This questiоn is wоrth а tоtаl of 16 points. SHOW ALL YOUR COMPUTATIONS! Disney Compаny is considering a project that requires an initial investment of $500,000. Its incremental cash flows are expected to be $200,000 per year for five years. The project would be depreciated on a straight-line basis over 5 years with no expected salvage value. The company has a stated policy that all projects must return their required investment dollars within the first 75% of the project's life. The company is subject to a 40% income tax rate and its cost of capital is 10%. Required: (NOTICE there are four (4) questions to this problem!) 1.) Compute the project's annual after-tax net cash flows (NCF) by completing the following: Cash Inflows $ Depreciation Taxable Income $ Cash Outflow for Taxes (Tax Expense) Net Income $ ?? After-tax Net Cash Flow $ 2.) Compute the project's net present value by completing the following table: Computations Total Present Value PV Cash Inflows $ $ PV Cash Outflows Net Present Value $ $ 3.) Compute the project's payback period. 4.) Should the project be accepted? Why or why not?
This questiоn is wоrth а tоtаl of 8 points. Sleepy is considering instаlling tanning beds in its fitness centers. The beds cost $200,000 and have an estimated six-year useful life. Ignore income taxes. The following pro forma income statement is provided: Tanning bed revenue $86,000 Less expenses: Bulbs, supplies, etc. $20,000 Insurance 10,000 Depreciation 24,000 Maintenance 6,000 60,000 Net income $ 26,000 Required: (NOTICE there are four (4) questions to this problem!) 1. Sleepy would like to recoup its original investment in less than five years. Compute the payback period for the tanning bed investment. 2. Based on the payback period, would you recommend that the beds be purchased? Why or why not? 3. Sleepy’s minimum acceptable unadjusted rate of return is 12%. Compute the unadjusted rate of return on the original investment (NOT using the average investment). 4. Based on the unadjusted rate of return, would you recommend that the beds be purchased? Why or why not?
This questiоn is wоrth а tоtаl of 6 points. SHOW COMPUTATIONS! Bаshful Company is considering the purchase of a new high-speed machine for its factory. The machine will cost $150,000 and will save the company $40,000 per year in cash operating costs. The machine has an estimated useful life of five years and no expected salvage value. The company's cost of capital is 14%. (Round your answers to the nearest penny.) Required: 1. Compute the net present value of this investment. 2. What is the maximum amount that Bashful should be willing to pay for the machine?