I need to solve all this 4 questions

timer Asked: Sep 26th, 2014

Question description

1.  Basic capital budgeting problem with straight line depreciation. The Roberts company has cash inflows of $140,000 per year on project A and cash outflows of $100,000 per year. The investment outlay on the project is $100,000. Its life is 10 years. The tax rate is 40%. The opportunity cost of capital is 12%.

a.  Present two alternative formulations of the net cash flows adjusted for the depreciation tax shelter.

b.  Calculate the net present value for project A, using straight line depreciation for tax purposes.

2.  Basic replacement problem. The Virginia company is considering replacing a riveting machine with a new design that will increases earnings before depreciation from $20,000 per year to $51,000 per year. The new machine will cost $100,000 and has an estimated life of eight years, with no salvage value. The applicable corporate tax rate is 40% and the firms cost of capital is 12%. The old machine has been fully depreciated and has no salvage value. Should it be replaced with a new machine?

3.  Calculate the internal rate of return for the following set of cash flows:

t1:   400

t2:  400

t3:   -1,000

If the opportunity cost of capital is 10%, should the project be accepted?

4.  The Ambergast Corporation is considering a project that has a three-year life and costs $1,200. It would save $360 per year in operating costs and increase revenue by $200 per year. It would be financed with a three-year loan with the following payment schedule (the annual rate of interest is 5%):

Payment  Interest  Repayment of Principal  Balance 

440.65         60.00           380.65           819.35

440.65         40.97           399.68            419.67

440.65        20.98           419.67             0 

                    121.95      1,200.00

If the company has a 10% after tax weighted average cost of capital, has a 40% tax rate, and uses straight-line depreciation, what is the net present value of the project?

Tutor Answer

(Top Tutor) Studypool Tutor
School: University of Maryland
Studypool has helped 1,244,100 students
flag Report DMCA
Similar Questions
Hot Questions
Related Tags

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors