1. Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $20 million, and production and sales will require an initial $2 million investment in net operating working capital. The company's tax rate is 40%.
What is the initial investment outlay? Write out your answer completely. For example, 2 million should be entered as 2,000,000

2. DeYoung Entertainment Enterprises is considering replacing the latex molding machine it uses to fabricate rubber chickens with a newer, more efficient model. The old machine has a book value of $700,000 and a remaining useful life of 5 years. The current machine would be worn out and worthless in 5 years, but DeYoung can sell it now to a Halloween mask manufacturer for $260,000. The old machine is being depreciated by $140,000 per year, using the straight-line method.
The new machine has a purchase price of $1,190,000, an estimated useful life and MACRS class life of 5 years, and an estimated salvage value of $105,000. The applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. Being highly efficient, it is expected to economize on electric power usage, labor, and repair costs, and, most importantly, to reduce the number of defective chickens. In total, an annual savings of $250,000 will be realized if the new machine is installed. The company's marginal tax rate is 35%, and it has a 14% WACC.
What is the initial net cash flow if the new machine is purchased and the old one is replaced?
Calculate the annual depreciation allowances for both machines, and compute the change in the annual depreciation expense if the replacement is made.
What are the incremental net cash flows in Years 1 through 5? Round your answers to the nearest dollar.
Should the firm purchase the new machine?
Support your answer. Round your answer to the nearest dollar.
NPV:

3. St. Johns River Shipyards's welding machine is 15 years old, fully depreciated, obsolete, and has no salvage value. However, even though it is obsolete, it is perfectly functional as originally designed and can be used for quite a while longer. The new welder will cost $82,000, and have an estimated life of 8 years with no salvage value. The new welder will be much more efficient, however, and this enhanced efficiency will increase earnings before depreciation from $26,000 to $52,000 per year. The new machine will be depreciated over its 5-year MACRS recovery period, so the applicable depreciation rates are 20.00%, 32.00%, 19.20%, 11.52%, 11.52%, and 5.76%. The applicable corporate tax rate is 40%, and the firm's WACC is 13%.
Should the old welder be replaced by the new one?
What is the NPV of the project? Round your answer to the nearest cent.

4. Madison Manufacturing is considering a new machine that costs $350,000 and would reduce pre-tax manufacturing costs by $110,000 annually. Madison would use the 3-year MACRS method to depreciate the machine, and management thinks the machine would have a value of $33,000 at the end of its 5-year operating life. The applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%. Working capital would increase by $35,000 initially, but it would be recovered at the end of the project's 5-year life. Madison's marginal tax rate is 40%, and a 11% WACC is appropriate for the project.
Calculate the project's NPV. Round your answer to the nearest dollar.
Calculate the project's IRR. Round your answer to two decimal places
Calculate the project's MIRR. Round your answer to two decimal places
Calculate the project's payback. Round your answer to two decimal places
Assume management is unsure about the $110,000 cost savings - this figure could deviate by plus 20%. Calculate the NPV over the five-year period. Round your answer to the nearest dollar.
Calculate the NPV over the five-year period if this figure could deviate by minus 20%. Round your answer to the nearest dollar.
Suppose the CFO wants you to do a scenario analysis with different values for the cost savings, the machine's salvage value, and the working capital (WC) requirement. She asks you to use the following probabilities and values in the scenario analysis:

Scenario
Probability Cost Savings Salvage Value
WC
Worst case 0.35 $ 88,000 $28,000 $40,000
Base case 0.35 110,000 33,000 35,000
Best case 0.30 132,000 38,000 30,000

Calculate the project's expected NPV. Round your answer to the nearest dollar.
Calculate the project's standard deviation. Round your answer to the nearest dollar.
Calculate the project's coefficient of variation. Round your answer to two decimal places

5. The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has a cost of $165,000. The project will produce 1,150 cases of mineral water per year indefinitely. The current sales price is $138 per case, and the current cost per case is $102. The firm is taxed at a rate of 37%. Both prices and costs are expected to rise at a rate of 6% per year. The firm uses only equity, and it has a cost of capital of 16%. Assume that cash flows consist only of after-tax profits, since the spring has an indefinite life and will not be depreciated.
What is the NPV of the project? Do not round intermediate steps. Round your answer to the nearest hundred dollars. (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.)
Should the firm accept the project?
Suppose that total costs consisted of a fixed cost of $12,000 per year plus variable costs of $90 per unit, and suppose that only the variable costs were expected to increase with inflation. Would this make the project better or worse? Continue with the assumption that the sales price will rise with inflation.
This will make the project .

6. The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:
Projected sales $25 million
Operating costs (not including depreciation) 7 million
Depreciation 6 million
Interest expense 5 million
The company faces a 30% tax rate. What is the project's operating cash flow for the first year (t = 1)? Write out your answer completely. For example, 2 million should be entered as 2,000,000.

7. The Everly Equipment Company's flange-lipping machine was purchased 5 years ago for $80,000. It had an expected life of 10 years when it was bought and is being depreciated by the straight-line method by $8,000 per year. As the older flange-lippers are robust and useful machines, it can be sold for $20,000 at the end of its useful life.
A new high-efficiency digital-controlled flange-lipper can be purchased for $130,000, including installation costs. During its 5-year life, it will reduce cash operating expenses by $50,000 per year, although it will not affect sales. At the end of its useful life, the high-efficiency machine is estimated to be worthless. MACRS depreciation will be used, and the machine will be depreciated over its 3-year class life rather than its 5-year economic life, so the applicable depreciation rates are 33.33%, 44.45%, 14.81%, and 7.41%.
The old machine can be sold today for $55,000. The firm's tax rate is 35%, and the appropriate WACC is 16%.
If the new flange-lipper is purchased, what is the amount of the initial cash flow at Year 0? Round your answer to the nearest whole dollar.
What are the incremental net cash flows that will occur at the end of Years 1 through 5? Round your answers to the nearest whole dollar.
What is the NPV of this project? Round your answer to the nearest whole dollar.
Should Everly replace the flange-lipper?

1. Talbot Industries is considering launching a new product. The ne...