Big Farm Co. just purchased a work truck that costs $85,000. They plan to depreciate the vehicle using MACRS, which classifies automobiles as 5-year depreciable property. If Big Farm Co.’s tax rate is 21%, how much do they save in taxes in the 3rd year of owning the work truck from depreciation of the work truck? Below is a MACRS depreciation table.

Sun Corp. plans to make car parts that they can sell for $75 per unit. These car parts will cost them $50 to manufacture. Sun Corp. will also have to purchase $250,000 in equipment to begin the project, which will have a 5-year life. The equipment will have $0 salvage value at the end of the project. Fixed costs will be $20,000 per year. If the tax rate is 21% and equipment will be depreciated straight-line, what will Sun Corp.’s operating cash flows be in years 1 through 5 if they sell 5,000 units per year?

If a firm accepts Project X it cannot also accept Project Y because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:

You are considering the purchase of a new machine. Your analysis includes the evaluation of two machines that have differing purchase prices, differing annual maintenance costs, and differing life spans. Whichever machine is purchased will be replaced at the end of its useful life. You should select the machine that has the:

Which of the following is an advantage of the payback method of project analysis?

The stand-alone principle advocates that project analysis should be based solely on which one of the following cash flows?

Referring to the information for Cobre Mines, what is the payback period? 

A proposed project has annual depreciation of $28,750 and a tax rate of 23 percent. The company expects to sell 16,500 units, ±3 percent. The expected variable cost per unit is $1.87, ±1 percent, and the expected fixed costs are $24,900, ±1 percent. The sales price is estimated at $7.99 per unit, ±2 percent. The firm’s management assumes that fixed costs will be, at most, $26,000. What is the operating cash flow using that $26,000 estimate for sensitivity analysis?

A project will produce operating cash inflows of $78,000 per year for 5 years. The initial fixed asset investment in the project will be $99,000. The net aftertax salvage value is estimated at $57,000 and will be received during the last year of the project’s life. What is the net present value of the project if the required rate of return is 13.5 percent?

Directions: Choose the response which best answers the question below based on the information you heard in the podcast. Why does the speaker give the example of “Yes Man”?