Lohn Corporation

34. $34.91
35. $36.75
36. $35.68
37. $43.91
38. $33.90

2. Bruin, Incorporated, has identified the following two mutually exclusive projects:

18. What is the IRR for project A? (18%, 18.90%, 18.54%, 17.10%, 17.46%)
19. What is the IRR for project B? (15.77%, 16.56%, 16.24%, 14.98%, 15.30%)
20. If the required return is 9 percent, what is the NPV for Project A?

($6,925.53, $7,133.30, $7.271.81, $6,579.25, $6,717,76)

1. If the required return is 9 percent, what is the NPV for Project B?

($7,342.91, $7,710.06, $7,563.20, $6,975.76, $7,122.62)

10. At what discount rate would the company be indifferent between these two projects? (10.25%, 10.76%, 10.56%, 9.74%, 9.94%)

3. Consider the following income statement:

Calculate the EBIT, net income, and OCF. What is the depreciation tax shield?

4. The common stock of Auto Deliveries sells for $26.96 a share. The stock is expected to pay $2.20 per share next year when the annual dividend is distributed. Auto Deliveries has established a pattern of increasing its dividends by 5.1 percent annually and expects to continue doing so. What is the market rate of return on this stock?
5. 16% B. 10.71%  C.13.26%  D. 15.81%  E.18.36%
6. Last week, Hansen Delivery paid its annual dividend of $1.20 per share. The company has been reducing the dividends by 10 percent each year. How much are you willing to pay to purchase stock in this company if your required rate of return is 14 percent?
7. $7.71 $28.80  C.$15.60  D. $4.50  E.$10.80

6. What is the profitability index for an investment with the following cash flows given a 8 percent required return?

1. 07 B. 1.09  C. 1.11  D. 1.05  E. 1.03

7. It will cost $2,400 to acquire an ice cream cart. Cart sales are expected to be $2,000 a year for three years. After the three years, the cart is expected to be worthless as the expected life of the refrigeration unit is only three years. What is the payback period?
8. .20 years 1.17 years  C. 2.17 years  D. 1.20 years  E. 2.20 years

8. A project has an initial cost of $8,700 and produces cash inflows of $2,800, $5,000, and $1,700 over the next three years, respectively. What is the discounted payback period if the required rate of return is 7 percent?
9. 16 years B. never  C. 2.30 years  D. 2.92 years  E.2.53 years

9. Kelly’s Corner Bakery purchased a lot in Oil City five years ago at a cost of $610,000. Today, that lot has a market value of $770,000. At the time of the purchase, the company spent $46,000 to level the lot and another $4,000 to install storm drains. The company now wants to build a new facility on that site. The building cost is estimated at $1,260,000. What amount should be used as the initial cash flow for this project?
10. $-2,030,000   $-1,916,000  C. $-1,870,000  D. $-1,260,000  E. $-2,076,000

10. Cool Comfort currently sells 300 Class A spas, 450 Class C spas, and 200 deluxe model spas each year. The firm is considering adding a mid-class spa and expects that if it does it can sell 375 of them. However, if the new spa is added, Class A sales are expected to decline to 225 units while the Class C sales are expected to decline to 200. The sales of the deluxe model will not be affected. Class A spas sell for an average of $12,000 each. Class C spas are priced at $6,000 and the deluxe model sells for $17,000 each. The new mid-range spa will sell for $8,000. What is the value of the erosion?
11. $600,000 $1,200,000  C. $1,800,000  D.$2,400,000  E.$3,900,000

11. Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. The equipment can be scraped at the end of the project for 5 percent of its original cost. Annual sales from this project are estimated at $420,000. Net working capital equal to 20 percent of sales will be required to support the project. All of the net working capital will be recouped. The required return is 16 percent and the tax rate is 35 percent. What is the amount of the aftertax salvage value of the equipment?
12. $17,150 $31,850  C.118,800  D.$237,600  E. $343,000

12. Bruno’s Lunch Counter is expanding and expects operating cash flows of $26,000 a year for 4 years as a result. This expansion requires $39,000 in new fixed assets. These assets will be worthless at the end of the project. In addition, the project requires $3,000 of net working capital throughout the life of the project. What is the net present value of this expansion project at a required rate of return of 16 percent?
13. $18,477.29   $21,033.33  C. $28,288.70  D. $29,416.08  E.$32,409.57

13. A project will produce an operating cash flow of $14,600 a year for 8 years. The initial fixed asset investment in the project will be $48,900. The net aftertax salvage value is estimated at $11,000 and will be received during the last year of the project’s life. What is the net present value of the project if the required rate of return is 12 percent?
14. $23,627.54 $28,070.26  C.$34,627.54  D. $39,070.26  E. $41,040.83

14. Phone Home, Inc. is considering a new 6-year expansion project that requires an initial fixed asset investment of $5.994 million. The fixed asset will be depreciated straight-line to zero over its 6-year tax life, after which time it will be worthless. The project is estimated to generate $5,328,000 in annual sales, with costs of $2,131,200. The tax rate is 31 percent. What is the operating cash flow for this project?
15. $1,894,318 $2,211,407  C.$2,515,482. D. $2,663,021  E.$2,848,315

15. Phone Home, Inc. is considering a new 5-year expansion project that requires an initial fixed asset investment of $2.48 million. The fixed asset will be depreciated straight-line to zero over its 5-year tax life, after which time it will be worth $500,000. The project is estimated to generate $1 million in annual OCF. The initial NWC requirement is 300,000. The tax rate is 32 percent and the required return on the project is 11 percent. What is the net present value for this project?
16. $1,390,658 $1,295,706  C. $6,500,098  D. $1,434,217. E.$1,117,670

16. Assume that you are looking at an investment opportunity that offers an annual operating cash flow of $40,000 per year for 4 years. The initial investment to purchase the necessary equipment is $200,000. You assume that you can sell the equipment at the end of 4 years for $70,000. Also, initially there is a need for an investment in net working capital of $15,000, but this increases to $35,000 in year 1. If your required rate of return is 5% and the tax rate is 35%, what is the NPV?
17. Yes, because the NPV is $3,230.00
18. Yes, because the NPV is $30,000.00
19. No, because the NPV is -$5,825.84
20. No, because the NPV is -$25,982.05 E. No, because the NPV is -$23,388.48