Homework
Chapter 13:
13.4 CF0 = (110,000) ; CF1-CF10 = 19,000 ; WACC = 10% NPV = 6,746.78 ; The company should replace the old machine for a new one.
13.6 Year 0 Net Cash Flow = Machine Price + Cost of Install + Increase in Net Working Capital Year 0 = $1,080,000 + $22,500 + $15,500 = ($1,118,000) Depreciation Year 1 = ($1,080,000 + $22,500) x 0.3333 = $367,463
Depreciation Year 2 = ($1,080,000 + $22,500) x 0.4445 = $409,061
Depreciation Year 3 = ($1,080,000 + $22,500) x 0.1481 = $163, 280 Net Operating Cash Flow for Year 1 = $375,612 ; Year 2 = $418,521 ; Year 3 = $304,148 Book Value of the Asset = ($1,080,000 + $22,500) – ($367,463 + $490,061 + $163,280) = $81,696 Net Gain = (($605,000) – ($81,696)) x (1- 0.35) = $340,147 After-tax Net Salvage Value = $81,696 + $340,147 = $421,843 Additional Cash Flow = $421,843 + $15,500 = $437,343 Cash Flow in Year 3 = $304,148 + $437,343 = $741,491 NPV = -$1,118,000 + $335,368 + $333,642 + $527,779 = $78,789 13.8 NPV = $21,780 (1 + 0.06) - $150,000 = $106,520 0.15 – 0.06 Since NPV is positive, the firm should accept the project.
13.10 After tax increase in earnings = Increased earnings x (1 – Tax Rate) = $47,000 x (1 – 0.40) = $28,200 Depreciation using MACRS: Year 1 = $182,500 x 20% = $36,500 x 40% = $14,600 Year 2 = $182,500 x 32% = $58,400 x 40% = $23,260
Year 3 = $182,500 x 19.20% = $35,040 x 40% = $14,016
Year 4 = $182,500 x 11.52% = $21,024 x 40% = $8,409.6
Year 5 = $182,500 x 11.52% = $21,024 x 40% = $8,409.6
Year 6 = $182,500 x 5.76% = $10,512 x 40% = $4,204.8
Year 7-8 = $182,500 x 0.00% =$0
NPV = $11,468
13.11 Standard Deviation of NPV² = [0.05(-$70 - $3)² + 0.20($25 - $3)² + 0.50($12 - $3)² + 0.20($20 - $3)² + 0.05($30 - $3)²]
SD of NPV = $23,622 million
Coefficient of Variance = $23,622 million / $3 million = 7.87
Chapter 14:
14.1 Present Value = $3,000,000 x 7.025 = $21,075,000 Net Present Value = $21,075,000 - $20,000,000 = $1,075,000 Expected NPV
13.4 CF0 = (110,000) ; CF1-CF10 = 19,000 ; WACC = 10% NPV = 6,746.78 ; The company should replace the old machine for a new one.
13.6 Year 0 Net Cash Flow = Machine Price + Cost of Install + Increase in Net Working Capital Year 0 = $1,080,000 + $22,500 + $15,500 = ($1,118,000) Depreciation Year 1 = ($1,080,000 + $22,500) x 0.3333 = $367,463
Depreciation Year 2 = ($1,080,000 + $22,500) x 0.4445 = $409,061
Depreciation Year 3 = ($1,080,000 + $22,500) x 0.1481 = $163, 280 Net Operating Cash Flow for Year 1 = $375,612 ; Year 2 = $418,521 ; Year 3 = $304,148 Book Value of the Asset = ($1,080,000 + $22,500) – ($367,463 + $490,061 + $163,280) = $81,696 Net Gain = (($605,000) – ($81,696)) x (1- 0.35) = $340,147 After-tax Net Salvage Value = $81,696 + $340,147 = $421,843 Additional Cash Flow = $421,843 + $15,500 = $437,343 Cash Flow in Year 3 = $304,148 + $437,343 = $741,491 NPV = -$1,118,000 + $335,368 + $333,642 + $527,779 = $78,789 13.8 NPV = $21,780 (1 + 0.06) - $150,000 = $106,520 0.15 – 0.06 Since NPV is positive, the firm should accept the project.
13.10 After tax increase in earnings = Increased earnings x (1 – Tax Rate) = $47,000 x (1 – 0.40) = $28,200 Depreciation using MACRS: Year 1 = $182,500 x 20% = $36,500 x 40% = $14,600 Year 2 = $182,500 x 32% = $58,400 x 40% = $23,260
Year 3 = $182,500 x 19.20% = $35,040 x 40% = $14,016
Year 4 = $182,500 x 11.52% = $21,024 x 40% = $8,409.6
Year 5 = $182,500 x 11.52% = $21,024 x 40% = $8,409.6
Year 6 = $182,500 x 5.76% = $10,512 x 40% = $4,204.8
Year 7-8 = $182,500 x 0.00% =$0
NPV = $11,468
13.11 Standard Deviation of NPV² = [0.05(-$70 - $3)² + 0.20($25 - $3)² + 0.50($12 - $3)² + 0.20($20 - $3)² + 0.05($30 - $3)²]
SD of NPV = $23,622 million
Coefficient of Variance = $23,622 million / $3 million = 7.87
Chapter 14:
14.1 Present Value = $3,000,000 x 7.025 = $21,075,000 Net Present Value = $21,075,000 - $20,000,000 = $1,075,000 Expected NPV