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CHAPTER 10 - 14
The electricity cost per year is therefore:
27. We are again solving for the breakeven kilowatt hour cost, but now the incandescent bulb has only
28. The debate between incandescent bulbs and CFLs is not just a financial debate, but an environmental
CHAPTER 10 - 15
While there is always a “best” answer, this question shows that the analysis of the “best” answer is
29. Surprise! You should definitely upgrade the truck. Here’s why. At 10 mpg, the truck burns 12,000 /
CHAPTER 10 - 16
30. We can begin by calculating the gallons saved by purchasing the new truck. The current and new
gallon usage when driving x miles per year are:
Challenge
31. We will begin by calculating the aftertax salvage value of the equipment at the end of the project’s
CHAPTER 10 - 17
Now we need to calculate the operating cash flow each year. Using the bottom up approach to
Notice the calculation of the cash flow at time 0. The capital spending on equipment and investment
32. This is an in-depth capital budgeting problem. Probably the easiest OCF calculation for this problem
CHAPTER 10 - 18
Now we can begin the remaining calculations. Sales figures are given for each year, along with the
After we calculate the OCF for each year, we need to account for any other cash flows. The other cash
CHAPTER 10 - 19
And the IRR is:
33. To find the initial pretax cost savings necessary to buy the new machine, we should use the tax shield
CHAPTER 10 - 20
34. a. This problem is basically the same as Problem 18, except we are given a sales price. The cash
CHAPTER 10 - 21
b. To find the minimum number of cartons sold to still break even, we need to use the tax shield
As a check, we can calculate the NPV of the project with this quantity. The calculations are:
c. To find the highest level of fixed costs and still breakeven, we need to use the tax shield approach
CHAPTER 10 - 22
Year
1
2
3
4
5
35. We need to find the bid price for a project, but the project has extra cash flows. Since we don’t already
CHAPTER 10 - 23
36. a. Since the two computers have unequal lives, the correct method to analyze the decision is the
CHAPTER 10 - 24
This is the initial cost of the old computer system today because we are forgoing the opportunity
CHAPTER 10 - 25
b. If we are only concerned with whether or not to replace the machine now, and are not worrying
CHAPTER 10 - 26
