calculations. Enter your reply as a % rounded to 2 decimal locations.)

c. What is the payback interval? (Don’t spherical intermediate calculations. Spherical your reply to 2 decimal locations.)

d. What is the equal annual price of the furnace? (Don’t spherical intermediate calculations. Spherical your reply to 2 decimal locations.)

e. What is the equal annual financial savings derived from the furnace? (Don’t spherical intermediate calculations. Spherical your reply to 2 decimal locations.)

f. Evaluate the PV of the distinction between the equal annual price and financial savings to your reply to half (a). Are the 2 measures the identical or is one bigger?

2. Your landscaping firm can lease a truck for $eight,200 a 12 months (paid at year-end) for 5 years. It may possibly as a substitute purchase the truck for $35,000. The truck can be worthless after 5 years. The rate of interest your firm can earn on its funds is 6%.

a. What is the current worth of the price of leasing? (Don’t spherical intermediate calculations. Spherical your reply to 2 decimal locations.)

b. Is it cheaper to purchase or lease?

c. What is the current worth of the price of leasing if the lease funds are an annuity due, so the primary fee comes instantly? (Don’t spherical intermediate calculations. Spherical your reply to 2 decimal locations.)

d. Is it now cheaper to purchase or lease?

Three. A factory prices $290,000. You forecast that it’s going to produce money inflows of $85,000 in 12 months 1, $145,000 in 12 months 2, and $230,000 in 12 months Three. The low cost charge is 10%.

a. What is the worth of the factory? (Don’t spherical intermediate calculations. Spherical your reply to 2 decimal locations.)

b. Is the factory a great funding?

four. Compute the longer term worth of a $200 money circulate for the next combos of charges and occasions. (Don’t spherical intermediate calculations. Spherical your solutions to 2 decimal locations.)

a. r = eight%; t = 10 years

b. r = eight%; t = 20 years

c. r = four%; t = 10 years

d. r = four%; t = 20 years

5. The next are the money flows of two impartial initiatives:

Yr

Undertaking A

Undertaking B

zero

$

(360

)

$

(360

)

1

190

260

2

190

260

Three

190

260

four

190

a. If the chance price of capital is 12%, calculate the NPV for each initiatives. (Don’t spherical intermediate calculations. Spherical your solutions to 2 decimal locations.)

b. Which of those initiatives is price pursuing?

a number of alternative

· Undertaking A

· Undertaking B

· Each

· Neither

6. Bottoms Up Diaper Service is contemplating the acquisition of a new industrial washer. It may possibly buy the washer for $four,500 and promote its outdated washer for $900. The new washer will final for 6 years and save $1,100 a 12 months in bills. The chance price of capital is 12%, and the agency’s tax charge is 21%.

a. If the agency makes use of straight-line depreciation over a 6-year life, what are the money flows of the undertaking in years zero to six? The new washer can have zero salvage worth after 6 years, and the outdated washer is absolutely depreciated. (Destructive quantities ought to be indicated by a minus signal.)

b. What is undertaking NPV? (Don’t spherical intermediate calculations. Spherical your reply to 2 decimal locations.)

c. What is NPV if the agency funding is entitled to instant 100% bonus depreciation? (Don’t spherical intermediate calculations. Spherical your reply to 2 decimal locations.)

7. If you happen to insulate your workplace for $19,000, you’ll save $1,900 a 12 months in heating bills. These financial savings will final ceaselessly.

a. What is the NPV of the funding when the price of capital is 5%? 10%?

b. What is the IRR of the funding? (Enter your reply as a complete %.)

c. What is the payback interval on this funding?

eight. Discover the rate of interest implied by the next combos of current and future values: (Don’t spherical intermediate calculations. Enter your solutions as a % rounded to 2 decimal locations. Go away no cells clean – be sure to enter “zero” wherever required.)

Current Worth

Years

Future Worth

Curiosity Fee

$300

10

489

%

133

Three

168

%

200

6

200

%

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

Yr

Revenues

1

$65,000

2

50,000

Three

40,000

four

30,000

Thereafter

zero

Bills are anticipated to be 40% of revenues, and dealing capital required in every year is anticipated to be 20% of revenues within the following 12 months. The product requires a direct funding of $60,000 in plant and tools.

Required:

a. What is the preliminary funding within the product? Keep in mind working capital.

b. If the plant and tools are depreciated over four years to a salvage worth of zero utilizing straight-line depreciation, and the agency’s tax charge is 40%, what are the undertaking money flows in every year? Assume the plant and tools are nugatory on the finish of four years. (Don’t spherical intermediate calculations.)

c. If the chance price of capital is 15%, what is the undertaking’s NPV? (A damaging worth ought to be indicated by a minus signal. Don’t spherical intermediate calculations. Spherical your reply to 2 decimal locations.)

d. What is undertaking IRR? (Don’t spherical intermediate calculations. Enter your reply as a % rounded to 2 decimal locations.)

10.

a. What is the current worth of a Three-year annuity of $210 if the low cost charge is 7%? (Don’t spherical intermediate calculations. Spherical your reply to 2 decimal locations.)

b. What is the current worth of the annuity in (a) if you must wait a further 12 months for the primary fee? (Don’t spherical intermediate calculations. Spherical your last reply to 2 decimal locations.)

11. You should purchase property at present for $Three.eight million and promote it in four years for $four.eight million. (You earn no rental earnings on the property.)

a. If the rate of interest is 7%, what is the current worth of the gross sales value? (Don’t spherical intermediate calculations. Enter your reply in hundreds of thousands rounded to three decimal locations.)

b. Is the property funding engaging to you?

c-1. What is the current worth of the longer term money flows, in case you additionally may earn $280,000 per 12 months hire on the property? The hire is paid on the finish of every 12 months. (Don’t spherical intermediate calculations. Enter your reply in hundreds of thousands rounded to three decimal locations.)

c-2. Is the property funding engaging to you now?

a.

Current worth

million

b.

Is the property funding engaging to you?

c-1.

Current worth

million

c-2.

Is the property funding engaging to you now?

12. Talia’s Tutus purchased a new stitching machine for $70,000 that can be depreciated over 5 years utilizing double-declining-balance depreciation with a change to straight-line.

Required:

a. Discover the depreciation cost every year.

Yr

Depreciation

1

2

Three

four

5

·

b. If the stitching machine is bought after 2 years for $44,000, what would be the after-tax proceeds on the sale if the agency’s tax bracket is 35%?

After-tax proceeds

13. Outdated Time Financial savings Financial institution pays 5% curiosity on its financial savings accounts. If you happen to deposit $2,900 within the financial institution and go away it there: (Don’t spherical intermediate calculations. Spherical your solutions to 2 decimal locations.)

a. How a lot curiosity will you earn within the first 12 months?

b. How a lot curiosity will you earn within the second 12 months?

c. How a lot curiosity will you earn within the 10th 12 months?

14. The proprietor of a bicycle restore store forecasts revenues of $172,000 a 12 months. Variable prices can be $53,000, and rental prices for the store are $33,000 a 12 months. Depreciation on the restore instruments can be $13,000.

a. Put together an earnings assertion for the store primarily based on these estimates. The tax charge is 20%.

INCOME STATEMENT

b. Calculate the working money circulate for the restore store utilizing the three strategies given beneath:

Now calculate the working money circulate.

i. Dollars in minus out.

ii. Adjusted accounting income.

iii. Add again depreciation tax protect.

Strategies of Calculation

Working Money Movement

i.

Dollars in Minus Dollars Out

ii.

Adjusted Accounting income

iii.

After tax Working Money circulate

15. The next are the money flows of two initiatives:

Yr

Undertaking A

Undertaking B

zero

$

(360

)

$

(360

)

1

190

260

2

190

260

Three

190

260

four

190

a. Calculate the NPV for each initiatives if the low cost charge is 12%. (Don’t spherical intermediate calculations. Spherical your solutions to 2 decimal locations.)

Undertaking

NPV

Undertaking A

Undertaking B

b. Suppose which you could select solely one in every of these initiatives. Which might you select?

a number of alternative

· Undertaking B

· Undertaking A

· Neither

—————–

Clear up the next phrase puzzles

1. A new furnace for your small factory is at the moment being installed; it is going to price $29,000 and can be accomplished in a single 12 months. At that time, it is going to necessitate $1,200 in annual upkeep prices. Nevertheless, it is way more fuel-efficient than your outdated furnace and can prevent 2,800 gallons of heating oil per 12 months. Heating oil this 12 months prices $2 a gallon; the value per gallon is anticipated to extend by $zero.50 a 12 months for the subsequent Three years after which to stabilize for the foreseeable future. The furnace will final for 20 years from preliminary use, at which level it is going to should be changed and can have no salvage worth. (Particularly, the agency

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