Chapter 11 Cash Flows and Other Topics in Capital Budgeting

67) Which of the following expenses associated with a project should NOT be included in a capital budgeting analysis?

A) additional allocated fixed overhead from corporate headquarters

B) additional maintenance expenses associated with new equipment

C) reengineering of a production line associated with a new project

D) training sales staff on a new product

68) A new machine can be purchased for $1,200,000. It will cost $35,000 to ship and $15,000 to modify the machine. A $12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm, which would have otherwise been sold for $180,000. The firm will borrow $750,000 to finance the acquisition. Total interest expense for 5-years is expected to approximate $350,000. What is the investment cost of the machine for capital budgeting purposes?

A) $2,180,000

B) $1,780,000

C) $1,442,000

D) $1,430,000

69) Alloy Corp. is considering the acquisition of a new processing line. The processor can be purchased for $4,550,000. It will cost $65,000 to ship and $190,500 to install the processor. A recently completed feasibility study that was performed at a cost of $45,000 indicated that the processor would produce a positive NPV. Studies have shown that employee-training expenses will be $150,000. What is the total investment in the processing line for capital budgeting purposes?

A) $4,550,000

B) $4,700,000

C) $4,955,500

D) $5,000,500

70) Which of the following should NOT be included as investment costs in evaluating a capital asset?

A) interest payments and other financing cash flows that result from raising funds to finance a project

B) employee training expenses

C) shipping expenses

D) installation expenses

71) A new machine can be purchased for $1,800,000. It will cost $35,000 to ship and $15,000 to fine-tune the machine. The new machine will replace an older version that is fully depreciated and will be sold for $200,000. The firm's income tax rate is 35%. What is the initial outlay for capital budgeting purposes?

A) $1,580,000

B) $1,630,000

C) $1,650,000

D) $1,720,000

72) Waterford Industries is considering the purchase of a new machine. It will replace an existing but obsolete machine that will be sold for $50,000. The existing machine is 8 years old, cost $200,000, had a 10-year useful life, and is being depreciated to zero using the straight-line method. Waterford's income tax rate is 35%. What is the after-tax salvage value of the old machine?

A) $42,000

B) $46,500

C) $50,000

D) $53,500

73) Alloy Corp. is considering the acquisition of a new processing line. The processor can be purchased for $3,750,000; it will have a 10-year useful life. It will cost $165,000 to ship and $85,250 to install the processor. A recently completed feasibility study that was performed at a cost of $65,000 indicated that the processor would produce a positive NPV. The processor will be depreciated using the straight-line method to zero expected salvage value. Studies have shown that employee-training expenses will be $125,000. What will be the annual depreciation expense of the processing line for capital budgeting purposes?

A) $375,000

B) $419,025

C) $390,000

D) $400,025

74) Propell Inc. is considering the purchase of a new machine that will cost $178,000, plus an additional $12,000 to ship and install. The new machine will have a 5-year useful life and will be depreciated using the straight-line method. The machine is expected to generate new sales of $85,000 per year and is expected to increase operating costs by $10,000 annually. Propell's income tax rate is 40%. What is the projected incremental cash flow of the machine for year 1?

A) $54,800

B) $60,200

C) $66,350

D) $68,200

75) Lasalle Industries is considering the purchase of a new machine that will cost $250,000, plus an additional $10,000 to ship and install. The new machine will have a 5-year useful life and will be depreciated to zero using the straight-line method. The machine is expected to have a salvage value of $30,000 at the end of year five. LaSalle's income tax rate is 40%. The additional net working capital from this project of $50,000 is expected to return to its pre-project level upon termination. What is the non-operating terminal cash flow of the machine?

A) -$32,000

B) $48,000

C) $68,000

D) $80,000

76) LaSalle Industries is considering the purchase of a new strapping machine, which will cost $150,000, plus an additional $10,500 to ship and install. The new machine will have a 5-year useful life and will be depreciated to zero using the straight-line method. The machine is expected to generate new sales of $45,000 per year and is expected to save $16,000 in labor and electrical expenses over the next 5-years. The machine is expected to have a salvage value of $20,000. LaSalle's income tax rate is 35%. What is the machine's IRR?

A) 15.75%

B) 18.86%

C) 19.15%

D) 20.03%