1) Winnebagel Corp. currently sells 19,200 motor homes per year at $28,800
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each, and 7,680 luxury motor coaches per year at $54,400 each. Thecompany wants to introduce a new portable camper to fill out its productline; it hopes to sell 13,440 of these campers per year at $7,680 each. Anindependent consultant has determined that if Winnebagel introduces thenew campers, it should boost the sales of its existing motor homes by 3,200units per year, and reduce the sales of its motor coaches by 832 units peryear. The amount to use as the annual sales figure when evaluating thisproject is $____________.Summer Tyme, Inc., is considering a new 5-year expansion project thatrequires an initial fixed asset investment of $5.778 million. The fixed assetwill be depreciated straight-line to zero over its 5-year tax life, after whichtime it will be worthless. The project is estimated to generate $5,136,000 inannual sales, with costs of $2,054,400. If the tax rate is 33 percent, the OCFfor this project is $___________.Summer Tyme, Inc., is considering a new 5-year expansion project thatrequires an initial fixed asset investment of $1.242 million. The fixed assetwill be depreciated straight-line to zero over its 5-year tax life, after whichtime it will be worthless. The project is estimated to generate $1,104,000 inannual sales, with costs of $441,600. If the tax rate is 32 percent and therequired return on the project is 9 percent, the NPV for this project is$___________.Summer Tyme, Inc., is considering a new 3-year expansion project thatrequires an initial fixed asset investment of $1.404 million. The fixed assetwill be depreciated straight-line to zero over its 3-year tax life, after whichtime it will have a market value of $109,200. The project requires an initialinvestment in net working capital of $156,000. The project is estimated togenerate $1,248,000 in annual sales, with costs of $499,200. The tax rate is32 percent and the required return on the project is 11 percent. The NPV forthis project is $____________.Dog Up! Franks is looking at a new sausage system with an installed costof $904,800. This cost will be depreciated straight-line to zero over theproject’s 9-year life, at the end of which the sausage system can be scrappedfor $139,200. The sausage system will save the firm $278,400 per year inpretax operating costs, and the system requires an initial investment in networking capital of $64,960. If the tax rate is 34 percent and the discountrate is 11 percent, the NPV of this project is $_______________.Your firm is contemplating the purchase of a new $1,764,000 computerbased order entry system. The system will be depreciated straight-line tozero over its 5-year life. It will be worth $157,500 at the end of that time.You will save $693,000 before taxes per year in order processing costs and
you will be able to reduce working capital by $139,499 (this is a one-timereduction). If the tax rate is 33 percent, the IRR for this project is__________ percent.
7)Consider a project to supply Detroit with 49,000 tons of machine screws annually for automobile production.initial $2,107,000 investment in threading equipment to get the project started; the project will last for 6 yeardepartment estimates that annual fixed costs will be $490,000 and that variable costs should be $220 per tondepreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates$539,000 after dismantling costs. The marketing department estimates that the automakers will let the conprice of $250 per ton. The engineering department estimates you will need an initial net working capi$441,000. You require a 15 percent return and face a marginal tax rate of 39 percent on this project.a.b.
The estimated OCF for this project is $ and the NPV is $_________.
Suppose you believe that the accounting department’s initial cost and salvage value projections are accur±15 percent; the marketing department’s price estimate is accurate only to within ±9 percent; anddepartment’s net working capital estimate is accurate only to within ±6 percent. Your worst-case NPV$______ and your best-case NPV is $.
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