Calculate the PVs of depreciation tax shields in the

Calculate the PVs of depreciation tax shields in the

Subject: Business    / Finance   
Question
Calculate the PVs of depreciation tax shields in the five-year and seven-year classes shown in Table 6.4.
Assume the tax rate is 35% and the discount rate is 10%. Lastly, assume the asset in question costs $1.
(Do not round intermediate calculations. Round your answers to 3 decimal places.)
Present Value
Five year
Seven year
The following table tracks the main components of working capital over the life of a four-year project.
Accounts receivable
Inventory
Accounts payable 2010
0
75,000
25,000 2011
150,000
130,000
50,000 2012
225,000
130,000
50,000 2013
190,000
95,000
35,000 2014
0
0
0 Calculate net working capital and the cash inflows and outflows due to investment in working capital.
(Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter
0 wherever required.)
2010 2011 2012 2013 2014 Working capital
Cash flows
Machines A and B are mutually exclusive and are expected to produce the following real cash flows:
Cash Flows ($ thousands)
C0
C1
C2
–100
+110
+121
–120
+110
+121 Machine
A
B C3
+133 The real opportunity cost of capital is 10%. (Use PV table.)
a. Calculate the NPV of each machine. (Do not round intermediate calculations. Round your
answers to the nearest thousand.)
Machine
A
B NPV
$
$ b. Calculate the equivalent annual cash flow from each machine. (Do not round intermediate
calculations. Round "PV Factor" to 3 decimal places and final answers to the nearest
thousand.)
Machine Cash flow $ A $ B c. Which machine should you buy?
Machine A
Machine B
A game of chance offers the following odds and payoffs. Each play of the game costs $100, so the net
profit per play is the payoff less $100.
Probability
0.10
0.50
0.40 Payoff
$500
100
0 Net Profit
$400
0
–100 a-1. What is the expected cash payoff?
Expected cash payoff $ a-2. What is the expected rate of return?
Expected rate of return % b-1. Calculate the variance of this rate of return. (Ignore the technical point referred to in footnote 16).
(Round your answer to the nearest whole number.)
Variance
b-2. Calculate the standard deviation of this rate of return. (Ignore the technical point referred to in
footnote 16). (Round your answer to the nearest whole percent.)
Consider the following information:
Stock Return if Market Return Is:
Stock
–10%
+10%
A
0
+20
B
–20
+20
C
–30
0
D
+15
+15
E
+10
–10 What is the beta of each of the stocks? (Leave no cells blank – be certain to enter "0" wherever
required. Negative values should be indicated by a minus sign. Round your answers to 1 decimal place.)
Stock
A
B
C
D
E Beta