# Depreciation \$4 million

Depreciation \$4 million
(10-1) A project has an initial cost of \$40,000, expected net cash inflows of \$9,000 per year for 7 years, and a cost of capital of 11%. What is the project’s NPV? (Hint: Begin by constructing a timeline.)
(10-7) Your division is considering two investment projects, each of which requires an up-front expenditure of \$15 million. You estimate that the investments will produce the following net cash flows:
Year Project A Project B
1 \$5,000,000 \$20,000,000
2 10,000,000 10,000,000
3 20,000,000 6,000,000
a. What are the two projects’ net present values, assuming the cost of capital is 5%? 10%? 15%?
(11-1) Investment Outlay Talbot Industries is considering launching a new product. The new manufacturing equipment will cost \$17 million, and production and sales will require an initial \$5 million investment in net operating working capital. The company’s tax rate is 25%.
a. What is the initial investment outlay?
b. The company spent and expensed \$150,000 on research related to the new product last year. What is the initial investment outlay?
c. Rather than build a new manufacturing facility, the company plans to install the equipment in a building it owns but is not now using. The building could be sold for \$1.5 million after taxes and real estate commissions. What is the initial investment outlay?
(11-2) Project Cash Flow The financial staff of Cairn Communications has identified the following information for the first year of the roll-out of its new proposed service:
Projected sales \$18 million
Operating costs (not including depreciation) \$9 million
Depreciation \$4 million
Interest expense \$3 million
The company faces a 25% tax rate. What is the project’s cash flow for the first year (t= 1)?
References:
Brigham, Eugene F.; Ehrhardt, Michael C.. Financial Management: Theory & Practice (MindTap Course List) (p. 486). Cengage Learning. Kindle Edition.