Question

15. Florida Enterprises, Inc. is considering a new project whose data are shown below. The equipment that will be used has a 3-year class life and will be depreciated by the MACRS depreciation system. Revenues and Cash operating costs are expected to be constant over the project's 10-year life. What is the Year 1 after-tax net operating cash flow? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.
Equipment cost (depreciable basis)	$75,000
Sales revenues, each year	$85,000
Cash operating costs	$29,000
Tax rate	20.0%

16. Bing Services is now in the final year of a project. The equipment originally cost $20,000, of which 88% has been depreciated. Bing can sell the used equipment today for $6,500, and its tax rate is 25%. What is the equipment’s net after-tax salvage value for use in a capital budgeting analysis? Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.

17. Thomson Media is considering investing in some new equipment whose data are shown below. The equipment has a 3-year class life and will be depreciated by the MACRS depreciation system, and it will have a positive pre-tax salvage value at the end of Year 3, when the project will be closed down. Also, some new working capital will be required, but it will be recovered at the end of the project's life. Revenues and cash operating costs are expected to be constant over the project's 3-year life. What is the project's NPV?   Enter your answer rounded to two decimal places. Do not enter $ or comma in the answer box. For example, if your answer is $12,300.456 then enter as 12300.46 in the answer box.
	WACC					14.0%
	Net investment in fixed assets (depreciable basis)					$60,000
	Required new working capital					$10,000
	Sales revenues, each year					$75,000
	Operating costs excl. depr'n, each year					$30,000
	Expected pretax salvage value					$7,000
	Tax rate					35.0%

18. A project's base case or most likely NPV is $44,000, and assume its probability of occurrence is 50%. Assume the best case scenario NPV is 75% higher than the base case and assume the worst scenario NPV is 35% lower than the base case. Both the best case scenario and the worst case scenario have a 25% probability of occurrence. Find the project's coefficient of variation.   Enter your answer rounded to two decimal places. For example, if your answer is 123.45% or 1.2345 then enter as 1.23 in the answer box.

Rick Kish has a $140,000 stock portfolio. $50,000 is invested in a stock with a beta of 1.25 and the remainder is invested in a stock with a beta of 3.05. These are the only two investments in his portfolio. What is his portfolio’s beta? Enter your answer rounded to two decimal places. For example, if your answer is 123.45% or 1.2345 then enter as 1.23 in the answer box.

Answer 1

Answer to Question 15:

Depreciation for Year 1 = $75,000.00 * 33.33%
Depreciation for Year 1 = $25,000.00

After Tax Net Operating Cash Flow = (Sales Revenue - Operating Cost) * (1 - Tax Rate) + Depreciation * Tax Rate
After Tax Net Operating Cash Flow = [($85,000.00 - $29,000.00) * (1 - 0.20)] + ($25,000.00 * 0.20)
After Tax Net Operating Cash Flow = ($56,000.00 * 0.80) + $5,000.00
After Tax Net Operating Cash Flow = $44,800.00 + $5,000.00
After Tax Net Operating Cash Flow = $49,800.00