1. Blanchford Enterprises is considering a project that has the following cash flow and WACC data.  What is the project's NPV?

 2. Tapley Dental Associates is considering a project that has the following cash flow data.  What is the project's payback?

 3. Ryngaert Medical Enterprises is considering a project that has the following cash flow and WACC data.  What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected

4. Rockmont Recreation Inc. is considering a project that has the following cash flow data.  What is the project's IRR?

 5. A company is analyzing two mutually exclusive projects, S and L, with the following cash flows: 

                        0                      1                      2                      3                      4
Project S          -$1,000            $900                $250                $10                  $10
Project L          -$1,000            $0                    $250                $$400              $800
 
The company's WACC is 10 percent.  What is the IRR of the better project?

 6. You must evaluate a proposal to buy a new milling machine.  The base price is $108,000, and shipping and installation costs would add another $12,500.  The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000.  The applicable depreciation rates are 33, 45, 15 and 7 percent as discussed in Appendix 12A of your text book.  The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable).  There would be no effect on revenues, but pre-tax labor costs would decline by $44,000 per year.  The marginal tax rate is 35 percent, and the WACC is 12 percent.  Also, the firm spent $5,000 last year investigating the feasibility of using the machine. 

How should the $5,000 spent last year be handled?

 7. You must evaluate a proposal to buy a new milling machine.  The base price is $108,000, and shipping and installation costs would add another $12,500.  The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000.  The applicable depreciation rates are 33, 45, 15 and 7 percent as discussed in Appendix 12A of your text book.  The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable).  There would be no effect on revenues, but pre-tax labor costs would decline by $44,000 per year.  The marginal tax rate is 35 percent, and the WACC is 12 percent.  Also, the firm spent $5,000 last year investigating the feasibility of using the machine. 

What is the net cost of the machine for capital budgeting purposes, that is, the Year 0 project cash flow?

 8. You must evaluate a proposal to buy a new milling machine.  The base price is $108,000, and shipping and installation costs would add another $12,500.  The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000.  The applicable depreciation rates are 33, 45, 15 and 7 percent as discussed in Appendix 12A of your text book.  The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable).  There would be no effect on revenues, but pre-tax labor costs would decline by $44,000 per year.  The marginal tax rate is 35 percent, and the WACC is 12 percent.  Also, the firm spent $5,000 last year investigating the feasibility of using the machine. 

What are the net operating cash flows during Years 1, 2 and 3? 

9. You must evaluate a proposal to buy a new milling machine.  The base price is $108,000, and shipping and installation costs would add another $12,500.  The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000.  The applicable depreciation rates are 33, 45, 15 and 7 percent as discussed in Appendix 12A of your text book.  The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable).  There would be no effect on revenues, but pre-tax labor costs would decline by $44,000 per year.  The marginal tax rate is 35 percent, and the WACC is 12 percent.  Also, the firm spent $5,000 last year investigating the feasibility of using the machine.
What is the terminal year cash flow? 

10. You must evaluate a proposal to buy a new milling machine.  The base price is $108,000, and shipping and installation costs would add another $12,500.  The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $65,000.  The applicable depreciation rates are 33, 45, 15 and 7 percent as discussed in Appendix 12A of your text book.  The machine would require a $5,500 increase in working capital (increased inventory less increased accounts payable).  There would be no effect on revenues, but pre-tax labor costs would decline by $44,000 per year.  The marginal tax rate is 35 percent, and the WACC is 12 percent.  Also, the firm spent $5,000 last year investigating the feasibility of using the machine.
Should the machine be purchased?  Explain your answer.