Professional Documents
Culture Documents
Problems 1-36
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
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Chapter 10
Question 1
Input area:
Purchase price
Appraised value
Cost to build
Grading costs
$
$
$
$
6,000,000
6,400,000
14,200,000
890,000
Output area:
21,490,000
Chapter 10
Question 2
Input area:
Camper quantity
Camper price
Increased motor home quantity
Motor home price
Lost motor coach quantity
Motor coach price
$
$
$
19,000
13,000
4,500
53,000
900
91,000
Output area:
Camper sales
Increased motor home sales
Lost motor coach sales
Total sales
$ 247,000,000
238,500,000
(81,900,000)
$ 403,600,000
Chapter 10
Question 3
Input area:
Projected sales
Variable cost (% of sales)
Fixed cost
Depreciation
Tax rate
$
$
$
830,000
60%
181,000
77,000
35%
Output area:
Sales
Variable costs
Fixed costs
Depreciation
EBT
Taxes (35%)
Net Income
$
$
830,000
498,000
181,000
77,000
74,000
25,900
48,100
Chapter 10
Question 4
Input area:
Sales
Variable cost
Depreciation
Tax rate
$
$
$
824,500
538,900
126,500
34%
Sales
Variable costs
Depreciation
EBT
Taxes (34%)
Net Income
824,500
538,900
126,500
159,100
54,094
105,006
OCF
Depreciation tax shield
$
$
231,506
43,010
Output area:
Chapter 10
Question 5
Input area:
Projected sales
Costs
Depreciation
Tax rate
$
$
$
108,000
51,000
6,800
35%
Sales
Variable costs
Depreciation
EBT
Taxes (35%)
Net Income
108,000
51,000
6,800
50,200
17,570
32,630
OCF
OCF
OCF
OCF
$
$
$
$
39,430
39,430
39,430
39,430
Output area:
Chapter 10
Question 6
Input area:
Costs
$
*7-year property under MACRS
1,080,000
Output area:
Yr.
Beginning Book Value
1 $
1,080,000.00
2
925,668.00
3
661,176.00
4
472,284.00
5
337,392.00
6
240,948.00
7
144,612.00
8
48,168.00
MACRS
0.1429
0.2449
0.1749
0.1249
0.0893
0.0892
0.0893
0.0446
Depreciation
154,332.00
264,492.00
188,892.00
134,892.00
96,444.00
96,336.00
96,444.00
48,168.00
Chapter 10
Question 7
Input area:
Costs
Pretax salvage value
Tax rate
*Depreciation straight line
*Asset used in years
$
$
548,000
105,000
35%
8
5
$
$
$
68,500
342,500
205,500
Output area:
Annual depreciation
Accumulated depreciation
Book value
Aftertax cash flow
$140,175
Chapter 10
Question 8
Input area:
Acquisition costs
Pretax salvage value
Tax rate
*MACRS class for taxes
$
$
7,900,000
1,400,000
35%
0.2000
0.3200
0.1920
0.1152
Book Value
1,365,120
1,387,792
Output area:
Chapter 10
Question 9
Input area:
Asset investment
$
Estimated annual sales
$
Costs
$
Tax rate
*Depreciation straight-line
to zero over tax life
3,900,000
2,650,000
840,000
35%
3
Output area:
OCF
1,631,500
Chapter 10
Question 10
Input area:
Asset investment
Estimated annual sales
Costs
Tax rate
*Depreciation straight-line
to zero over tax life
OCF
Required return
$
$
$
3,900,000
2,650,000
840,000
35%
3
1,631,500
12%
18,587.71
Output area:
NPV
Chapter 10
Question 11
Input area:
Asset investment
Estimated annual sales
Costs
Tax rate
Required return
*Depreciation straight-line
to zero over tax life
OCF
Initial investment in NWC
Fixed asset value at end
$
$
$
3,900,000
2,650,000
840,000
35%
12%
$
$
$
3
1,631,500
300,000
210,000
$
$
$
$
Cash flow
(4,200,000)
1,631,500
1,631,500
2,068,000
29,279.79
Output area:
Year
0
1
2
3
NPV
Chapter 10
Question 12
Input area:
Asset investment
Estimated annual sales
Costs
Tax rate
Required return
Initial investment in NWC
Fixed asset value at end
*3 yr MACRS
$
$
$
$
$
3,900,000
2,650,000
840,000
35%
12%
300,000
210,000
0.3333
0.4445
0.1481
Output area:
Year
Depreciation
0
1 $ 1,299,870.00
2 $ 1,733,550.00
3 $
577,590.00
Cash flow
$ (4,200,000.00)
$ 1,631,454.50
$ 1,783,242.50
$ 1,916,303.00
Book value
288,990
237,647
NPV
42,232.43
Chapter 10
Question 13
Input area:
Installation cost
Operating cost per year
Initial NWC
Pretax salvage value
Tax rate
Discount rate
*Depreciation straight-line
over life
$
$
$
$
560,000
165,000
29,000
85,000
34%
10%
5
Output area:
$
$
$
112,000
56,100
146,980
NPV
21,010.24
Chapter 10
Question 14
Input area:
Initial investment
Pretax salvage value
Cost savings per year
Working capital reduction
Tax rate
*Depreciation straight-line
over life
$
$
$
$
720,000
75,000
260,000
(110,000)
35%
5
Output area:
$
$
$
144,000
48,750
219,400
$
$
$
$
$
$
Cash flow
(610,000)
219,400
219,400
219,400
219,400
158,150
21.65%
Chapter 10
Question 15
Input area:
Initial investment
Pretax salvage value
Cost savings per year
Cost savings per year
Working capital reduction
Annual depreciation charge
Aftertax salvage value
Tax rate
Required return
*Depreciation straight-line
over life
$
$
$
$
$
$
$
720,000
75,000
300,000
240,000
(110,000)
144,000
48,750
35%
20%
5
Output area:
NPV
Accept/Reject
300,000
Year
0 $
1
2
3
4
5
$
cost savings
Cash flow
(610,000)
245,400
245,400
245,400
245,400
184,150
99,281.22
Accept
($634,615.00)
$212,202.38
$161,802.38
$
248,926.73
240,000
Year
0 $
1
2
3
4
5
$
cost savings
Cash flow
(610,000)
206,400
206,400
206,400
206,400
145,150
(17,352.66)
Reject
Chapter 10
Question 16
Input area:
270,000
25,000
(42,000)
11%
5
Output area:
NPV
(435,391.39)
EAC
(117,803.98)
Chapter 10
Question 17
Input area:
Techron I :
Cost
Operating costs per year
Life
Techron II :
Cost
Operating costs per year
Life
Both:
Salvage value
Tax rate
Discount rate
*Depreciation straight-line
$
$
290,000
67,000
3
$
$
510,000
35,000
5
40,000
35%
10%
Output area:
Both cases:
Aftertax salvage value
Techron I:
OCF
NPV
EAC
Techron II:
OCF
NPV
EAC
26,000.00
$
$
$
(9,716.67)
(294,629.73)
(118,474.97)
$
$
$
12,950.00
(444,765.36)
(117,327.98)
The two milling machines have unequal lives, so they can only be compared by
expressing both on an equivalent annual basis which is what the EAC method does.
Thus, you prefer the
Techron II
because it has the lower
(less negative) annual cost.
Chapter 10
Question 18
Input area:
Quantity
Installation costs
Pretax salvage value
Fixed costs
Variable production cost
per carton
Net working capital
Tax rate
Required return
*Depreciation staight-line
over life
$
$
$
$
$
185,000
940,000
70,000
305,000
9.25
75,000
35%
12%
5
Output area:
$
45,500.00
$
65,800.00
$ (1,015,000.00)
$ (946,625.06)
$
262,603.01
$
196,803.01
Bid price
12.54
Chapter 10
Question 19
Input area:
Machine cost
Annual pretax cost
Salvage value
Inventory cost
Inventory cost per year
Tax rate
Discount rate
MACRS five year class
$
$
$
$
$
560,000
210,000
80,000
20,000
3,000
35%
9%
0.2000
0.3200
0.1920
0.1152
Output area:
Year
1
2
3
4
Book value
Aftertax salvage value
Year
0
1
2
3
4
NPV
$
$
$
$
Depreciation
112,000
179,200
107,520
64,512
$
$
96,768.00
85,868.80
$
$
$
$
$
Cash flow
(580,000.00)
172,700.00
196,220.00
171,132.00
273,948.00
69,811.79
Chapter 10
Question 20
Input area:
System A:
Cost
Pretax annual operating cost
Life
System B:
Cost
Pretax annual operating cost
Life
Both:
Tax rate
Discount rate
*Depreciation staight-line
$
$
430,000
110,000
4
$
$
570,000
98,000
6
34%
11%
Output area:
System A:
OCF
NPV
System B:
OCF
NPV
$
$
(36,050)
(541,843.17)
$
$
(32,380)
(706,984.82)
Chapter 10
Question 21
Input area:
System A:
NPV
Operating life
System B:
NPV
Operating life
(541,843.17)
4
(706,984.82)
6
Discount rate
11%
Output area:
System A:
EAC
System B:
EAC
(174,650.33)
(167,114.64)
Chapter 10
Question 22
Input area:
Quantity
Initial land cost
Land opportunity cost
Land value in 5 years
Machine cost
Pretax salvage value
Fixed costs
Variable cost
Initial NWC
Additional NWC/year
Tax rate
Required return
*Depreciation staight-line
over life
$
$
$
$
$
$
$
$
$
100,000,000
2,400,000
2,700,000
3,200,000
4,100,000
540,000
950,000
0.005
600,000
50,000
34%
12%
5
Output area:
$
$
$
$
$
$
Bid price
356,400.00
278,800.00
(7,400,000.00)
(5,079,929.11)
1,409,221.77
1,130,421.77
0.03163
Chapter 10
Question 23
Output area:
compared to straight-line
arly at a given price, lower net
se the NPV to be higher. Thus,
on. In the case of a bid price,
en, or submit the higher price
Chapter 10
Question 24
Input area:
Machine A:
Cost
Variable costs
Fixed costs
Life
Machine B:
Cost
Variable costs
Fixed costs
Life
Both:
Sales
Tax rate
Discount rate
*Depreciation staight-line
$
$
$
$
2,900,000
35%
170,000
6
5,100,000
30%
130,000
9
10,000,000
35%
10%
Output area:
Machine A
(3,500,000)
(170,000)
(483,333)
(4,153,333)
1,453,667
(2,699,667)
483,333
(2,216,333)
Variable costs
Fixed costs
Depreciation
EBT
Tax
Net income
+ Dep
OCF
NPV
EAC
$ (12,552,709.46)
($2,882,194.74)
System B
lower EAC.
$
$
$
$
$
$
$
Machine B
(3,000,000)
(130,000)
(566,667)
(3,696,667)
1,293,833
(2,402,833)
566,667
(1,836,167)
(15,674,527.56)
($2,721,733.42)
Chapter 10
Question 25
Input area:
Cost
Watts
Lifetime hours
500
0.101
10%
Traditional bulb
$
0.50 $
60
1,000
CFL
3.50
15
12,000
0.06
30
3.0300 $
2
0.015
7.50
0.7575
24.00
(5.76) $
(3.3181) $
(10.31)
(1.1470)
Output area:
NPV
EAC
$
$
Chapter 10
Question 26
Input area:
Cost
Watts
Lifetime hours
500
0.101
10%
Traditional bulb
$
0.50 $
60
1,000
CFL
3.50
15
12,000
Output area:
0.060
30.00
3.0300
2.00
0.004509
0.015
7.50
0.7575
24.00
Chapter 10
Question 27
Input area:
Cost
Watts
Lifetime hours
500
0.101
10%
Traditional bulb
$
0.50 $
60
500
CFL
3.50
15
12,000
Output area:
0.060
30.00
3.0300
1.00
(0.007131)
0.015
7.50
0.7575
24.00
Chapter 10
Question 29
Input area:
Car mpg
Truck mpg
New car mpg
New truck mpg
Gas price
Miles per year
25
10
40
12.5
3.70
12,000
Output area:
480.00
300.00
Current truck
New truck
1,200.00
960.00
Gallons saved
New car
New truck
180.00
240.00
Chapter 10
Question 31
Input area:
$
$
$
$
$
$
$
$
$
1,400,000
1,500,000
1,600,000
125,000
3,200
4,300
3,900
2,800
780
425,000
15%
4,200,000
400,000
125,000
38%
13%
33.33%
44.45%
14.81%
7.41%
Output area:
$
$
400,000
(152,000)
248,000
Year 0
Revenues
Fixed costs
Variable costs
Depreciation
EBT
Taxes
Net income
OCF
$
$
Capital spending
Land
Net working capital
$ (5,825,000.00) $
NPV
Year 1
2,496,000
425,000
374,400
1,399,860
296,740
112,761
183,979
1,583,839
$
$
$
Year 2
3,354,000
425,000
503,100
1,866,900
559,000
212,420
346,580
2,213,480
$
$
$
Year 3
3,042,000
425,000
456,300
622,020
1,538,680
584,698
953,982
1,576,002
(4,200,000)
(1,500,000)
(125,000)
229,266.82
1,583,839
2,213,480
1,576,002
$
$
$
Year 4
2,184,000
425,000
327,600
311,220
1,120,180
425,668
694,512
1,005,732
248,000
1,600,000
125,000
2,978,732
Chapter 10
Question 32
Input area:
$
$
$
$
$
93,000
105,000
128,000
134,000
87,000
1,800,000
15%
1,200,000
265
380
24,000,000
20%
35%
18%
14.29%
24.49%
17.49%
12.49%
8.93%
Output area:
Year
Ending book value
Sales
Variable costs
Fixed costs
Depreciation
EBIT
Taxes
Net income
Depreciation
0
$
$
$
$
1
20,570,400
35,340,000
24,645,000
1,200,000
3,429,600
6,065,400
2,122,890
3,942,510
3,429,600
$
$
- $
(1,800,000)
(24,000,000)
(25,800,000) $
3,851,952.23
23.62%
7,372,110
7,372,110
(684,000)
6,688,110
$
$
$
$
2
14,692,800
39,900,000
27,825,000
1,200,000
5,877,600
4,997,400
1,749,090
3,248,310
5,877,600
$
$
$
$
3
10,495,200
48,640,000
33,920,000
1,200,000
4,197,600
9,322,400
3,262,840
6,059,560
4,197,600
$
$
$
$
4
7,497,600
50,920,000
35,510,000
1,200,000
2,997,600
11,212,400
3,924,340
7,288,060
2,997,600
$
$
$
$
5
5,354,400
33,060,000
23,055,000
1,200,000
2,143,200
6,661,800
2,331,630
4,330,170
2,143,200
9,125,910
9,125,910 $
(1,311,000)
7,814,910 $
10,257,160
10,285,660
6,473,370
10,257,160 $
(342,000)
9,915,160 $
10,285,660
2,679,000
12,964,660
6,473,370
1,458,000
4,994,040
12,925,410
Chapter 10
Question 33
Input area:
Installed cost
Salvage value
Initial NWC
Tax rate
Required return
MACRS
$
$
$
610,000
40,000
55,000
35%
12%
33.33%
44.45%
14.81%
7.41%
Output area:
26,000.00
Year 1 depreciation
Year 2 depreciation
Year 3 depreciation
Year 4 depreciation
$
$
$
$
203,313.00
271,145.00
90,341.00
45,201.00
Year 1 depreciation CF
Year 2 depreciation CF
Year 3 depreciation CF
Year 4 depreciation CF
Initial cash outlay
NPV net of OCF
$
$
$
$
$
$
71,159.55
94,900.75
31,619.35
15,820.35
(665,000.00)
(447,288.67)
190,895.74
Chapter 10
Question 34
Input area:
Quantity
Installation costs
Pretax salvage value
Fixed costs
Variable production cost
per carton
Net working capital
Tax rate
Required return
*Depreciation straight-line
over life
Price per carton
185,000
940,000
70,000
305,000
$
$
$
$
$
9.25
75,000
35%
12%
5
13.00
Output area:
a. Year
Sales
Variable costs
Fixed costs
Depreciation
EBIT
Taxes
Net income
Depreciation
Operating cash flow
Net cash flows
Operating cash flow
Change in NWC
Capital spending
Total cash flow
45,500
0
1
2,405,000
1,711,250
305,000
188,000
200,750
70,263
130,488
188,000
318,488
- $
(75,000)
(940,000)
(1,015,000) $
318,488
318,488
201,451.10
$
$
(946,625.06)
262,603.01
162,073
Year
Sales
Variable costs
Fixed costs
Depreciation
EBIT
Taxes
Net income
Depreciation
Operating cash flow
1
2,106,949
1,499,176
305,000
188,000
114,774
40,171
74,603
188,000
262,603
- $
(75,000)
(940,000)
(1,015,000) $
262,603
262,603
$
$
$
0
$
Year
Sales
Variable costs
Fixed costs
Depreciation
EBIT
Taxes
Net income
Depreciation
Operating cash flow
Net cash flows
Operating cash flow
(946,625.06)
262,603.01
390,976.15
0
1
2,405,000
1,711,250
390,976
188,000
114,774
40,171
74,603
188,000
262,603
262,603
Change in NWC
Capital spending
Total cash flow
(75,000)
(940,000)
(1,015,000) $
262,603
2
2,405,000
1,711,250
305,000
188,000
200,750
70,263
130,488
188,000
318,488
318,488
318,488
3
2,405,000
1,711,250
305,000
188,000
200,750
70,263
130,488
188,000
318,488
318,488
318,488
4
2,405,000
1,711,250
305,000
188,000
200,750
70,263
130,488
188,000
318,488
318,488
318,488
5
2,405,000
1,711,250
305,000
188,000
200,750
70,263
130,488
188,000
318,488
318,488
75,000
45,500
438,988
2
2,106,949
1,499,176
305,000
188,000
114,774
40,171
74,603
188,000
262,603
262,603
262,603
2
2,405,000
1,711,250
390,976
188,000
114,774
40,171
74,603
188,000
262,603
262,603
3
2,106,949
1,499,176
305,000
188,000
114,774
40,171
74,603
188,000
262,603
262,603
262,603
3
2,405,000
1,711,250
390,976
188,000
114,774
40,171
74,603
188,000
262,603
262,603
4
2,106,949
1,499,176
305,000
188,000
114,774
40,171
74,603
188,000
262,603
262,603
262,603
4
2,405,000
1,711,250
390,976
188,000
114,774
40,171
74,603
188,000
262,603
262,603
5
2,106,949
1,499,176
305,000
188,000
114,774
40,171
74,603
188,000
262,603
262,603
75,000
45,500
383,103
5
2,405,000
1,711,250
390,976
188,000
114,774
40,171
74,603
188,000
262,603
262,603
262,603
262,603
262,603
75,000
45,500
383,103
Chapter 10
Question 35
Input area:
Contract quantity
Equipment
Net working capital
Salvage value
Fixed costs
Variable costs/unit
Mkt. sales in Year 1
Mkt. sales in Year 2
Mkt. sales in Year 3
Mkt. sales in Year 4
Market price
Tax rate
Required return
Project NPV
$
$
$
$
$
17,500
3,400,000
95,000
275,000
600,000
175
3,000
6,000
8,000
5,000
285
40%
13%
100,000
Output area:
Market sales
Sales
Variable costs
EBT
Tax
1
$
$
855,000
525,000
330,000
132,000
$
$
2
1,710,000
1,050,000
660,000
264,000
$
$
3
2,280,000
1,400,000
880,000
352,000
$
$
4
1,425,000
875,000
550,000
220,000
198,000
$
$
$
1,053,672.99
3,495,000
165,000
NPV of OCF
OCF
$
$
2,381,864.14
800,768.90
Bid price
253.17
396,000
528,000
330,000
Chapter 10
Question 36
Input Area:
Old cost
New machine cost
Life of machine
Salvage value
Old machine depreciation
Old machine life left
MV old machine
Old machine value in 2 yrs
Saved operating costs
Discount rate
Tax rate
$
$
$
$
$
$
$
650,000
780,000
5
150,000
130,000
3
210,000
60,000
145,000
12%
38%
Output Area:
a. New computer:
Year
Ending book value
0
780,000
Cost savings
Depreciation
Operating CF
Change in NWC
Capital spending
Total cash flow
$
$
0
(780,000)
(780,000)
$
$
(189,468.79)
(52,560.49)
Old Computer:
Year
Ending book value
Depreciation tax shield
1
624,000
$
$
$
89,900
59,280
149,180
0
0
149,180
1
260,000
49,400
Change in NWC
Capital spending
Total cash flow
$
$
0
(377,200)
(377,200)
$
$
(224,674.49)
(132,939.47)
$
$
$
(780,000)
377,200
(402,800)
b. Difference:
New computer
Old computer
Total cash flow
NPV
35,205.70
0
0
$49,400
$
$
149,180
($49,400)
99,780
2
468,000
3
312,000
$
$
$
89,900
59,280
149,180
4
156,000
5
$
$
$
$
89,900
59,280
149,180
$
$
$
89,900
59,280
149,180
$
$
$
0
0
149,180 $
0
0
149,180 $
0
0 $
149,180 $
2
130,000
49,400
89,900
59,280
149,180
0
93,000
242,180
$
$
$
$
$
0
86,600
136,000
149,180 $
(136,000) $
13,180 $
149,180
149,180
$
$
$
149,180
149,180
$
$
$
242,180
242,180