Sub-Prime Loan Company is thinking of opening a new office, and the key data are shown below. The company owns the building that would be used, and it could sell it for $100,000 after taxes if it decides not to open the new office. The equipment for the project would be depreciated by the straight-line method over the project's 3-year life, after which it would be worth nothing and thus it would have a zero salvage value. No change in net operating working capital would be required, and revenues and other operating costs would be constant over the project's 3-year life. What is the project's NPV? (Hint: Cash flows are constant in Years 1-3.) Do not round the intermediate calculations and round the final answer to the nearest whole number.   WACC     10.0% Opportunity cost     $100,000 Net equipment cost (depreciable basis)     $65,000 Straight-line depr. rate for equipment     33.333% Annual sales revenues     $128,000 Annual operating costs (excl. depr.)     $25,000 Tax rate     35%

3. Once upon a time, XYZ Company bought a piece of machinery for $300,000. The net book value of the machine is currently $60,000. The company could spend $100,000 on updating the machine and use to produce the new product which could generate a contribution of $150,000. The machine would be depreciated at $60,000 per annum. Alternatively, if the machine is not updated, the company could sell it now for $75,000. Required: What is the relevant cost of the machine that should be considered in determining whether to produce the new product or not?

2. Super Apparel wants to replace an old machine with a new one. The new machine would increase annual revenue by $200,000 and annual operating expenses by $80,000. The new machine would cost $400,000. The estimated useful life of the machine is 10 years with zero salvage value. i. Compute Accounting Rate of Return (ARR) of the machine using above information. ii. Should Super Apparel purchase the machine if management wants an Accounting Rate of Return of 19% on all capital investments? Hint: Use Average Income or Profit after deducting tax, depreciation, and operating expenses.

You are the financial analyst for a tennis racket manufacturer. The company is considering using a graphitelike material in its tennis rackets. The company has estimated the information in the following table about the market for a racket with the new material. The company expects to sell the racket for 5 years. The equipment required for the project will be depreciated on a straight-line basis and has no salvage value. The required return for projects of this type is 14 percent and the company has a 22 percent tax rate. Market size Market share Pessimistic 127,000 Expected Optimistic 137,000 149,000 18% 22% 24% Selling price $ 146 $151 $155 Variable costs per $96 $92 $ 89 unit Fixed costs per year $ 968,000 $ 913,000 Initial investment $ 1,620,000 $ 1,470,000 $ 883,000 $1,450,000 Calculate the NPV for each case for this project. Assume a negative taxable income generates a tax credit. (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and…