FIN 370 Finance For Business Week 3 Question and Problem Sets Answers
Bast – good work on the problems this week. On Chapter 9, problem #8, they were looking for you to provide the NPV so at 11%, it is $2585.54 and an accept, and at 24%, it was -$2779.06 and a reject. For Chapter 10, problem #13, the NPV is $46,315.33.
Ch. 9: Questions 7 & 8 (Questions and Problems section)
7. Calculating IRR [LO5] A firm evaluates all of its projects by applying the IRR rule. If the required return is 14 percent, should the firm accept the following project?
8. Calculating NPV [LO1] For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 11 percent, should the firm accept this project? What if the required return is 24 percent?
Ch. 10: Questions 3 & 13 (Questions and Problems section)
3. Calculating Projected Net Income [LO1] A proposed new investment has projected sales of $635,000. Variable costs are 44 percent of sales, and fixed costs are $193,000; depreciation is $54,000. Prepare a pro forma income statement assuming a tax rate of 35 percent. What is the projected net income?
13. Project Evaluation [LO1] Dog Up! Franks is looking at a new sausage system with an installed cost of $540,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $80,000. The sausage system will save the firm $170,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project?
Ch. 11: Questions 1 & 7 (Questions and Problems section)
1. Calculating Costs and Break-Even [LO3] Night Shades, Inc. (NSI), manufactures biotech sunglasses. The variable materials cost is $9.64 per unit, and the variable labor cost is $8.63 per unit.