FINC Chapter 12 Homework Essay

772 Words Feb 3rd, 2015 4 Pages
Chapter 12 Homework Assignments (questions 1-6 each has 3 and #7 2 points)
Please Post Your Answers on Ch 12 Dropbox (D2L) Must Show All Work
1. Which of the following is NOT a relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project? C
a. Changes in net working capital.
b. Shipping and installation costs.
c. Sunk costs that have been expensed for tax purposes.
d. Cannibalization effects.
e. Opportunity costs.

2. Which of the following statements is CORRECT? E
a. A sunk cost is any cost that must be expended in order to complete a project and bring it into operation.
b. A sunk cost is any cost that was expended in the past but can be recovered if the firm decides not to go forward with the
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Each project has a WACC of 8%. Use the replacement chain approach to determine the NPV of the most profitable project.

a. $4,235 b. $4,146 c. $4,486 d. $4,125 e. $4,325

CF 0 -$10,000 to fund the proposed project CF 1 6,000 CF 2 -2,000 $8,000 inflow + -$10,000 for replacement chain analysis CF 3 6,000 CF 4 8,000

I = WACC = discount rate = 8% NPV = 4,486

5. Food Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 2 cash flow? B

Equipment cost (depreciable basis) $70,000
Sales revenues, each year $60,000
Operating costs (excl. deprec.) $20,000
Tax rate 35.0%

a. $35,858 b. $31,970 c. $37,025 d. $36,125 e. $33,778

6. Inc. Corp. is considering a new investment whose data are shown below. The equipment would be depreciated on a straight-line basis over the project's 3-year life, would have a zero salvage value, and would require some additional working capital that would be recovered at the end of the project's life. Revenues and other operating costs are expected to be constant over the project's life. What is the project's NPV? (Hint:

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