51) BLD, Inc. just purchased some fixed assets at a total cost of $94,318 that are classified as
3-year property for MACRS. The MACRS table values are 0.3333, 0.4445, 0.1481, and 0.0741 for
Years 1 to 4, respectively. What is the amount of the depreciation expense for Year 3?
A) $13,968.50
B) $14,602.94
C) $5,173.26
D) $8,044.36
E) $6,988.96
52) Data, Inc. purchased some fixed assets 4 years ago at a cost of $21,650 and is selling them
today at a price of $4,500. The assets are classified as 5-year property for MACRS. The MACRS
table values are 0.2000, 0.3200, 0.1920, 0.1152, 0.1152, and 0.0576 for Years 1 to 6, respectively.
What is the current book value of these assets?
A) $1,247.04
B) $3,741.12
C) $6,309.19
D) $4,016.67
E) $8,420.02
53) You purchased an asset 3 years ago at a cost of $135,000 and sold it today for $82,500. The
equipment is 5-year property for MACRS. The MACRS table values are 0.2000, 0.3200, 0.1920,
0.1152, 0.1152, and 0.0576 for Years 1 to 6, respectively. Which one of the following statements is
correct if the tax rate is 34 percent?
A) The current book value is $41,800.
B) The taxable amount on the sale is $38,880.
C) The tax due on the sale is $14,830.80.
D) The book value today is $37,478.
E) The after-tax salvage value is $38,880.
54) Kustom Cars purchased a fixed asset 2 years ago for $47,000 and sold it today for $23,000.
The assets are classified as 5-year property for MACRS. The MACRS table values are 0.2000,
0.3200, 0.1920, 0.1152, 0.1152, and 0.0576 for Years 1 to 6, respectively. What is the net cash
flow from the sale if the tax rate is 34 percent?
A) $24,604.19
B) $23,873.12
C) $18,720.00
D) $22,850.40
E) $19,0208.19
55) A project is expected to create operating cash flows of $37,600 a year for 3 years. The initial
cost of the fixed assets is $98,000. These assets will be worthless at the end of the project. Also,
$3,200 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 14 percent?
A) $11,746.73
B) $12,011.98
C) $10,927.87
D) −$11,746.73
E) −$12,011.98
56) A project will produce operating cash flows of $39,000 a year for 4 years. During the life of the
project, inventory will be lowered by $9,000, accounts receivable will increase by $14,000, and
accounts payable will increase by $11,000. The project requires $118,000 of new equipment that
will be depreciated straight-line to a zero book value over 4 years. At the end of the project, net
working capital will return to its normal level and the equipment will be sold for $21,000,
aftertaxes. What is the net present value given a required return of 13 percent?
A) $14,322.49
B) $13,483.48
C) $18,117.05
D) $13,204.16
E) $12,804.42
57) A project will produce an operating cash flow of $38,400 a year for 4 years. The initial cash
outlay for equipment will be $57,300 and the net after-tax salvage value of $8,415 will be received
at the end of the project. The project initially requires $1,200 of net working capital that will be
fully recovered at project’s end. What is the net present value of the project if the required rate of
return is 16 percent?
A) $54,260.42
B) $49,896.87
C) $48,368.19
D) $53,300.41
E) $47,398.29
58) A project requires $1.208 million in new equipment that will be depreciated straight-line to
zero over the 5-year life of the project. The firm expects to sell the equipment at the end of the
project for 20 percent of its original cost. The discount rate is 13 percent and the tax rate is 35
percent. What is the after-tax salvage value of the equipment?
A) $168,800
B) $174,000
C) $148,900
D) $167,400
E) $157,040
59) A new 5-year project will require $194,000 for fixed assets, $58,000 for inventory, and
$42,000 for accounts receivable. Short-term debt is expected to increase by $46,000. The fixed
assets will be depreciated straight-line to zero over the project’s life and have an expected after-tax
salvage value of $2,900. The net working capital returns to its original level at the end of the
project. The tax rate is 34 percent, and the required return is 13 percent. What is the cash flow
recovery from net working capital at the end of this project?
A) $54,000
B) $35,000
C) $146,000
D) $108,000
E) $63,000
60) Elton International is considering the installation of a new computer system that will cut
annual operating costs by $16,500 but not affect sales. The system will cost $68,000 and will be
depreciated to zero over its 7-year life using the straight-line method. What is the amount of the
earnings before interest and taxes (EBIT)?
A) −$26,214.29
B) $17,014.29
C) $6,785.71
D) $9,308.71
E) −$9,714.29
61) Outdoor Gear is purchasing equipment costing $485,900 that will lower manufacturing costs
by $132,000 a year. The equipment will be depreciated over 8 years using straight-line
depreciation to a zero book value. After 8 years, the equipment will be worthless. The discount rate
is 16 percent and the tax rate is 34 percent. What is the annual net income from this purchase?
A) $51,428.57
B) $47,033.25
C) $87,120.00
D) −$38,527.11
E) −$127,206.75
62) Thornley Co. is considering a 3-year project with an initial cost of $636,000. The equipment is
classified as MACRS 7-year property. The MACRS table values are 0.1429, 0.2449, 0.1749,
0.1249, 0.0893, 0.0892, 0.0893, and 0.0446 for Years 1 to 8, respectively. At the end of the project,
the equipment will be sold for an estimated $279,000. The tax rate is 35 percent, and the required
return is 17 percent. An extra $23,000 of inventory will be required for the life of the project.
Annual sales are estimated at $379,000 with costs of $247,000. What is the total cash flow for Year
3?
A) $281,782.87
B) $406,208.19
C) $315,189.32
D) $319,208.19
E) $423,008.24
63) A project requires $1.08 million of new equipment that will be depreciated straight-line to zero
over the project’s 4-year life. The equipment is expected to be sold at the end of the project for 33
percent of its original cost. Net working capital equal to 12 percent of sales is required and will be
recouped at the end of the project. Annual sales are projected at $487,500 with annual costs of
$302,400. What is the recovery amount attributable to net working capital at the end of the project?
A) $25,555
B) $22,212
C) $40,100
D) $58,500
E) $42,550
64) Kay’s Quilts is considering a project that will reduce inventory by $38,000, increase accounts
payable by $55,000, and increase accounts receivables by 9 percent. Accounts receivable is
currently $78,000. What is the cash flow at Time 0 for net working capital?
A) $100,020
B) $85,900
C) $99,000
D) $9,980
E) $8,120
65) Ernie’s Electrical is evaluating a project that will increase sales by $48,000 and costs by
$16,000. The project will initially cost $89,000 for fixed assets that will be depreciated
straight-line to a zero book value over the 6-year life of the project. The applicable tax rate is 34
percent. What is the project’s annual operating cash flow?
A) $23,300.13
B) $21,450.87
C) $26,163.33
D) $22,406.67
E) $18,180.09
66) Kurt’s Kabinets is looking at a 4-year project that will require $76,000 in fixed assets and
another $20,000 in net working capital. Annual sales are projected at $142,800 with costs of
$79,600. The company uses straight-line depreciation to a zero book value over the life of the
project. The tax rate is 35 percent. What is the annual operating cash flow for this project?
A) $42,240
B) $60,440
C) $40,440
D) $47,730
E) $67,730
67) Peter’s Boats has sales of $711,000 and a profit margin of 7.8 percent. The annual depreciation
expense is $59,000. The tax rate is 35 percent. What is the amount of the operating cash flow if the
company has no long-term debt?
A) $152,960
B) $106,502
C) $114,458
D) $93,960
E) $55,458
68) Uptown Motors is analyzing a project with annual sales of $420,000, straight-line depreciation
of $28,700 a year, and a net working capital requirement of $34,000. The firm has a tax rate of 34
percent and a profit margin of 6.1 percent. The firm has no long-term debt. What is the amount of
the operating cash flow?
A) $24,384.42
B) $50,616.67
C) $54,320.00
D) $58,340.70
E) $26,667.20
69) Margarite’s Enterprises is considering a new 5-year project that will require $612,000 for new
fixed assets, $160,000 for inventory, and $35,000 for accounts receivable. Short-term debt is
expected to increase by $110,000. The fixed assets will be depreciated straight-line to zero over the
life of the project. The project is expected to generate annual sales of $694,000 with costs of
$428,000. The tax rate is 35 percent, and the required rate of return is 15 percent. What is the
amount of the earnings before interest and taxes (EBIT) for the first year of this project?
A) $138,500
B) $143,600
C) $167,000
D) $93,340
E) $90,025
70) Ripley Co. is considering a project that will produce sales of $36,700 and increase cash
expenses by $14,600. If the project is implemented, the firm’s taxes will increase from $17,420 to
$21,680 and depreciation will increase from $4,000 to $5,500. What is the amount of the operating
cash flow using the top-down approach?
A) $14,960
B) $17,840
C) $12,400
D) $10,900
E) $16,340
71) The Java House is considering a project that will produce sales of $59,280 and increase cash
expenses by $26,040. If the project is implemented, taxes will increase by $4,600. The additional
depreciation expense will be $10,100. An initial cash outlay of $7,300 is required for net working
capital. What is the amount of the operating cash flow using the top-down approach?
A) $18,540
B) $33,240
C) $18,200
D) $28,640
E) $32,800
72) A project will increase sales by $92,800 and cash expenses by $53,200. The project will cost
$89,000 and be depreciated using straight-line depreciation to a zero book value over the 4-year
life of the project. The tax rate is 35 percent. What is the operating cash flow of the project using
the tax shield approach?
A) $42,350.50
B) $28,650.00
C) $33,527.50
D) $35,170.50
E) $37,672.50
73) The Market is considering a project that will require the purchase of $1.27 million in new
equipment. The equipment will be depreciated straight-line to zero over the 6-year life of the
project. What is the value of the depreciation tax shield in Year 2 of the project if the tax rate is 35
percent?
A) $64,209.11
B) $121,012.12
C) $74,083.33
D) $81,028.40
E) $137,583.33
74) A project will increase annual sales by $183,000 and cash expenses by $99,000 for 4 years.
The project has an initial cost of $115,000 for equipment that will be depreciated using MACRS
depreciation. The applicable MACRS table values are 0.1429, 0.2449, 0.1749, and 0.1249 for
Years 1 to 4, respectively. The company has a marginal tax rate of 35 percent. What is the
depreciation tax shield for Year 3?
A) $3,925.59
B) $7,039.73
C) $4,556.08
D) $8,288.16
E) $9,955.77
75) The initial cost of a machine is $727,000 with annual operating costs of $39,600. Each
machine has a life of 5 years before it is replaced. Ignore taxes. What is the equivalent annual cost
of this machine if the required return is 16 percent?
A) $237,750.85
B) $268,411.15
C) $261,632.62
D) $240,600.00
E) $289,038.11
76) Assume a machine costs $129,000 and lasts 3 years before it is replaced. The operating cost is
$7,200 a year. Ignore taxes. What is the equivalent annual cost if the required rate of return is 14
percent?
A) $65,714.29
B) $62,764.36
C) $78,775.88
D) $51,006.23
E) $50,200.00
77) DeCento’s is analyzing two mutually exclusive machines to determine which one it should
purchase. Whichever machine is purchased, it will be replaced at the end of its useful life. The
company requires a return of 15 percent and uses straight-line depreciation to a zero book value
over the life of the machine. Machine A has a cost of $386,000, annual operating costs of $29,000,
and life of 4 years. Machine B costs $257,000, has annual operating costs of $19,000, and a life of
3 years. The firm currently pays no taxes. Which machine should be purchased and why?
A) Machine A because it will save the company about $32,642 a year
B) Machine A because it will save the company about $19,261 a year
C) Machine B because it will save the company about $32,642 a year
D) Machine B because it will save the company about $10,000 a year
E) Machine B because it will save the company about $19,261 a year
78) JADO Mfg. is trying to decide which one of two machines to purchase. Machine A costs
$398,000, has a 5-year life and requires $113,000 in pretax annual operating costs. Machine B
costs $510,000, has a 4-year life and requires $67,000 in pretax annual operating costs. Either
machine will be depreciated using the straight-line method to zero over its life. Neither machine
will have any salvage value. Whichever machine is selected, it will never be replaced. The
discount rate is 12 percent and the tax rate is 34 percent. Which machine should be purchased and
why?
A) Machine A because its NPV is about $61,927 higher than Machine B’s NPV
B) Machine A because its EAC is about $38,319 higher than Machine B’s EAC
C) Machine A because its EAC is about $89.989 lower than Machine B’s EAC
D) Machine B because its NPV is about $56,642 higher than Machine A’s NPV
E) Machine B because its NPV is about $45,880 higher than Machine A’s NPV
79) Precision Mfg. is trying to decide which one of two machines to purchase. Machine A costs
$854,000, has a life of 8 years, and requires $147,000 in pretax annual operating costs. Machine B
costs $798,000, has a life of 11 years, and requires $104,000 in pretax annual operating costs.
Either machine will be depreciated using the straight-line method to zero over its life. Neither
machine will have any salvage value. Whichever machine is selected, it will never be replaced.
The discount rate is 13 percent and the tax rate is 35 percent. Which machine should be purchased
and why?
A) Machine A because its NPV is about $114,558 higher than Machine B’s NPV
B) Machine A because its NPV is about $64,217 higher than Machine B’s NPV
C) Machine A because its EAC is about $83,404 lower than Machine B’s EAC
D) Machine B because its NPV is about $95,188 higher than Machine A’s NPV
E) Machine B because its EAC is about $83,404 lower than Machine A’s EAC
80) A proposed project will require $410,000 in fixed assets that would be depreciated straight-line
to zero over the 3-year life of the project. These assets have an expected aftertax salvage value of
$110,000 at the end of the project. The project would require $48,000 of net working capital, all
of which is recoverable, along with $220,000 in annual expenses. What is the minimum annual
price you should bid on this project if you require a rate of return of 17 percent and have a tax rate
of 30 percent?
A) $410,208
B) $393,760
C) $408,211
D) $427,009
E) $367,984
81) You have the opportunity to bid on a project that involves manufacturing 110,000 units per
year for 4 years. The project will require $698,000 in fixed assets that would be depreciated
straight-line to zero over the project’s life. These assets have an expected pretax salvage value of
$149,000 at the end of the project. The project would require $56,000 of net working capital, all
of which is recoverable, along with $312,000 in annual expenses. What is the minimum price per
unit you should bid on this project if you require a rate of return of 18 percent and have a tax rate of
34 percent?
A) $5.4723
B) $6.0184
C) $4.9272
D) $5.3133
E) $5.7040