Finance
Finance question, for cash flow estimation
Chapter 7 Problems:
1. A firm is considering a new project. The project is expected to generate sales of 15,0CC units per year. Units will sell at $14 each. Variable costs are expected to be $8 each for the first year, $7 each thereafter. Fixed costs will be $5,000 per year. The machine used to make the products will cost $100,000 to install and will be depreciated over a MACRS 3 year life. The project is expected to exist for exactly four years. Working capital requirements will be $10,000. At the end of the project, the machine will be sold for $20,000. The tax rate is 38 percent What is the NPV of this project if the interest rate is 10 percent?
2. A new process is expected to generate sales of $100,000 in the first year, increasing by 15 percent each year for the following three years. Variable costs are expected to be 29 percent of sales. Fixed costs are expected to be $10,000 per year. Working capital is expected to be 20 percent of the next year’s sales. A fully-depreciated machine to produce our product is already in place in our plant and can be sold for $20,000 today. If the machine is used to make the products, it will be worthless in four years. The project will last four years. The interest rate is 12 percent. The tax rate is 42 percent. What is the NPV of this project?
3. A new computer system will cost a company $250,000 today. It will help reduce expenses by $50,000 per year for each of the next four years. The computer will be depreciated using the MACRS 3 year life class. The tax rate is 29 percent. If the interest rate is,2eloercent, what is the NPV of the proposed computer?
4. A warehouse is currently sitting empty, but can be rented out to a third party for $100,000 a year. A project is proposed in the warehouse by your company which will require an investment of $200,000 and will be depreciated using MACRS over a five year life. At the end of the project in THREE YEARS, the machinery will be sold for $50,000. Products sold will be 20,000 units per year at $30 each. Variable costs will be 35 percent of sales. Fixed costs (not counting the warehouse) will be $20,000 per year. Working capital will be $50,000. The tax rate is 30 percent. If the interest rate is 10 percent, what is the NPV of this project?