Book to be used is FINANCIAL THEORY AND CORPORATE POLICY, FOURTH EDITION, Copela
Questions are from Chapter 2
Book to be used is FINANCIAL THEORY AND CORPORATE POLICY, FOURTH EDITION, Copeland Weston Shastri
OUR PROCESS
Order
Payment
Writing
Delivery
Why Choose Us: Cost-efficiency, Plagiarism free, Money Back Guarantee, On-time Delivery, Total Сonfidentiality, 24/7 Support, 100% originality
1. ; Basic capital budgeting problem with straight line depreciation. The Roberts company has cash inflows of $140,000 per year on project A and cash outflows of $100,000 per year. The investment outlay on the project is $100,000. Its life is 10 years. The tax rate is 40%. The opportunity cost of capital is 12%.
a. ; Present two alternative formulations of the net cash flows adjusted for the depreciation tax shelter.
b. ; Calculate the net present value for project A, using straight line depreciation for tax purposes.
2. ; Basic replacement problem. The Virginia company is considering replacing a riveting machine with a new design that will increases earnings before depreciation from $20,000 per year to $51,000 per year. The new machine will cost $100,000 and has an estimated life of eight years, with no salvage value. The applicable corporate tax rate is 40% and the firms cost of capital is 12%. The old machine has been fully depreciated and has no salvage value. Should it be replaced with a new machine?
3. ; Calculate the internal rate of return for the following set of cash flows:
t1: ; 400
t2: ; 400
t3: ; -1,000
If the opportunity cost of capital is 10%, should the project be accepted?
4. ; The Ambergast Corporation is considering a project that has a three-year life and costs $1,200. It would save $360 per year in operating costs and increase revenue by $200 per year. It would be financed with a three-year loan with the following payment schedule (the annual rate of interest is 5%):
Payment ; Interest ; Repayment of Principal ; Balance ;
440.65 ; ; ; ; 60.00 ; ; ; ; ; 380.65 ; ; ; ; ; 819.35
440.65 ; ; ; ; 40.97 ; ; ; ; ; 399.68 ; ; ; ; ; ;419.67
440.65 ; ; ; ;20.98 ; ; ; ; ; ;419.67 ; ; ; ; ; ; ;0 ;
; ; ; ; ; ; ; ; ; ; 121.95 ; ; ;1,200.00
If the company has a 10% after tax weighted average cost of capital, has a 40% tax rate, and uses straight-line depreciation, what is the net present value of the project?