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1. BUSI 530 Week 4 Homework 4 (Solutions, 3 Sets)
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BUSI 530 Week 4 Homework 4 (Solutions, 3 Sets)
NEW
Question 1
The following are the cash flows of two projects:
Question 2
The following are the cash flows of two projects:
Question 3
The following are the cash flows of two projects:
Question 4

2. The following are the cash flows of two projects:
Question 5
A project that costs $3,300 to install will provide
annual cash flows of $830 for each of the next 6
years.
Question 6
A project that costs $2,400 to install will provide
annual cash flows of $590 for the next 5 years. The
firm accepts projects with payback periods of less
than 5 years
Question 7
Consider projects A and B:
Question 8
a. Calculate the net present value of the following
project for discount rates of 0, 50, and 100%:
(Leave no cells blank ¬ be certain to enter "0"
wherever required. Do not round intermediate
calculations. Round your answers to 2 decimal
places.)
Question 9

3. A precision lathe costs $14,000 and will cost
$24,000 a year to operate and maintain. If the
discount rate is 12% and the lathe will last for 3
years, what is the equivalent annual cost of the
tool? (Do not round intermediate calculations.
Round your answer to 2 decimal places.)
Question 10
A new project will generate sales of $73.6 million,
costs of $41.6 million, and depreciation expense of
$9.6 million in the coming year. The firm’s tax rate
is 30%.
Question 11
Canyon Tours showed the following components of
working capital last year:
Question 12
Tubby Toys estimates that its new line of rubber
ducks will generate sales of $6.7 million, operating
costs of $3.7 million, and a depreciation expense of
$0.7 million. Assume the tax rate is 40%.
Question 13
The owner of a bicycle repair shop forecasts
revenues of $180,000 a year. Variable costs will be

4. $55,000, and rental costs for the shop are $35,000
a year. Depreciation on the repair tools will be
$15,000. Prepare an income statement for the
shop based on these estimates. The tax rate is
30%. (Input all amounts as positive values.)
Question 14
The owner of a bicycle repair shop forecasts
revenues of $188,000 a year. Variable costs will be
$57,000, and rental costs for the shop are $37,000
a year. Depreciation on the repair tools will be
$17,000. The tax rate is 40%.
Question 15
A house painting business had revenues of
$17,600 and expenses of $10,600. There were no
depreciation expenses. However, the business
reported the following changes in working capital:
Question 16
Talia’s Tutus bought a new sewing machine for
$85,000 that will be depreciated using the MACRS
Question 17
The only capital investment required for a small
project is investment in inventory. Profits this year

5. were $9,400, and inventory increased from $5,300
to $7,600. What was the cash flow from the
project?
Question 18
Quick Computing installed its previous generation
of computer chip manufacturing equipment 3
years ago. Some of that older equipment will
become unnecessary when the company goes into
production of its new product. The obsolete
equipment, which originally cost $42.5 million, has
been depreciated straight¬line over an assumed
tax life of 5 years, but it can be sold now for $18.5
million. The firm’s tax rate is 30%. What is the
after¬tax cash flow from the sale of the
equipment? (Enter your answer in millions
rounded to 2 decimal places.)
Question 19
Bottoms Up Diaper Service is considering the
purchase of a new industrial washer. It can
purchase the washer for $8,500 and sell its old
washer for $4,500. The new washer will last for 5
years and save $2,200 a year in expenses. The
opportunity cost of capital is 14%, and the firm’s
tax rate is 30%. What is the equivalent annual cost
of the washer, if the firm uses straight¬line

6. depreciation? (Do not round intermediate
calculations. Round your answer to 2 decimal
places.)
Question 20
Johnny’s Lunches is considering purchasing a new,
energy¬efficient grill. The grill will cost $38,000
and will be depreciated according to the 3¬year
MACRS schedule. It will be sold for scrap metal
after 3 years for $9,500. The grill will have no
effect on revenues but will save Johnny’s $19,000
per year in energy expenses. The tax rate is 30%.
Use MACRS depreciation schedule.
Question 21
Revenues generated by a new fad product are
forecast as follows:
Question 22
Blooper Industries must replace its magnoosium
purification system. Quick & Dirty Systems sells a
relatively cheap purification system for $25
million. The system will last 5 years. Do¬It¬Right
sells a sturdier but more expensive system for $28
million; it will last for 7 years. Both systems entail
$3 million in operating costs; both will be

7. depreciated straight¬line to a final value of zero
over their useful lives; neither will have any
salvage value at the end of its life. The firm’s tax
rate is 40%, and the discount rate is 16%.
Question 23
The following table presents sales forecasts for
Golden Gelt Giftware. The unit price is $40. The
unit cost of the giftware is $20.
Question 24
In a slow year, Deutsche Burgers will produce 2.0
million hamburgers at a total cost of $3.6 million.
In a good year, it can produce 4.5 million
hamburgers at a total cost of $5.1 million. What
are the variable and fixed costs of hamburger
production? (Enter your answers in dollars not in
millions. Round "Variable cost" to 2 decimal
places.)
Question 25
In a slow year, Deutsche Burgers will produce 5
million hamburgers at a total cost of $5.2 million.
In a good year, it can produce 10 million
hamburgers at a total cost of $6.2 million
Question 26

8. A project currently generates sales of $11.5
million, variable costs equal to 40% of sales, and
fixed costs of $3.5 million. The firm’s tax rate is
35%.
Question 27
A project currently generates sales of $11.5
million, variable costs equal to 40% of sales, and
fixed costs of $2.2 million. The firm’s tax rate is
40%.
Question 28
Emperor’s Clothes Fashions can invest $6 million
in a new plant for producing invisible makeup. The
plant has an expected life of 5 years, and expected
sales are 7 million jars of makeup a year. Fixed
costs are $1.8 million a year, and variable costs are
$2.5 per jar. The product will be priced at $3.4 per
jar. The plant will be depreciated straight¬line
over 5 years to a salvage value of zero. The
opportunity cost of capital is 12%, and the tax rate
is 40%
Question 29
The most likely outcomes for a particular project
are estimated as follows:

9. Question 30
Dime a Dozen Diamonds makes synthetic
diamonds by treating carbon. Each diamond can
be sold for $120. The materials cost for a standard
diamond is $60. The fixed costs incurred each year
for factory upkeep and administrative expenses
are $211,000. The machinery costs $2.0 million
and is depreciated straight¬line over 10 years to a
salvage value of zero
Question 31
Modern Artifacts can produce keepsakes that will
be sold for $50 each. Nondepreciation fixed costs
are $1,500 per year and variable costs are $30 per
unit.
Question 32
A silver mine can yield 16,000 ounces of silver at a
variable cost of $34 per ounce. The fixed costs of
operating the mine are $56,000 per year. In half
the years, silver can be sold for $50 per ounce; in
the other years, silver can be sold for only $25 per
ounce. Ignore taxes
Question 33

10. An auto plant that costs $170 million to build can
produce a line of flexfuel cars that will produce
cash flows with a present value of $230 million if
the line is successful but only $100 million if it is
unsuccessful. You believe that the probability of
success is only about 50%. You learn whether the
line is successful immediately after building the
plant
Question 34
Hit or Miss Sports is introducing a new product
this year. If its see¬at¬night soccer balls are a hit,
the firm expects to be able to sell 54,000 units a
year at a price of $60 each. If the new product is a
bust, only 34,000 units can be sold at a price of
$55. The variable cost of each ball is $30, and fixed
costs are zero. The cost of the manufacturing
equipment is $6.9 million, and the project life is
estimated at 10 years. The firm will use
straight¬line depreciation over the 10-year life of
the project. The firm’s tax rate is 35%, and the
discount rate is 10%.
Question 35
Hit or Miss Sports is introducing a new product
this year. If its see¬at¬night soccer balls are a hit,
the firm expects to be able to sell 54,000 units a

11. year at a price of $60 each. If the new product is a
bust, only 34,000 units can be sold at a price of
$55. The variable cost of each ball is $30, and fixed
costs are zero. The cost of the manufacturing
equipment is $6.9 million, and the project life is
estimated at 10 years. The firm will use
straight¬line depreciation over the 10-year life of
the project. The firm’s tax rate is 35%, and the
discount rate is 10%.
Hit or Miss Sports can expand production if the
project is successful. By paying its workers
overtime, it can increase production by 29,000
units; the variable cost of each ball will be higher,
however, equal to $35 per unit. By how much does
this option to expand production increase the NPV
of the project? (Assume the probability the
see¬at¬night soccer balls will be a hit is 50%). (Do
not round intermediate calculations. Round your
answer to the nearest dollar amount.)
Question 36