1) A proposed new investment has projected sales of $840,000. Variable costs are 55 percent of sales, and fixed costs are $173,000; depreciation is $74,000. Prepare a pro forma income statement assuming a tax rate of 35 percent. What is the projected net income?
Sales $
Variable costs
Fixed costs
Depreciation
EBT $
Taxes Net income $
2) Quad Enterprises is considering a new three-year expansion project that requires an initial fixed asset investment of $2.73 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life. The project is estimated to generate $2,090,000 in annual sales, with costs of $785,000.
The project requires an initial investment in net working capital of $310,000, and the fixed asset will have a market value of $215,000 at the end of the project.
If the tax rate is 30 percent, what is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? (Do not round intermediate calculations. Enter your answers in dollars, not millions of dollars, e.g. 1,234,567. Negative amounts should be indicated by a minus sign.)
| Years |
Cash Flow |
| Year 0 |
$ |
| Year 1 |
$ |
| Year 2 |
$ |
| Year 3 |
$ |
If the required return is 13 percent, what is the project's NPV?
3) Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $244,000, has a four-year life, and requires $76,000 in pretax annual operating costs.
System B costs $342,000, has a six-year life, and requires $70,000 in pretax annual operating costs. Suppose LISC always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 35 percent and the discount rate is 10 percent.
Calculate the EAC for both conveyor belt systems. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)