Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / FIN5FMA – FINANCIAL Question 1) Explain the following with examples a

FIN5FMA – FINANCIAL Question 1) Explain the following with examples a

Finance

FIN5FMA – FINANCIAL

Question 1) Explain the following with examples

a. Opportunity cost

b. Sunk Cost

c. Salvage Value

d. Nominal Vs real cash flow

Question 2) The Best Manufacturing Company is considering a new investment. Financial projections for the investment are tabulated here. The corporate tax rate is 34 percent. Assume all sales revenue is received in cash, all operating costs and income taxes are paid in cash, and all cash flows occur at the end of the year. All net working capital is recovered at the end of the project.

 

Year 0

Year 1

Year 2

Year 3

 Year 4

Investment

$24000

 

 

 

 

Sales revenue

 

$12500

$13,000

$13,500

$10,500

Operating costs

 

2,700

2,800

2,900

2,100

Depreciation

 

6,000

6,000

6,000

6,000

Net working capital

300

350

400

300

?

 

a. Compute the incremental net income of the investment for each year.

b. Compute the incremental cash flows of the investment each year.

c. Suppose the appropriate discount rate is 12 percent. What is the NPV of the project?

Question 3) Pilot Plus Pens would like to decide whether it should replace its old machine today or after 5 years. The machine’s current salvage value is $2.2 million. Its current book value is $1.4 million. If not sold, the old machine will require maintenance costs of $845,000 at the end of the year for next five years. Depreciation on the old machine is $280,000 per year. At the end of 5 years, it will have a salvage value of $120,000 and a book value of $0. A replacement machine costs $4.3 million now and requires maintenance costs of $330,000 at the end of year during its economic life of 5 years. At the end of five years, the new machine will have a salvage value of 800,000. It will be fully depreciated by the straight-line method. After five years a replacement machine will cost $3,200,000. The corporate tax is 40 percent and the appropriate discount rate is 8 percent. The company is assumed to earn enough revenues to generate tax shields from depreciation. Should Pilot plus Pens replace the old machine now or at the end of 5 years?

                    Old Machine:

Current market value

2,200,000

Current book value

1,400,000

Annual maintenance

845,000

Depreciation

280,000

Salvage value in 5 years

120,000

Book value in 5 years

 

 

                          New Machine

Cost

4,300,000

Annual maintenance

330,000

Salvage value

800,000

Replacement machine cost in 5 years

3,200,000

 

 

Option 1

Low Cost Option
Download this past answer in few clicks

15.86 USD

PURCHASE SOLUTION

Already member?


Option 2

Custom new solution created by our subject matter experts

GET A QUOTE