Finance Problems

Gallatin inc is considering an investment of 380,000 in an asset with an economic life of five years. The firm estimates that the nominal annual cash revenues and expenses at the end of the first year will be 260,000 and 85,000 respectively. Both revenues and expenses will grow thereafter at the annual inflation rate of 2%. The company will use the straight line method to depreciate its asset to zero over five years. The salvage value of the asset is estimated to be 60,000 in nominal terms at that time. The one time net working capital investment of 17,500 is required immediately and will be recovered at the end of the project. All corporate cash flows are subject to a 38% tax rate. What is the projects total nominal cash flow from assets for each year? A negative answer should be indicated with a minus sign. Do not round intermediate calculations. And round your answers to the nearest whole dollar, e,g., 32 Year 0 Year 0 Year 2 Year3 Year4 Year5

 

Guthrie Enterprises needs someone to supply it with 150,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $1, 9 00,000 to install the equipment necessary to start production; you’ll depreciate this cost straight-line to zero over the project’s life. You estimate that in five years this equipment can be salvaged for $160,000. Your fixed production costs will be $275,000 per year, and your variable production costs should be $9.50 per carton. You also need an initial investment in net working capital of $140,000. If your tax rate is 40 percent and you require a 12 percent return on your investment, what bid price should you submit? Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16

 

Your firm is considering purchasing a machine with the following annual, end-of-year, book investment accounts.

	Purchase Date		Year 1		Year 2		Year 3		Year 4
Gross investment	$	72,000			$	72000			$	72,000			$	72,000			$	72,000
Less: Accumulated depreciation		0				18,000				36,000				54,000				72,000
Net investment	$	72,000			$	54,000			$	36,000			$	18,000			$	00

The machine generates, on average, $7, 500 per year in additional net income. What is the average accounting return for this machine? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) AAR =            %