Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. a. Campbell Manufacturing is considering the purchase of a new welding system. The cash benefits will be $480,000 per year. The system costs $2,950,000 and will last 10 years. b. Evee Cardenas is interested in investing in a women's specialty shop. The cost of the investment is $280,000. She estimates that the return from owning her own shop will be $45,000 per year. She estimates that the shop will have a useful life of 6 years. c. Barker Company calculated the NPV of a project and found it to be $63,900. The project's life was estimated to be 8 years. The required rate of return used for the NPV calculation was 10%. The project was expected to produce annual after-tax cash flows of $135,000. Required: 1. Compute the NPV for Campbell Manufacturing, assuming a discount rate of 12%. If required, round all present value calculations to the nearest dollar. Use the minus sign to indicate a negative NPV.

Joan owns a tanning salon that is expected to produce annual cash flows forever. The tanning salon is worth $902,400.00 and the cost of capital is 11.78%. Annual cash flows are expected with the first one due in one year and all subsequent ones growing annually by 10.00%. What is the amount of the annual cash flow produced by the tanning salon in 1 year expected to be? $506,966.29 (plus or minus $10) $196,542.72 (plus or minus $10) $16,062.72 (plus or minus $10) $50,696,629.21 (plus or minus $10)

Tripp Industries is considering buying a new recycling system. The new recycling system would be purchased today for $7,700.00. It would be depreciated straight-line to $1,020.00 over 2 years. In 2 years, the recycling system would be sold and the after-tax cash flow from capital spending in year 2 would be $1,270.00. The recycling system is expected to reduce costs by $2,730.00 in year 1 and by $8,630.00 in year 2. If the tax rate is 52.00% and the cost of capital is 7.73%, what is the net present value of the new recycling system project? $106.43 (plus or minus $10) $191.35 (plus or minus $10) $1,288.60 (plus or minus $10) -$2,245.85 (plus or minus $10) None of the above is within $10 of the correct answer

You have just completed a $18,000 feasibility study for a new coffee shop in some retail space you own. You bought the space two years ago for $105,000, and if you sold it today, you would net $120,000 after taxes. Outfitting the space for a coffee shop would require a capital expenditure of $35,000 plus an initial investment of $4,800 in inventory. What is the correct initial cash flow for your analysis of the coffee shop opportunity? Identify the relevant incremental cash flows below: (Select all the choices that apply.) A. Price you paid for the space two years ago. B. Capital expenditure to outfit the space. C. Feasibility study for the new coffee shop. D. Initial investment in inventory. E. Amount you would net after taxes should you sell the space today. Calculate the initial cash flow below: (Select from the drop-down menus and round to the nearest dollar.) 1 Opportunity Cost $ 2 Capital Expenditure (outfit of space) $ 3 Change in Net Working Capital $ $ 4 Free Cash Flow

You own a restaurant and are considering buying a liquor license. You estimate that it will cost you $200,000 to buy a five-year license and construct a bar and that you will generate $40,000 in after-tax cash flows each year for the next nine years. (The cost of the license is capitalized and the cash flows already reflect the depreciation). If your cost of capital is 15%, estimate the net present value of buying a liquor license. (There is no salvage value at the end of the 9th year). b. Assume now that the bar will bring in additional customers to your restaurant. If your after-tax operating margin is 60%, how much additional revenue would you have to generate each year in your restaurant for the liquor license to make economic sense?

Laurel’s Lawn Care Limited has a new mower line that can generate revenues of $132,000 per year. Direct production costs are $44,000, and the fixed costs of maintaining the lawn mower factory are $17,000 a year. The factory originally cost $1.10 million and is being depreciated for tax purposes over 25 years using straight-line depreciation. Calculate the operating cash flows of the project if the firm’s tax bracket is 25%.   Operating Cash Flow =  _________

John Wiggins is contemplating the purchase of a small restaurant. The purchase price listed by the seller is $800,000. John has used past financial information to estimate that the net cash flows (cash inflows less cash outflows) generated by the restaurant would be as follows: Required: Assuming that John desires a 10% rate of return on this investment, should the restaurant be purchased? (Assume that all cash flows occur at the end of the year.)

Charlie is planning to buy a small apartment complex; the complex will cost $1,000,000 and they will generate $450,000 in profits over the next three years. The complex will also need $50,000 in renovations during year 4. Charlie's required rate of return is 17%. What is the NPV on Charlie's investment ___? and should Charlie purchase the apartments___? yes or no

Mike is considering quitting his job to start a bakery, his dream work. To do so, he would need to make an investment of $80,000 today. He estimates that the bakery would generate revenues of $90,000 over the next five years and would require $20,000 in expenses. At his current job he earns $50,000. Therefore, Mike estimates that the incremental cash flows from opening the bakery would be $20,000 per year for the next five years. Calculate the NPV of the business using a discount rate of 15%. Should Mike quit his job and start the bakery? Calculate the IRR for the project described in problem 3. If Mike requires a return of 15% on the business, should he start the bakery?

Anthony operates a part time auto repair service. He estimates that a new diagnostic computer system will result in increased cash inflows of $1,500 in Year 1, $2,100 in Year 2, and $3,200 in Year 3. If Anthony's required rate of return is 10%, then the most he would be willing to pay for the new diagnostic computer system would be (Ignore income taxes.): Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice $4,599 $5,501 $5,638