Question 1: Bill Alexander and his wife Valerie are both employed. Bill will have an adjusted gross income this year of $70,000. Valerie has an adjusted gross income of $2000 a month. Bill and Valerie have agreed that Valerie should continue working only until the federal income tax on their joint income tax return becomes $8500. On what date Valerie should quit her job?
Question 2
You are evaluating the feasibility of adding an injection molder to fabricate plastic sporks (everybody's favorite harmless utensil) for the US Facility for the Criminally Insane. An injection molder will cost $1,200,000 installed. The annual profit is estimated at $340,000 while the salvage value is estimated to be $300,000 and the project lifetime is 8
years.
a) Determine the RoR.
b) There is considerable uncertainty in the annual profit. Determine the minimum
profit that will give a 15% RoR.
c) How sensitive is the RoR to the salvage value? ( Hint: calculate RoR with salvage value = 0, and make your conclusion.)
Question 3
Your medium sized company is contemplating a major expansion by adding a new product line of plastic body panels for the automotive industry. Currently your company has a total taxable income of $3,000,000. The state tax for this income bracket is 10%. The costs and benefits associated with this major expansion are given below:
The equipment for this project can be depreciated using a 7 year MACRS schedule. The annual revenue generated is $4,400,000.
A) Fill in the cash flow table below.
B) If the MARR of this project is 15% after taxes, is this project a good investment? Use
benefit to cost ratio when you answer this problem.
Question 4
- An investor is considering buying some land for $100,000 and constructing an
Using benefit-cost ratio analysis determine which alternative, if any, should be chosen. Use an 8% MARR and 20 year analysis period. (Incremental Analysis Required)
Question 5
A man wishes to set aside some money for his daughter's college education. His goal is to have a bank savings account containing an amount equivalent to $20,000 with today's purchasing power of the dollar, at the girl's 18th birthday. The estimated inflation rate is 8%. If the bank pays 5% compounded annually, what lump sum of money should he deposit in the bank savings account on the child's 4th birthday?