 # Finance Homework about cash flow Anonymous
timer Asked: Mar 4th, 2019
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Need help with some finance homework. Only need the final answer. Please see the attached file for all questions. (some of them are multiple choice)

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Q1 Crane Potions, Inc., a pharmaceutical company, bought a machine at a cost of \$2 million five years ago that produces pain-reliever medicine. The machine has been depreciated over the past five years, and the current book value is \$854,000. The company decides to sell the machine now at its market price of \$1 million. The marginal tax rate is 25 percent.

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Q1 Crane Potions, Inc., a pharmaceutical company, bought a machine at a cost of \$2 million five years ago that produces pain-reliever medicine. The machine has been depreciated over the past five years, and the current book value is \$854,000. The company decides to sell the machine now at its market price of \$1 million. The marginal tax rate is 25 percent. What are the relevant cash flows? Relevant cash flow \$ How do they change if the market price of the machine is \$600,000 instead? Relevant cash flow \$ Q2 Oriole Corporation just purchased computing equipment for \$30,000. The equipment will be depreciated using a five-year MACRS depreciation schedule. If the equipment is sold at the end of its fourth year for \$15,000, what are the after-tax proceeds from the sale, assuming the marginal tax rate is 35 percent? (Round answer to 2 decimal places, e.g. 15.25.) After-tax proceeds \$ Q3 Cullumber, Inc., is considering opening up a new convenience store in downtown New York City. The expected annual revenue at the new store is \$770,000. To estimate the increase in working capital, analysts estimate the ratio of cash and cash equivalents to revenue to be 0.03 and the ratios of receivables, inventories, and payables to revenue to be 0.05, 0.10, and 0.04, respectively, in the same industry. What is the expected incremental cash flow related to working capital when the store is opened? \$ Incremental cash flow Q4 You are buying a sofa. You will pay \$200 today and make three consecutive annual payments of \$300 in the future. The real rate of return is 16.5 percent, and the expected inflation rate is 4 percent. What is the actual price of the sofa? (Do not round factor values. Round final answer to 2 decimal places, e.g. 15.25.) Actual price \$ Q5 Cullumber, Inc., is considering investing in a new production line for eye drops. Other than investing in the equipment, the company needs to increase its cash and cash equivalents by \$10,000, increase the level of inventory by \$42,000, increase accounts receivable by \$25,000, and increase accounts payable by \$5,000 at the beginning of the project. Cullumber will recover these changes in working capital at the end of the project 11 years later. Assume the appropriate discount rate is 13 percent. What are the present values of the relevant investment cash flows? (Do not round intermediate calculations. Round answer to 2 decimal places, e.g. 15.25.) \$ Present value Q6 Given the soaring price of gasoline, Ford is considering introducing a new production line of gas-electric hybrid sedans. The expected annual unit sales of the hybrid cars is 26,000; the price is \$21,000 per car. Variable costs of production are \$11,000 per car. The fixed overhead including salary of top executives is \$80 million per year. However, the introduction of the hybrid sedan will decrease Ford’s sales of regular sedans by 9,000 cars per year; the regular sedans have a unit price of \$20,000, a unit variable cost of \$12,000, and fixed costs of \$250,000 per year. Depreciation costs of the production plant are \$49,000 per year. The marginal tax rate is 40 percent. What is the incremental annual cash flow from operations? Incremental annual cash flow from operations \$ Q7 Ivanhoe Company is considering buying a new farm that it plans to operate for 10 years. The farm will require an initial investment of \$12.15 million. This investment will consist of \$2.85 million for land and \$9.30 million for trucks and other equipment. The land, all trucks, and all other equipment are expected to be sold at the end of 10 years for a price of \$5.20 million, which is \$2.30 million above book value. The farm is expected to produce revenue of \$2.05 million each year, and annual cash flow from operations equals \$1.95 million. The marginal tax rate is 35 percent, and the appropriate discount rate is 10 percent. Calculate the NPV of this investment. (Do not round factor values. Round final answer to 2 decimal places, e.g. 15.25.) NPV \$ The project should be Accepted or rejected Q8 The term ___________ refers to the fact that these cash flows reflect the amount by which the firm's total after-tax free cash flows will change if the project is adopted. periodic ending cash flows incremental none of the above Q 9In order to calculate free cash flow by starting with incremental cash flow from operations, we should subtract the incremental capital expenditures and add the incremental additions to working capital. add the incremental capital expenditures and the incremental additions to working capital. subtract the incremental capital expenditures and the incremental additions to working capital. none of the above. Q10 Brown Mack, Inc., currently has two large manufacturing divisions that share a single plant. Brown Mack owns the plant but has calculated that \$6 million of overhead expenses should be allocated to the two equal-sized divisions. If Brown Mack starts a third manufacturing division, of equal size to the other two divisions, then what overhead cost should the new division take into account on its capital budgeting cash flow analysis? \$3 million \$6 million \$0 \$2 million ...
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Tutor went the extra mile to help me with this essay. Citations were a bit shaky but I appreciated how well he handled APA styles and how ok he was to change them even though I didnt specify. Got a B+ which is believable and acceptable. Brown University

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