problem1. The Atlantic Company plans to establish a new branch office in suburban area. The building will cost $200,000 and will be depreciated (on straight-line method) over a 20 year life to a $0 approximate salvage value. Equipment for building will cost an additional $100,000. This equipment has a 20-year life and will be depreciated on a straight-line basis to a $0 estimated salvage value. The branch office is expected to generate additional before tax net income of $30,000 per year. The tax rate is 40 percent and the cost of capital is 12 percent. Evaluate the net present value for the project.
problem2. What is the internal rate of return for project which has a net investment of $76,000 and net cash flows of $20,507 per year for seven years?
problem3. GoFlo is a small growing firm which is considering the purchase of another truck to serve GoFlo’s expanding customer base. The new truck will cost $21,000 and must generate annual net cash flows of $6,000 over the truck’s 5-year life. What is payback period for this project?
a. 3 years
b. 4.2 years
c. 3.5 years
d. 3.3 years
problem4. The use of sensitivity analysis needs that:
a. a model of project’s cash flows be developed
b. probability distributions of determinants of a project’s cash flows be estimated
c. the firms have access to a extremely large computer
d. the firm is greatly interested in portfolio risk lessening characteristics of a project