49) The Galley purchased some 3-year MACRS property two years ago at a cost of $19,800. The
MACRS rates are 33.33 percent, 44.44 percent, 14.82 percent, and 7.41 percent. The firm no
longer uses this property so is selling it today at a price of $13,500. What is the amount of the
aftertax profit on the sale? Assume the firm applies bonus depreciation and has a tax rate of 21
percent.
A) $9,140.48
B) $10,665.00
C) $8,295.00
D) $7,187.78
E) $10,702.40
50) Three years ago, you purchased some 5-year MACRS equipment at a cost of $135,000. The
MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76
percent for Years 1 to 6, respectively. You sold the equipment today for $82,500. Which of these
statements is correct if your tax rate is 23 percent and you ignore bonus depreciation?
A) The tax due on the sale is $10,032.60.
B) The book value today is $40,478.
C) The book value today is $37,320.
D) The taxable amount on the sale is $47,380.
E) The tax refund from the sale is $13,219.40.
51) Custom Cars purchased $39,000 of fixed assets two years ago that are classified as 5-year
MACRS property. The MACRS rates are 20 percent, 32 percent, 19.2 percent, 11.52 percent,
11.52 percent, and 5.76 percent for Years 1 to 6, respectively. The tax rate is 21 percent. If the
assets are sold today for $19,000, what will be the aftertax cash flow from the sale? Ignore bonus
depreciation.
A) $16,358.88
B) $17,909.09
C) $18,720.00
D) $18,941.20
E) $19,000.00
52) If Lew’s Steel Forms purchases $618,000 of new equipment, they can lower annual operating
costs by $265,000. The equipment will be depreciated straight-line to a zero book value over its
3-year life. Ignore bonus depreciation. At the end of the three years, the equipment will be sold
for an estimated $60,000. The equipment will require the company to hold an extra $23,000 of
inventory over the 3-year period. What is the NPV if the discount rate is 14 percent and the tax
rate is 21 percent?
A) −$2,646.00
B) −$7,014.54
C) −$12,593.78
D) $3,106.54
E) $6,884.40
53) Winslow Motors purchased $225,000 of MACRS 5-year property. The MACRS rates are 20
percent, 32 percent, 19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6,
respectively. The tax rate is 21 percent. If the firm sells the asset after four years for $10,000,
what will be the aftertax cash flow from the sale if the firm applies bonus depreciation?
A) $6,488.85
B) $8,880.20
C) $7,900.00
D) $7,770.40
E) $11,006.40
54) A project is expected to create operating cash flows of $26,500 a year for four years. The
fixed assets required for the project cost $62,000 and will be worthless at the end of the project.
An additional $3,000 of net working capital will be required throughout the life of the project.
What is the project’s net present value if the required rate of return is 12 percent?
A) $19,208.11
B) $14,028.18
C) $15,306.09
D) $17,396.31
E) $21,954.17
55) Assume a project will increase inventory by $61,000, accounts payable by $28,000, and
accounts receivable by $36,000. What is the initial net working capital requirement for this
project?
A) $53,000
B) $69,000
C) $59,000
D) $97,000
E) $125,000
56) Brennan’s Boats is considering a project which will require additional inventory of $128,000,
will decrease accounts payable by $7,000, and will increase accounts receivable by $56,000.
What is the initial net working capital requirement for this project?
A) $177,000
B) $184,000
C) $191,000
D) $79,000
E) $198,000
57) Lottie’s Boutique needs to maintain 15 percent of its sales in net working capital. The firm is
considering a 3-year project which will increase sales from their current level of $110,000 to
$125,000 the first year and to $135,000 a year for the following two years. When analyzing the
project, what amount should be included for net working capital for the last year if the net
working capital returns to its original level at that time?
A) $20,250
B) $7,000
C) $13,200
D) $3,750
E) $17,400
58) Wheels and More needs to maintain 8 percent of its sales in net working capital. The firm is
considering a 5-year project which will increase sales from their current level of $110,000 to
$146,000, $152,000, $158,000, $164,000, and $155,000 for Years 1 to 5 of the project,
respectively. What amount should be included in the project analysis cash flows for net working
capital for Year 3 of the project?
A) −$12,640
B) −$480
C) $0
D) $480
E) $12,640
59) Jeff’s Stereos is expanding its product offerings which includes increasing the floor inventory
by $150,000, increasing accounts receivable by $35,000, and increasing its debt to suppliers by
$75,000. The company will also spend $200,000 for a building contractor to expand the size of
the showroom. What is the amount of the project’s initial cash flow?
A) −$240,000
B) −$310,000
C) −$160,000
D) −$295,000
E) −$175,000
60) Reynolds Metals is considering a project with a life of 4 years that will produce annual
operating cash flows of $57,000. During the life of the project, inventory will be lowered by
$28,000, accounts receivable will increase by $15,000, and accounts payable will increase by
$6,000. The project requires the purchase of equipment at an initial cost of $104,000 that will be
depreciated straightline to a zero book value over the life of the project. Ignore bonus
depreciation. The equipment will be salvaged at the end of the project creating an aftertax cash
inflow of $22,000. At the end of the project, net working capital will return to its normal level.
What is the net present value of this project given a required return of 16 percent?
A) $83,483.48
B) $78,117.05
C) $76,153.17
D) $80,037.86
E) $79,876.02
61) A project will produce an operating cash flow of $7,300 a year for three years. The initial
investment for fixed assets will be $11,600, which will be depreciated straight-line to zero over
the asset’s 4-year life. Ignore bonus depreciation. The project will require an initial $500 in net
working capital plus an additional $500 every year with all net working capital levels restored to
their original levels when the project ends. The fixed assets can be sold for an estimated $2,500
at the end of the project, the combined tax rate is 23 percent, and the required rate of return is 12
percent. What is the net present value of the project?
A) $7,500.95
B) $9,896.87
C) $7,072.72
D) $6,353.41
E) $8,398.29
62) Assume a proposed project under consideration by the James River Co. requires $28,900 in
fixed assets. The firm plans to ignore bonus depreciation and instead apply straight-line
depreciation to zero over the asset’s 6-year life. An aftertax salvage value of $5,400 is expected.
The project will produce an annual operating cash flow of $7,300 and will require net working
capital of $500 initially plus an additional $500 in Year 3. Net working capital will be restored to
its original level when the project ends at the end of Year 6. The tax rate is 21 percent and the
required rate of return is 14 percent. What is the net present value of this project?
A) $1,565.54
B) $1,196.87
C) $1,072.72
D) $1,337.75
E) $1,398.29
63) Tech Enterprises is considering a new project that will require $325,000 for fixed assets,
$160,000 for inventory, and $35,000 for accounts receivable. Short-term debt is expected to
increase by $100,000. The project has a life of 5 years. The fixed assets will be depreciated
straight-line to a zero book value over the life of the project. Ignore bonus depreciation. At the
end of the project, the fixed assets can be sold for 25 percent of their original cost and the net
working capital will return to its original level. The project is expected to generate annual sales
of $554,000 with costs of $430,000. The tax rate is 21 percent and the required rate of return is
15 percent. What is the net present value of this project?
A) $32,026.45
B) $33,278.35
C) $34,138.25
D) $32,318.29
E) $36,202.48
64) The Down Towner is considering a project with a life of 4 years that will require $164,800
for fixed assets and $42,400 for net working capital. The fixed assets will be depreciated using
the Year 2018 bonus depreciation method. At the end of the project, the fixed assets can be sold
for $37,500 cash and the net working capital will return to its original level. The project is
expected to generate annual sales of $195,000 and costs of $117,500. The tax rate is 24 percent
and the required rate of return is 13 percent. What is the project’s net present value?
A) $48,909.09
B) $46,482.43
C) $42,316.67
D) $56,500.00
E) $59,488.87
65) The Mill Wheel is considering a project with a life of 3 years that will require $289,400 for
fixed assets, $36,700 for inventory and $27,800 for accounts receivable. Short-term debt is
expected to increase by $16,500. The fixed assets will be depreciated straight-line to a zero book
value over 5 years. Ignore bonus depreciation. At the end of the project, the fixed assets can be
sold for 20 percent of their original cost and the net working capital will return to its original
level. The project is expected to generate annual sales of $275,000 and costs of $198,000. The
tax rate is 21 percent and the required rate of return is 16 percent. What is the amount of the cash
flow in the project’s final year?
A) $208,433.33
B) $197,908.18
C) $191,019.60
D) $160,087.09
E) $181,250.24
66) Leisure Vacations is considering a project with a life of 5 years that will require the purchase
of $1.4 million in new 5-year MACRS equipment. The MACRS rates are 20 percent, 32 percent,
19.2 percent, 11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. Ignore
bonus depreciation. The firm desires a minimum 14 percent rate of return and the tax rate is 22
percent. The equipment can be sold at the end of the project for an estimated $225,000. What is
the amount of the aftertax salvage value?
A) $187,600.00
B) $162,418.54
C) $195,322.15
D) $184,238.97
E) $193,240.80
67) Schroeder Electronics is considering a project which will require the purchase of $5.68
million in new equipment that will be depreciated straight-line to a zero book value over the 5-
year life of the project. Ignore bonus depreciation. The firm requires a rate of return of 12
percent and the tax rate is 21 percent. What is the value of the depreciation tax shield in Year 5
of the project?
A) $225,608
B) $228,406
C) $334,800
D) $238,560
E) $0
68) Ernie’s Electrical is evaluating a project which will increase annual sales by $50,000 and
costs by $30,000. The project has an initial asset cost of $150,000 that will be depreciated
straight-line to a zero book value over the 10-year life of the project. Ignore bonus depreciation.
The applicable tax rate is 25 percent. What is the annual operating cash flow for this project?
A) $19,250
B) $15,500
C) $21,350
D) $17,900
E) $18,750
69) Leisure Vacations is considering a project which will require the purchase of $1.4 million in
new 5-Year MACRS equipment. The MACRS rates are 20 percent, 32 percent, 19.2 percent,
11.52 percent, 11.52 percent, and 5.76 percent for Years 1 to 6, respectively. Ignore bonus
depreciation. The firm desires a minimal 14 percent rate of return and has a combined tax rate of
25 percent. What is the value of the depreciation tax shield in Year 2 of the project?
A) $107,500
B) $90,400
C) $89,600
D) $123,416
E) $112,000
70) Kurt’s Cabinets is looking at a project that will require $80,000 in fixed assets and another
$20,000 in net working capital. The project is expected to produce annual sales of $110,000 with
associated costs of $70,000. The project has a life of 4 years. The company ignores bonus
depreciation and instead uses straight-line depreciation to a zero book value over the life of the
project. The tax rate is 21 percent. What is the annual operating cash flow for this project?
A) $31,600
B) $43,200
C) $27,000
D) $35,800
E) $40,000
71) For the current year, Peter’s Boats has sales of $760,000 and a profit margin of 5 percent.
The annual depreciation expense is $80,000. What is the amount of the annual operating cash
flow if the company has no long-term debt?
A) $34,000
B) $86,400
C) $118,000
D) $120,400
E) $123,900