Calculate operating cash flow using the four different approaches described in the chapter and verify that the answer is the same in each case.
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- A process plant making 5000kg /day of a product selling for $1.75 per kg has annual directproduction costs of $2 million at 100 percent capacity and other fixed costs of $700,000. What isthe fixed charge per kg at the break-even point? If the selling price of the product is increased by10 percent, what is the dollar increase in net profit at full capacity if the income tax rate is 35percent of gross earnings?2- A rough rule of thumb for the chemical industry is that OMR 1 of annual sales required OMR 2 of fixed capital investment. In a chemical processing plant where this rule applies, the total capital investment is OMR 3200000 and the working capital is 18% of the total capital investment. The annual net total product cost amounts to 1500000 OMR. If the income tax rates on gross earnings total 21%, determine the following: (a) Percent of total capital investment returned annually as gross earning. (b) Percent of total capital investment returned annually as net profit.Dorati Inc. is considering two mutually exclusive projects. Dorati used a 15% required rate of return to evaluate capital expenditure projects. Assuming the two projects have the costs and cash flows shown below, determine the NPV for each using a replacement chain. Year 0 1 2 3 4 a. O b. None of these are correct O c. NPVs = $14,690: NPVT = $109,240 O d. NPVs = $8,860: NPVT = $109,240 NPVs = $40,020: NPVT = $109,240 Project S -$70,000 $50,000 $60,000 Project T -$100,000 $ 60,000 $70,000 $ 80,000 $ 90.000
- (Ignore income taxes in this problem.) Your Corporation is considering the following three investment projects: M N Initial investment $46,000 $75,000 $95,000 Present value of cash flows $49,850 $80,250 $102,500 What it the profitability index for investment project O? .079 927 O.065 O.073The division director for Sandhill Corporation's Mississippi division, which operates as an investment center, is considering investing in machinery which costs of $2230000 and is expected to generate $353000 in additional operating income. If the division's weighted average cost of capital is 11% and its tax rate is 20%, what is the equipment's EVA? O $37100 $353000 $107700 $2453007-9 The fixed-capital investment for an existing chemical plant is $20 million. Annual property taxes amount to 1 percent of the fixed-capital investment, and state income taxes are 5 percent of the gross earnings. The net income after all taxes is $2 million, and the federal income taxes amount to 35 percent of gross earnings. If the same plant had been constructed for the same fixed-capital investment but at a location where property taxes were 4 percent of the fixed- capital investment and state income taxes were 2 percent of the gross earnings, what would be the net income per year after taxes, assuming all other cost factors were unchanged?
- 4. Consider the cash flows for the following two projects: n A B 0 -$32,000 -$39,950 1 $6,600 $7,950 2 $9,500 $7,900 3 $8,150 $6,750 4 $X $6,925 5 $8,050 $9,000 6 $5,500 $9,650 (a) For project A, find the value of X that makes the equivalent annual receipts equal the equivalent annual disbursement at i=8% (b) Would you accept project B at i=6% based on AE criterion?The Michner Corporation is trying to choose between the following two mutually exclusive design projects: Year Cash Flow (1) Cash Flow (II) 0 -$ 71,000 -$ 17,300 1 33,000 9,350 2 33,000 9,350 3 33,000 9,350 a-1.If the required return is 12 percent, what is the profitability index for both projects? (Do not round intermediate calculations and round your answers to 3 decimal places, e.g., 32.161.) Project I Project II a- If the company applies the profitability index decision rule, which project should the 2. firm accept? ○ Project I ○ Project II b- What is the NPV for both projects? (A negative answer should be indicated by a 1. minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)1.) Using the net present value criterion, determine which project should XYZ Corporation embark in assuming they can borrow capital at 5%? Relevant projected cash flow data are given below: Year 0 1 2 3 4 Project AQUA -5,000,000 8,000,000 2,000,000 1,000,000 1,000,000 Project AERO -4,000,000 7,000,000 1,000,000 1,000,000 500,000 Project TERRA -3,500,000 5,000,000 2,500,000 1,500,000 1,000,000
- A cost-cutting project will decrease costs by $64300 a year. The annual depreciation will be $14,250 and the tax rate is 24 percent. What is the operating cash flow for this project? Mugle Choce O O $52136 $48,70 $45.296 $11.964 $1,804Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $4,600,000 investment in threading equipment to get the project started; the project will last for 5 years. The accounting department estimates that annual fixed costs will be $1,100,000 and that variable costs should be $205 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 5-year project life. It also estimates a salvage value of $475,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $308 per ton. The engineering department estimates you will need an initial net working capital investment of $440,000. You require a return of 12 percent and face a tax rate of 23 percent on this project. a. Suppose you’re confident about your own projections, but you’re a little unsure about Detroit’s actual machine screw…Required: Affiliate A sells 8,000 units to Affiliate B per year. The marginal Income tax rate for Affiliate A is 25 percent and the marginal income tax rate for Affiliate B is 40 percent. The transfer price per unit is currently $2,000, but it can be set at any level between $2,000 and $2,400. Derive a formula to determine how much annual after-tax profits can be increased by selecting the optimal transfer price. Note: Do not round Intermediate calculations. Increase in annual after-tax profits