## Dog Up Franks Is Looking At A New Sausage System With An Installed Cost Of 507 000.

Beginning

Ending

Accounts receivable

\$41,620

\$38,240

Inventory

54,810

57,390

Accounts payable

69,300

71,600

Based on this information, what was Ripa Pizza's change in net working capital for last year? What was the net cash flow?

10. Calculating Project OCF Bush Boomerang, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of \$2.1 million. The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless. The project is estimated to generate \$1,900,000 in annual sales, with costs of \$850,000. If the tax rate is 35 percent, what is the OCF for this project?

11. Calculating Project NPV In the previous problem, suppose the required return on the project is 15 percent. What is the project's NPV?

12. Calculating Project Cash Flow from Assets In the previous problem, suppose the project requires an initial investment in net working capital of \$275,000 and the fixed asset will have a market value of \$325,000 at the end of the project. What is the project's Year 0 net cash flow? Year 1? Year 2? Year 3? What is the new NPV?

NPV and Modified ACRS In the previous problem, suppose the fixed asset actually falls into the three-year MACRS class. All the other facts are the same. What is the project's Year 1 net cash flow now? Year 2? Year 3? What is the new NPV?

Project Evaluation Dog Up! Franks is looking at a new sausage system with an installed cost of \$410,000. 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 \$70,000. The sausage system will save the firm \$115,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of \$15,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project?

15. Project Evaluation Your firm is contemplating the purchase of a new \$750,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth \$80,000 at the end of that time. You will save \$310,000 before taxes per year in order processing costs and you will be able to reduce working capital by \$125,000 (this is a one-time reduction). If the tax rate is 35 percent, what is the IRR for this project?

16. Project Evaluation In the previous problem, suppose your required return on the project is 20 percent and your pretax cost savings are only \$300,000 per year. Will you accept the project? What if the pretax cost savings are only \$200,000 per year? At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

0 0