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# Finance: Capital budgeting.

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1)Your company, RMU Inc., is considering a new project whose data are shown below. What is the project's Year 1 cash flow?
Sales revenues \$22,250
Depreciation \$ 8,000
Other operating costs \$12,000
Tax rate 35.0%

a. \$10,039

b. \$9,463

c. \$9,179

d. \$9,746

e. \$8,903

2)TexMex Food Company is considering a new salsa whose data are shown below. The equipment to be used would be depreciated by the straight-line method over its 3-year life and would have a zero salvage value, and no new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. However, this project would compete with other TexMex products and would reduce their pre-tax annual cash flows. What is the project's NPV? (Hint: Cash flows are constant in Years 1&#61485;3.)
WACC 10.0%
Pre-tax cash flow reduction for other products (cannibalization) \$ 5,000
Investment cost (depreciable basis) \$80,000
Straight-line deprec. rate 33.333%
Sales revenues, each year for 3 years \$67,500
Annual operating costs (excl. deprec.) \$25,000
Tax rate 35.0%

a. \$3,828

b. \$4,019

c. \$4,220

d. \$3,636

e. \$4,431

3)Temple Corp. is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, would be depreciated by the straight-line method over its 3-year life, and would have a zero salvage value. No new working capital would be required. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?
Net investment cost (depreciable basis) \$65,000
Straight-line deprec. rate 33.3333%
Sales revenues, each year \$65,500
Operating costs (excl. deprec.), each year \$25,000
Tax rate 35.0%

a. \$16,569

b. \$19,325

c. \$15,740

d. \$17,441

e. \$18,359

4)Clemson Software is considering a new project whose data are shown below. The required equipment has a 3-year tax life, after which it will be worthless, and it will be depreciated by the straight-line method over 3 years. Revenues and other operating costs are expected to be constant over the project's 3-year life. What is the project's Year 1 cash flow?
Equipment cost (depreciable basis) \$65,000
Straight-line depreciation rate 33.333%
Sales revenues, each year \$60,000
Operating costs (excl. deprec.) \$25,000
Tax rate 35.0%

a. \$28,836

b. \$31,092

c. \$28,115

d. \$30,333

e. \$29,575