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The president of Real Time Inc. has asked you to evalu… Sh

The president of Real Time Inc. has asked you to evalu… Show more This data applies to the first six questions: The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new asset. The asset would require the use of an extra building that the firm is not presently using, but could be sold in the real estate market for $60,000. An analysis of the project showed the following data: MACRS class (depreciation): 3-year (33%, 45%, 15%, 7%) Economic Life: 4 years Price: $300,000 Freight and Installation: $30,000 Salvage Value: $60,000 Effect on NWC : Increase by $10,000 Revenues: $300,000/year (100,000 units at $3.00/unit) Costs excluding depreciation: $150,000/year (Fixed Cost $50,000; VC = $1.00/unit) Year 1 Depreciation $108,900.00 Year 2 Depreciation $148,500.00 Year 3 Depreciation $49,500.00 Year 4 Depreciation $23,100.00 Sale Price of Building $60,000.00 Tax rate: 40% Cost of capital 10% The Project Cash Flow Table below is provided to assist you in calculating the relevant after-tax cash flows, and then answer the questions concerning investment cost, cash flows, and net present value. Year 0 1 2 3 4 Total Revenues Operating Costs (exc. dep) Depreciation Earnings before taxes Taxes Net income Depreciation Net operating cash flows Equipment Cost Installation Change in Net Working Capital Opportunity Cost of Project Salvage Value Tax on Salvage Value Return of NWC NET CASH FLOWS Question 5 What is the final cash flow in year 4. Answer $195,240 $265,240 $205,240 $225,240 4 points Question 6 What is the project’s NPV? Answer $56,580 $60,740 $67,570 $77,580 $127,570 4 points Question 7 After seeing your analysis, the president asked you to recalculate the NPV if the sales volume is only 80,000 units per year instead of 100,000. This is an example of (or a component of) Answer Breakeven analysis Sensitivity analysis Scenario analysis Extreme insensitivity to the amount of work you put into evaluating the project 2 points Question 8 After you reevaluated the project based on the lower sales volume, the president asked you to reevaluate the project again, this time considering a lower and higher sales price, a higher and lower variable cost, a higher and lower fixed cost, and a lower and higher salvage value, showing the difference in NPV for the change in each variable. This exercise is an example of Answer Breakeven analysis Sensitivity analysis Scenario analysis A complete waste of time 2 points Question 9 Impressed by your analysis of how each assumption affects NPV, the boss then asks you to recalculate NPV based on the worst case sales volume, worst case variable cost, and worst case sales price representing an overall downturn in market demand combined with inflationary input markets. In response to this request, you will perform Answer Breakeven analysis Sensitivity analysis Scenario analysis A task unworthy of a professional financial manager with your talents and skills 2 points Question 10 Finally, after you have taken blood pressure medication to deal with the stress of excessive demands and lack of recognition of your many valuable contributions, your boss asks you to calculate, based on the expected values for the sales price and fixed and variable costs, the sales volume required for the net income from the project to cover the cost of the investment. She has requested that you perform Answer Breakeven analysis Sensitivity analysis Scenario analysis One more unnecessary exercise in futility that will be completely ignored by the capital budgeting committee regardless of the amount of time it takes you to complete the analysis. 2 points Question 11 A recurring financial theme from Scripture that was repeated in many of the devotions during the semester was: Answer we should tithe at least 10% of our income. wealth oftn indicates a materialistic attitude. debt should be undertaken only after careful consideration. we should view ourselves as managers rather than owners of our economic resources. • Show less

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