Fin exam final
The cost of capital depends primarily on the ______ of funds, not the _____.
use;source
McCanless Co. recently purchased an asset for $2,250,000 that will be used in a 3-year project. The asset is in the 4-year MACRS class. The depreciation percentage each year is 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. What is the amount of depreciation in Year 2?
$1,00,125
Bi-Lo Traders is considering a project that will produce sales of $40,200 and have costs of $23,300. Taxes will be $4,100 and the depreciation expense will be $2,350. An initial cash outlay of $1,900 is required for net working capital. What is the project's operating cash flow?
$12,800
King Nothing is evaluating a new 6-year project that will have annual sales of $435,000 and costs of $299,000. The project will require fixed assets of $535,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 34 percent. What is the operating cash flow for Year 3?
$124,685
Delia Landscaping is considering a new 4-year project. The necessary fixed assets will cost $193,000 and be depreciated on a 3-year MACRS and have no salvage value. The MACRS percentages each year are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. The project will have annual sales of $130,000, variable costs of $34,900, and fixed costs of $12,800. The project will also require net working capital of $3,400 that will be returned at the end of the project. The company has a tax rate of 34 percent and the project's required return is 14 percent. What is the net present value of this project?
$14,948
A gym owner is considering opening a location on the other side of town. The new facility will cost $1.36 million and will be depreciated on a straight-line basis over a 20-year period. The new gym is expected to generate $537,000 in annual sales. Variable costs are 49 percent of sales, the annual fixed costs are $86,100, and the tax rate is 35 percent. What is the operating cash flow?
$145,851
Bruno's Lunch Counter is expanding and expects operating cash flows of $26,100 a year for 4 years as a result. This expansion requires $62,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $3,600 of net working capital throughout the life of the project. What is the net present value of this expansion project at a required rate of return of 12 percent?
$15,963
A project with a life of 6 years is expected to provide annual sales of $340,000 and costs of $237,000. The project will require an investment in equipment of $610,000, which will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-15 percent. The tax rate is 34 percent. What is the annual operating cash flow for the best-case scenario?
$159,670
Rock Haven has a proposed project that will generate sales of 1,830 units annually at a selling price of $30 each. The fixed costs are $16,900 and the variable costs per unit are $9.15. The project requires $32,800 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the 4-year life of the project. The salvage value of the fixed assets is $8,500 and the tax rate is 40 percent. What is the operating cash flow?
$16,033
You purchased 300 shares of a particular stock at the beginning of the year at a price of $75.63. The stock paid a dividend of $1.10 per share, and the stock price at the end of the year was $82.14. What was your dollar return on this investment? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
$2,283
A company purchased an asset for $2,750,000 that will be used in a 3-year project. The asset is in the 3-year MACRS class. The depreciation percentage each year is 33.33 percent, 44.45 percent, and 14.81 percent, respectively. What is the book value of the equipment at the end of the project?
$203,775
A project is expected to generate annual revenues of $126,500, with variable costs of $78,100, and fixed costs of $18,600. The annual depreciation is $4,400 and the tax rate is 34 percent. What is the annual operating cash flow?
$21,164
You own a house that you rent for $1,550 per month. The maintenance expenses on the house average $290 per month. The house cost $237,000 when you purchased it 4 years ago. A recent appraisal on the house valued it at $259,000. If you sell the house you will incur $20,720 in real estate fees. The annual property taxes are $3,400. You are deciding whether to sell the house or convert it for your own use as a professional office. What value should you place on this house when analyzing the option of using it as a professional office?
$238,280
Gateway Communications is considering a project with an initial fixed assets cost of $1.67 million that will be depreciated straight-line to a zero book value over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $225,000. The project will not change sales but will reduce operating costs by $380,000 per year. The tax rate is 35 percent and the required return is 9.9 percent. The project will require $45,000 in net working capital, which will be recouped when the project ends. What is the project's NPV?
$244,357
Burke's Corner currently sells blue jeans and T-shirts. Management is considering adding fleece tops to its inventory to provide a cooler weather option. The tops would sell for $46 each with expected sales of 4,650 tops annually. By adding the fleece tops, management feels the firm will sell an additional 320 pairs of jeans at $58 a pair and 455 fewer T-shirts at $19 each. The variable cost per unit is $29 on the jeans, $9 on the T-shirts, and $24 on the fleece tops. With the new item, the depreciation expense is $26,000 a year and the fixed costs are $79,500 annually. The tax rate is 40 percent. What is the project's operating cash flow?
$26,918
Outdoor Sports is considering adding a putt putt golf course to its facility. The course would cost $189,000, would be depreciated on a straight-line basis over its 5-year life, and would have a zero salvage value. The sales would be $95,000 a year, with variable costs of $28,500 and fixed costs of $13,100. In addition, the firm anticipates an additional $24,100 in revenue from its existing facilities if the putt putt course is added. The project will require $3,700 of net working capital, which is recoverable at the end of the project. What is the net present value of this project at a discount rate of 14 percent and a tax rate of 35 percent?
$27,583
Components of the WACC include funds that come from ______
investors
Go Fly A Kite is considering making and selling custom kites in two sizes. The small kites would be priced at $12.50 and the large kites would be $25.50. The variable cost per unit is $6.05 and $13.10, respectively. Jill, the owner, feels that she can sell 3,600 of the small kites and 2,000 of the large kites each year. The fixed costs would be $2,120 a year and the depreciation expense is $1,900. The tax rate is 40 percent. What is the annual operating cash flow?
$28,300
A project will reduce costs by $36,100 but increase depreciation by $16,700. What is the operating cash flow if the tax rate is 40 percent?
$28,340
Cori's Dog House is considering the installation of a new computerized pressure cooker for hot dogs. The cooker will increase sales by $8,800 per year and will cut annual operating costs by $14,900. The system will cost $51,000 to purchase and install. This system is expected to have a 7-year life and will be depreciated to zero using straight-line depreciation and have no salvage value. The tax rate is 35 percent and the required return is 12.4 percent. What is the NPV of purchasing the pressure cooker?
$29,913
Bubbly Waters currently sells 510 Class A spas, 660 Class C spas, and 410 deluxe model spas each year. The firm is considering adding a mid-class spa and expects that if it does, it can sell 585 units per year. However, if the new spa is added, Class A sales are expected to decline to 330 units while the Class C sales are expected to increase to 685. The sales of the deluxe model will not be affected. Class A spas sell for an average of $16,100 each. Class C spas are priced at $8,100 and the deluxe models sell for $19,100 each. The new mid-range spa will sell for $10,100. What annual sales figure should you use in your analysis?
$3,213,000
A project has annual depreciation of $21,500, costs of $95,900, and sales of $140,500. The applicable tax rate is 40 percent. What is the operating cash flow?
$35,360
Brummitt Corp., is evaluating a new 4-year project. The equipment necessary for the project will cost $2,800,000 and can be sold for $313,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 35 percent. What is the aftertax salvage value of the equipment?
$372,794
Bennett Co. has a potential new project that is expected to generate annual revenues of $261,200, with variable costs of $143,600, and fixed costs of $61,000. To finance the new project, the company will need to issue new debt that will have an annual interest expense of $24,000. The annual depreciation is $25,000 and the tax rate is 40 percent. What is the annual operating cash flow?
$43,960
Pear Orchards is evaluating a new project that will require equipment of $223,000. The equipment will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company plans to shut down the project after 4 years. At that time, the equipment could be sold for $50,200. However, the company plans to keep the equipment for a different project in another state. The tax rate is 35 percent. What aftertax salvage value should the company use when evaluating the current project?
$46,117
Bad Company has a new 4-year project that will have annual sales of 8,200 units. The price per unit is $19.70 and the variable cost per unit is $7.45. The project will require fixed assets of $92,000, which will be depreciated on a 3-year MACRS schedule. The annual depreciation percentages are 33.33 percent, 44.45 percent, 14.81 percent, and 7.41 percent, respectively. Fixed costs are $32,000 per year and the tax rate is 35 percent. What is the operating cash flow for Year 3?
$49,261
A cost-cutting project will decrease costs by $67,300 a year. The annual depreciation will be $16,650 and the tax rate is 35 percent. What is the operating cash flow for this project?
$49,573
The Bruin's Den Outdoor Gear is considering a new 7-year project to produce a new tent line. The equipment necessary would cost $1.75 million and be depreciated using straight-line depreciation to a book value of zero. At the end of the project, the equipment can be sold for 10 percent of its initial cost. The company believes that it can sell 28,000 tents per year at a price of $73 and variable costs of $33 per tent. The fixed costs will be $485,000 per year. The project will require an initial investment in net working capital of $229,000 that will be recovered at the end of the project. The required rate of return is 11.6 percent and the tax rate is 35 percent. What is the NPV?
$492,246
The Lumber Yard is considering adding a new product line that is expected to increase annual sales by $287,000 and expenses by $192,000. The project will require $101,000 in fixed assets that will be depreciated using the straight-line method to a zero book value over the 8-year life of the project. The company has a marginal tax rate of 40 percent. What is the depreciation tax shield?
$5,050
A 5-year project is expected to generate annual sales of 8,800 units at a price of $75 per unit and a variable cost of $46 per unit. The equipment necessary for the project will cost $309,000 and will be depreciated on a straight-line basis over the life of the project. Fixed costs are $185,000 per year and the tax rate is 40 percent. How sensitive is the operating cash flow to a $1 change in the per unit sales price?
$5,280
Power Manufacturing has equipment that it purchased 5 years ago for $2,850,000. The equipment was used for a project that was intended to last for 7 years. However, due to low demand, the project is being shut down. The equipment was depreciated using the straight-line method and can be sold for $460,000 today. The company's tax rate is 40 percent. What is the aftertax salvage value of the equipment?
$601,714
A 4-year project has an annual operating cash flow of $51,500. At the beginning of the project, $4,250 in net working capital was required, which will be recovered at the end of the project. The firm also spent $22,400 on equipment to start the project. This equipment will have a book value of $4,660 at the end of the project, but can be sold for $5,670. The tax rate is 34 percent. What is the Year 4 cash flow?
$61,077
You have calculated the pro forma net income for a new project to be $46,440. The incremental taxes are $23,450 and incremental depreciation is $17,510. What is the operating cash flow?
$63,950
Finding a firm's overall cost of equity is difficult because:
it can not be observed directly
Seeing Red has a new project that will require fixed assets of $909,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company has a tax rate of 40 percent. What is the depreciation tax shield for Year 3?
$69,811
A company is evaluating a new 4-year project. The equipment necessary for the project will cost $3,650,000 and can be sold for $730,000 at the end of the project. The asset is in the 5-year MACRS class. The depreciation percentage each year is 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, and 11.52 percent, respectively. The company's tax rate is 34 percent. What is the aftertax salvage value of the equipment?
$696,245
A 7-year project is expected to provide annual sales of $217,000 with costs of $97,000. The equipment necessary for the project will cost $355,000 and will be depreciated on a straight-line method over the life of the project. You feel that both sales and costs are accurate to +/-10 percent. The tax rate is 34 percent. What is the annual operating cash flow for the worst-case scenario?
$75,719
A company is considering a new 6-year project that will have annual sales of $204,000 and costs of $126,000. The project will require fixed assets of $245,000, which will be depreciated on a 5-year MACRS schedule. The annual depreciation percentages are 20.00 percent, 32.00 percent, 19.20 percent, 11.52 percent, 11.52 percent, and 5.76 percent, respectively. The company has a tax rate of 40 percent. What is the operating cash flow for Year 2?
$78,160
Shelton Co. purchased a parcel of land six years ago for $874,500. At that time, the firm invested $146,000 in grading the site so that it would be usable. Since the firm wasn't ready to use the site itself at that time, it decided to lease the land for $54,500 a year. The company is now considering building a warehouse on the site as the rental lease is expiring. The current value of the land is $926,000. What value should be included in the initial cost of the warehouse project for the use of this land?
$926,000
Jasper Metals is considering installing a new molding machine which is expected to produce operating cash flows of $66,000 per year for 8 years. At the beginning of the project, inventory will decrease by $24,800, accounts receivables will increase by $25,400, and accounts payable will increase by $18,300. At the end of the project, net working capital will return to the level it was prior to undertaking the new project. The initial cost of the molding machine is $282,000. The equipment will be depreciated straight-line to a zero book value over the life of the project. The equipment will be salvaged at the end of the project creating an aftertax cash flow of $70,000. What is the net present value of this project given a required return of 11.1 percent?
$96,668
Lakeside Winery is considering expanding its winemaking operations. The expansion will require new equipment costing $663,000 that would be depreciated on a straight-line basis to zero over the 5-year life of the project. The equipment will have a market value of $175,000 at the end of the project. The project requires $45,000 initially for net working capital, which will be recovered at the end of the project. The operating cash flow will be $172,360 a year. What is the net present value of this project if the relevant discount rate is 13 percent and the tax rate is 35 percent?
-$15,607
Sun Brite has a new pair of sunglasses it is evaluating. The company expects to sell 7,400 pairs of sunglasses at a price of $169 each and a variable cost of $121 each. The equipment necessary for the project will cost $385,000 and will be depreciated on a straight-line basis over the 7-year life of the project. Fixed costs are $350,000 per year and the tax rate is 35 percent. How sensitive is the operating cash flow to a $1 increase in variable costs per pairs of sunglasses?
-$4,810
Cirice Corp. is considering opening a branch in another state. The operating cash flow will be $151,600 a year. The project will require new equipment costing $565,000 that would be depreciated on a straight-line basis to zero over the 6-year life of the project. The equipment will have a market value of $159,000 at the end of the project. The project requires an initial investment of $36,500 in net working capital, which will be recovered at the end of the project. The tax rate is 40 percent. What is the project's IRR?
16.65%
The rate used to discount project cash flows is known as the ___
Cost of capital, discount rate, and required return
True or false: The cost of capital depends on the source of the funds. True false question.
False
True or false: The discount rate is also known as the expected return.
False
True or false: The return an investor in a security receives is equal to the cost of the security to the company that issued it
True
Suppose a stock had an initial price of $93 per share, paid a dividend of $2.40 per share during the year, and had an ending share price of $76.00. a.Compute the percentage total return. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)b.What was the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)c.What was the capital gains yield? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a.-15.69% b.2.58% c.-18.28%
Suppose a stock had an initial price of $89 per share, paid a dividend of $1.70 per share during the year, and had an ending share price of $105. a. Compute the percentage total return. (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b.What was the dividend yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)c.What was the capital gains yield? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
a.19.89% b.1.91% c.17.97%
WACC is used to discount ______ _________.
cash flows
The return an investor in a security receives is ______ _____ the cost of the security to the company that issued it.
equal to
To estimate the dividend yield of a particular stock, we need:
forecasts of the dividend growth rate, g the current stock price the last dividend paid, D0