47.

Kelly's Corner Bakery purchased a lot in Oil City 6 years ago at a cost of
$280,000. Today, that lot has a market value of $340,000. At the time of the
purchase, the company spent $15,000 to level the lot and another $20,000
to install storm drains. The company now wants to build a new facility on
that site. The building cost is estimated at $1.47 million. What amount
should be used as the initial cash flow for this project?
Selected Answer:

b.

-$1,810,000
Correct Answer:

b.

-$1,810,000
48.

Webster & Moore paid $139,000, in cash, for a piece of equipment 3 years
ago. At the beginning of last year, the company spent $21,000 to update the
equipment with the latest technology. The company no longer uses this
equipment in its current operations and has received an offer of $89,000
from a firm that would like to purchase it. Webster & Moore is debating
whether to sell the equipment or to expand its operations so that the
equipment can be used. When evaluating the expansion option, what value,
if any, should the firm assign to this equipment as an initial cost of the
project?
49.
The Fluffy Feather sells customized handbags. Currently, it sells 18,000
handbags annually at an average price of $89 each. It is considering adding
a lower-priced line of handbags that sell for $59 each. The firm estimates it
can sell 7,000 of the lower-priced handbags but will sell 3,000 less of the
higher-priced handbags by doing so. What is the amount of the sales that
should be used when evaluating the addition of the lower-priced handbags?
Selected Answer:

e.

$146,000
Correct Answer:

e.

$146,000
70

Jasper Metals is considering installing a new molding machine which is

expected to produce operating cash flows of $73,000 a year for 7 years. At
the beginning of the project, inventory will decrease by $16,000, accounts
receivables will increase by $21,000, and accounts payable will increase by
$15,000. All net working capital will be recovered at the end of the project.
The initial cost of the molding machine is $249,000. The equipment will be

depreciated straight-line to a zero book value over the life of the project.
The equipment will be salvaged at the end of the project creating a $48,000
aftertax cash flow. At the end of the project, net working capital will return
to its normal level. What is the net present value of this project given a
required return of 14.5 percent?
Selected Answer:

e.

$84,049.74
Correct Answer:

e.

$84,049.74

Question 83
0.5 out of 0.5 points

Hollister & Hollister is considering a new project. The project will require
$522,000 for new fixed assets, $218,000 for additional inventory, and
$39,000 for additional accounts receivable. Short-term debt is expected to
increase by $165,000. The project has a 6-year life. The fixed assets will
be depreciated straight-line to a zero book value over the life of the
project. At the end of the project, the fixed assets can be sold for 20
percent of their original cost. The net working capital returns to its original
level at the end of the project. The project is expected to generate annual
sales of $875,000 with costs of $640,000. The tax rate is 34 percent and
the required rate of return is 14 percent. What is the project's cash flow at
time zero?
Selected Answer:

a.

-$614,000
Correct Answer:

a.

-$614,000

Question 84
0.5 out of 0.5 points

Hollister & Hollister is considering a new project. The project will require
$522,000 for new fixed assets, $218,000 for additional inventory, and
$39,000 for additional accounts receivable. Short-term debt is expected to
increase by $165,000. The project has a 6-year life. The fixed assets will
be depreciated straight-line to a zero book value over the life of the
project. At the end of the project, the fixed assets can be sold for 20
percent of their original cost. The net working capital returns to its original
level at the end of the project. The project is expected to generate annual
sales of $875,000 and costs of $640,000. The tax rate is 34 percent and
the required rate of return is 14 percent. What is the cash flow recovery
from net working capital at the end of this project?

Selected Answer:

a.

$92,000
Correct Answer:

a.

$92,000