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48) Winn Corp. currently sells 9,820 motor homes per year at $45,500 each, and 3,680 luxury
motor coaches per year at $89,700 each. The company wants to introduce a new portable camper
to fill out its product line. It hopes to sell 4,000 of these campers per year at $14,750 each. An
independent consultant has determined that if the new campers are introduced, sales of its
existing motor homes will most likely increase by 250 units per year while the sales of its motor
coaches will probably decline by 368 units per year. What is the amount that should be used as
the annual sales figure when evaluating the portable camper project?
A) $59,000,000
B) $103,384,600
C) $64,141,800
D) $37,365,400
E) $103,325,600
49) Kelly's Corner Bakery purchased a lot in Oil City six years ago at a cost of $98,700. Today,
that lot has a market value of $128,900. At the time of the purchase, the company spent $6,500 to
level the lot and another $12,000 to install storm drains. The company now wants to build a new
facility on the site at an estimated cost of $494,200. What amount should be used as the initial
cash flow for this project?
A) −$611,400
B) −$623,100
C) −$641,600
D) −$592,900
E) −$582,400
50) High Breeze is considering expanding on some land that it currently owns. The initial cost of
the land was $364,500 and it is currently valued at $357,900. The company has some unused
equipment that it currently owns valued at $29,000 that could be used for this project if $8,200 is
spent for equipment modifications. Other equipment costing $157,900 will also be required.
What is the amount of the initial cash flow for this expansion project?
A) −$530,600
B) −$158,720
C) −$553,000
D) −$585,600
E) −$559,600
51) W&M paid $179,000, in cash, for equipment three years ago and spent $18,000 for
equipment upgrades last year. The company no longer uses this equipment and has received a
cash offer of $68,000 from a buyer. The current book value of the equipment, including all
updates, is $54,500. What value, if any, should the company assign to this equipment should it
decide to use the equipment for a new project?
A) $0
B) $54,500
C) $68,000
D) $74,500
E) $129,000
52) Currently, GH Co. sells 42,600 handbags annually at an average price of $149 each. It is
considering adding a lower-priced line of handbags that sell for $79 each. The firm estimates it
can sell 21,000 of the lower-priced handbags but expects to sell 7,200 less of the higher-priced
handbags by doing so. What is the amount of the annual sales that should be used when
evaluating the addition of the lower-priced handbags?
A) $586,200
B) $659,000
C) $6,933,600
D) $5,839,000
E) $780,200
53) Mason Farms purchased a building for $689,000 and made repairs costing $136,000. The
annual taxes on the property are $8,200. The building has a current market value of $730,000
and a current book value of $394,000. The building is mortgage-free. If the company decides to
use this building for a new project, what value, if any, should be included in the initial cash flow
of the project for this building?
A) $0
B) $394,000
C) $730,000
D) $159,000
E) $721,800
54) The maintenance expenses on a rental house you own average $200 a month and property
taxes are $4,800 annually. The house cost $238,500 when you purchased it four years ago. The
house was recently appraised at $247,600. If you sell the house you will incur $12,900 in costs.
What value should you place on this house should you opt to use it as your professional office?
A) $251,400
B) $247,600
C) $234,700
D) $238,500
E) $242,300
55) Nelson Mfg. owns a manufacturing facility that is currently sitting idle and is debt-free. The
facility is located on a piece of land that originally cost $159,000. The facility itself cost
$1,390,000 to build. As of now, the book value of the land and the facility are $159,000 and
$458,000, respectively. The firm received a bid of $1,700,000 for the land and facility last week.
The firm's management rejected this bid even though they were told that it is a reasonable offer
in today's market. If the firm was to consider using this land and facility in a new project, what
cost, if any, should it include in the project analysis?
A) $0
B) $617,000
C) $1,083,000
D) $1,700,000
E) $1,619,000
56) Cool Comfort currently sells 340 Class A spas, 465 Class C spas, and 125 deluxe model spas
each year. The firm is considering adding a mid-class spa and expects that, if it does, it can sell
360 of them. However, if the new spa is added, Class A sales are expected to decline to 235 units
while the Class C sales are expected to decline to 275 units. The sales of the deluxe model will
not be affected. Class A spas sell for an average of $10,700 each. Class C spas are priced at
$18,700 and the deluxe model sells for $27,000 each. The new mid-range spa will sell for
$13,500. What is the value of the erosion effect?
A) −$3,510,500
B) −$4,166,500
C) −$3,827,000
D) −$4,676,500
E) −$3,657,000
57) The Lunch Counter is expanding and expects operating cash flows of $49,500 a year for nine
years as a result. This expansion requires $36,500 in new fixed assets. These assets will be
worthless at the end of the project. In addition, the project requires $2,200 of net working capital
throughout the life of the project. What is the net present value of this expansion project at a
required rate of return of 15.6 percent?
A) $194,736.05
B) $201,033.33
C) $192,536.05
D) $188,569.91
E) $193,132.81
58) A project will produce an operating cash flow of $56,200 a year for 5 years. The initial fixed
asset investment in the project will be $238,900. The net aftertax salvage value is estimated at
$67,000 and will be received during the last year of the project's life. What is the net present
value of the project if the required rate of return is 15.2 percent?
A) −$20,627.54
B) −$18,374.86
C) $5,120.52
D) $18,374.86
E) $20,627.54
59) A new molding machine is expected to produce operating cash flows of $109,000 a year for
4 years. At the beginning of the project, inventory will decrease by $8,700, accounts receivables
will increase by $9,500, and accounts payable will decrease by $5,200. All net working capital
will be recovered at the end of the project. The initial cost of the molding machine is $319,000.
The equipment will be depreciated straight-line to a zero book value over the life of the project.
No bonus depreciation will be taken. The equipment will be salvaged at the end of the project
creating an aftertax cash inflow of $51,600. What is the net present value of this project given a
required return of 14.2 percent?
A) $25,162.45
B) $24,061.87
C) $28,336.01
D) $22,863.16
E) $27,925.54
60) Ausel's is considering a five-year project that will require $738,000 for new fixed assets that
will be depreciated straight-line to a zero book value over five years. No bonus depreciation will
be taken. At the end of the project, the fixed assets can be sold for 18 percent of their original
cost. The project is expected to generate annual sales of $679,000 with costs of $321,000. The
tax rate is 22 percent and the required rate of return is 15.2 percent. What is the amount of the
aftertax salvage value?
A) $105,165.60
B) $103,615.20
C) $104,409.20
D) $132,840.00
E) $118,406.90
61) A proposed three-year project will require $589,000 for fixed assets, $79,000 for inventory,
and $43,000 for accounts receivable. Accounts payable are expected to increase by $47,000. The
fixed assets will be depreciated straight-line to a zero book value over five years. No bonus
depreciation will be taken. At the end of the project, the fixed assets can be sold for $225,000.
The net working capital returns to its original level at the end of the project. The operating cash
flow per year is $67,900. The tax rate is 21 percent and the discount rate is 12 percent. What is
the total cash flow in the final year of the project?
A) $364,190
B) $361,000
C) $370,126
D) $378,970
E) $369,770
62) Hunter's Hut is considering a project that will require additional inventory of $48,000 and
will increase accounts payable by $22,000. Accounts receivable is currently $297,000 and is
expected to increase by four percent if this project is accepted. What is the project's initial cash
flow for net working capital?
A) −$37,880
B) −$81,880
C) −$42,250
D) −$66,550
E) −$27,550
63) Keyser Mining is considering a project that will require the purchase of $479,000 of
equipment. The equipment will be depreciated straight-line to a zero book value over the five-
year life of the project after which it will be worthless. The required return is 12 percent and the
tax rate is 30 percent. What is the value of the depreciation tax shield in Year 4 of the project
assuming no bonus depreciation is taken?
A) $28,740
B) $32,200
C) $78,600
D) $138,400
E) $143,700
64) Eglon Mills has a new Year 2020 project with an initial equipment cost of $368,000 and a
project life of 10 years. The firm generally uses straight-line depreciation to a zero book value
over the project's life. If the firm opts instead to use the bonus depreciation method, what is the
depreciation tax shield amount for Year 2020 at a tax rate of 21 percent?
A) $77,280
B) $38,640
C) $7,280
D) $3,864
E) $15,456
65) Russell's is considering purchasing $697,400 of equipment for a four-year project. The
equipment falls in the five-year MACRS class with annual percentages of .2, .32, .192, .1152,
.1152, and .0576 for Years 1 to 6, respectively. At the end of the project the equipment can be
sold for an estimated $135,000. The required return is 13.2 percent and the tax rate is 23 percent.
What is the amount of the aftertax salvage value of the equipment assuming no bonus
depreciation is taken?
A) $140,071.25
B) $131,667.47
C) $118,804.30
D) $138,666.67
E) $143,001.29
66) Better Beverages purchased $139,700 of fixed assets that are classified as five-year MACRS
property. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576 for Years 1 to 6,
respectively. What will the accumulated depreciation be at the end of Year 4 if the tax rate is 21
percent and no bonus depreciation is taken?
A) $76,269.49
B) $16,093.44
C) $24,140.16
D) $48,755.09
E) $115,559.84
67) You just purchased $218,000 of equipment that is classified as five-year MACRS property.
The MACRS rates are .2, .32, .192, .1152, .1152, and .0576 for Years 1 to 6, respectively. What
will be the book value of this equipment at the end of three years assuming no bonus
depreciation is taken?
A) $58,467
B) $62,784
C) $159,533
D) $67,670
E) $155,216
68) Overland purchased $387,950 of fixed assets that are classified as three-year property for
MACRS. The MACRS rates are .3333, .4445, .1481, and .0741 for Years 1 to 4, respectively.
What is the amount of the depreciation expense in Year 3 assuming no bonus depreciation is
taken?
A) $28,747.10
B) $42,399.29
C) $57,455.40
D) $59,929.11
E) $12,766.59
69) Pet Supply purchased $62,800 of fixed assets two years ago. The company no longer needs
these assets so it is going to sell them today for $29,500. The assets are classified as five-year
property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, .0576, for Years 1 to 6,
respectively. What is the net cash flow from this sale if the firm's tax rate is 23 percent and no
bonus depreciation is taken?
A) $25,516.60
B) $18,576.00
C) $29,281.04
D) $29,648.12
E) $25,211.09
70) You own some equipment that you purchased four years ago at a cost of $287,000. The
equipment is five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152,
.0576, for Years 1 to 6, respectively. You are considering selling the equipment today for
$105,000. Which one of the following statements is correct if your tax rate is 24 percent and you
claim no bonus depreciation?
A) The tax due on the sale is $13,357.76.
B) The book value today is $49,406.40.
C) The accumulated depreciation to date is $270,468.80.
D) The taxable amount on the sale is $54,593.60.
E) The aftertax salvage value is $91,702.46
71) The Card Shoppe needs to maintain 21 percent of its sales in net working capital. Currently,
the store is considering a four-year project that will increase sales from its current level of
$349,000 to $408,000 the first year and to $414,000 a year for the following three years of the
project. What amount should be included in the project analysis for net working capital in Year 4
of the project?
A) −$1,260
B) $86,940
C) $0
D) $21,720
E) $13,650
72) Home Furnishings is expanding its product offerings to reach a wider range of customers.
The expansion project includes increasing floor inventory by $486,000 and increasing its debt to
suppliers by 90 percent of that amount. The company will also spend $947,000 to expand the
size of its showroom. As part of the expansion plan, the company expects accounts receivable to
rise by $205,000. For the project analysis, what amount should be used as the initial cash flow
for net working capital?
A) −$156,400
B) −$176,600
C) −$271,000
D) −$253,600
E) −$391,000
73) A project will require $543,000 for fixed assets, $118,000 for inventory, and $142,000 for
accounts receivable. Short-term debt is expected to increase by $65,000. The project has a six-
year life. The fixed assets will be depreciated straight-line to a zero book value over the life of
the project. No bonus depreciation will be taken. The project is expected to generate annual sales
of $905,000 with costs of $730,000. What is the project's cash flow at Time 0?
A) −$536,000
B) −$738,000
C) −$720,000
D) −$779,000
E) −$944,000
74) Consider a project with an initial asset cost of $168,000 with depreciation of that asset set as
straight-line to zero over seven years. Ignore bonus depreciation. At the end of the project's four-
year life the asset can be sold for $65,000. Use a combined federal and state tax rate of 24
percent. What is the aftertax salvage value?
A) $62,550
B) $65,500
C) $66,050
D) $68,100
E) $66,680
75) Pre-Fab purchased some equipment two years ago for $287,600. These assets are classified
as five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576,
for Years 1 to 6, respectively. The company is currently replacing this equipment so the old
equipment is being sold for $150,000. What is the aftertax salvage value from this sale if the tax
rate is 21 percent and no bonus depreciation is claimed?
A) $144,433.20
B) $154,183.20
C) $142,311.12
D) $147,490.08
E) $149,000.00
76) Phone Home, Inc. is considering a new five-year expansion project that requires an initial
fixed asset investment of $6.089 million. The fixed asset will be depreciated straight-line to zero
over the project's life, after which time it will be worthless. No bonus depreciation will be taken.
The project is estimated to generate $4,389,000 in annual sales, with costs of $1,731,200. The
tax rate is 24 percent. What is the annual operating cash flow for this project?
A) $1,727,570
B) $1,211,407
C) $2,312,200
D) $936,000
E) $2,848,315
77) A project will require $512,000 for fixed assets and $47,000 for net working capital. The
fixed assets will be depreciated straight-line to a zero book value over the six-year life of the
project. No bonus depreciation will be taken. At the end of the project, the fixed assets will be
worthless. The net working capital returns to its original level at the end of the project. The
project is expected to generate annual sales of $965,000 and costs of $508,000. The tax rate is 21
percent and the required rate of return is 14.7 percent. What is the amount of the annual
operating cash flow?
A) $283,633.33
B) $447,826.67
C) $378,950.00
D) $245,300.00
E) $198,300.00
78) The Market Place is considering a new four-year expansion project that requires an initial
fixed asset investment of $1.67 million. The fixed asset will be depreciated straight-line to zero
over its four-year tax life, after which time it will have a market value of $435,000. No bonus
depreciation will be taken. The project requires an initial investment in net working capital of
$198,000, all of which will be recovered at the end of the project. The project is estimated to
generate $1,850,000 in annual sales, with costs of $1,038,000. The tax rate is 21 percent and the
required return for the project is 16.4 percent. What is the net present value?
A) $358,576.22
B) $451,180.73
C) $241,334.55
D) $302,208.15
E) $254,595.45
