Keith Urban Bookstores is considering a major expansion of its business. The details ofthe proposed expansion project are summarized below:The company will have to purchase $600,000 in equipment at t = 0. This is thedepreciable cost.The project has an economic life of four years.The cost can be depreciated on a MACRS 3-year basis, which implies thefollowing depreciation schedule:MACRSDepreciationRatesYear10.330.450.150.07234At t = 0, the project requires that inventories increase by $40,000 and accountspayable increase by $5,000. The change in net operating working capital isexpected to be fully recovered at t = 4. (Hint: NWC = CA-CL)The project's salvage value at the end of four years is expected to be $0.The company forecasts that the project will generate $700,000 in sales the firsttwo years (t = 1 and 2) and $400,000 in sales during the last two years (t = 3 and4).Each year the project's operating costs excluding depreciation are expected tobe 55% of sales revenue.The company's tax rate is 40%.The project's cost of capital is 11%.What is CFFA at year 0?a. -$540,000b. -$645,000c. -$535,000d. -$635,000What is CFFA at year 4?a. $159,000b. $174,000c. $159,800d. $200,000 3.What is CFFA at year 2?a. $282,000b. $290,000c. $275,000d. $297,0004.What is the Depreciation for year 3?a. $ 90,000b. $ 75,000c. $125,000d. $ 95,000What is the Depreciation Tax Shield benefit at year 2?a. $ 66,000b. $130,000c. $108,000d. $ 90,000What is the NPV of this project?a. $ 73,987b. $159,145c. -$ 27,456d. $ 58,2305.6.

Keith Urban Bookstores is considering a major expansion of its business. The details of the proposed expansion project are summarized below: The company will have to purchase $600,000 in equipment at t = 0. This is the depreciable cost. The project has an economic life of four years. The cost can be depreciated on a MACRS 3-year basis, which implies the following depreciation schedule: МACRS Year 1 Depreciation Rates 0.33 0.45 0.15 0.07 H234

Keith Urban Bookstores is considering a major expansion of its business. The details of the proposed expansion project are summarized below: The company will have to purchase $600,000 in equipment at t = 0. This is the depreciable cost. The project has an economic life of four years. The cost can be depreciated on a MACRS 3-year basis, which implies the following depreciation schedule: МACRS Year 1 Depreciation Rates 0.33 0.45 0.15 0.07 H234

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 8P

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