# Questions and problem set

*label*Business Finance

*timer*Asked: Feb 5th, 2018

*account_balance_wallet*$15

**Question description**

**Purpose of Assignment**

Students should understand and be able to calculate the net present value and internal rate of return for corporate cash flows, determine project cash flows and a company's sales, variable costs, fixed costs, and its breakeven point.

**Assignment Steps**** **

**Resources: **Tutorial help on Excel^{®} and Word^{®} functions can be found on the Microsoft^{®} Office website. There are also additional tutorials via the web that offer support for office products.** **

**Complete** the following Questions and Problems from each chapter as indicated.

**Show** all work and analysis.** **

**Prepare** in Microsoft^{®} Excel^{®} or Word.** **

- Ch. 9: Questions 7 & 8 (Questions and Problems section)

**7. Calculating IRR [LO5]** A firm evaluates all of its projects by applying the IRR rule. If the required return is 14 percent, should the firm accept the following project?

**8. Calculating NPV [LO1]** For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 11 percent, should the firm accept this project? What if the required return is 24 percent?

- Ch. 10: Questions 3 & 13 (Questions and Problems section)

**3. Calculating Projected Net Income [LO1]** A proposed new investment has projected sales of $635,000. Variable costs are 44 percent of sales, and fixed costs are $193,000; depreciation is $54,000. Prepare a pro forma income statement assuming a tax rate of 35 percent. What is the projected net income?

**13. Project Evaluation [LO1]** Dog Up! Franks is looking at a new sausage system with an installed cost of $540,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $80,000. The sausage system will save the firm $170,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project?

- Ch. 11: Questions 1 & 7 (Questions and Problems section)

**1. Calculating Costs and Break-Even [LO3]** Night Shades, Inc. (NSI), manufactures biotech sunglasses. The variable materials cost is $9.64 per unit, and the variable labor cost is $8.63 per unit.

**a.**What is the variable cost per unit?**b.**Suppose NSI incurs fixed costs of $915,000 during a year in which total production is 215,000 units. What are the total costs for the year?**c.**If the selling price is $39.99 per unit, does NSI break even on a cash basis? If depreciation is $465,000 per year, what is the accounting break-even point?

**7. Calculating Break-Even [LO3]** In each of the following cases, calculate the accounting break-even and the cash break-even points. Ignore any tax effects in calculating the cash break-even.

**Format** your assignment consistent with APA guidelines if submitting in Microsoft^{®} Word.

## Tutor Answer

Hi :). I have done your assignment :). Please see the attachmnt :)

7. Calculating IRR [LO5] A firm evaluates all of its projects by applying the IRR rule. If the

required return is 14 percent, should the firm accept the following project?

Answer:

Inside rate of return (IRR) is the financing cost at which the net present estimation of all

cash flows from a venture or speculation break even with zero (Ross, 2017).

So we have: 0 = – $26,000 + $11,000/(1+IRR) + $14,000/(1+IRR)2+ $10,000/(1+IRR)

Based on the result, we can now proceed with the project because as we could see, the IRR value

is greater than those returned value.

8. Calculating NPV [LO1] For the cash flows in the previous problem, suppose the firm uses

the NPV decision rule. At a required return of 11 percent, should the firm accept this project?

What if the required return is 24 percent?

Answer:

NPV 11% = –$26,000 + $11,000/1.11+ $14,000/1.11 + $10,000/1.11

NPV...

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