# 1) find the npv of a project that will involves an initial investment

1) Find the NPV of a project that will involves an initial investment of \$25,000, then another outlay of \$10,000 after one year. It will give a cash flow of \$6,000 annually for seven years, at the end of year 3 through year 9. The proper discount rate is 9%. Is it a profitable project?

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2) Quincy Corporation is in the 30% income tax bracket. It needs a new computer costing \$55,000, which will last for 5 years. Quincy uses straight-line basis depreciation. The computer will save the company \$12,000 annually. The proper discount rate is 10%. Should Quincy buy the computer?

3) A machine has an expected life of 6 years. It costs \$30,000 and increases the net income of the company by \$7,000 annually. It has a salvage value of \$5,000. The proper discount rate is 12% and the company pays no taxes at present. Would you recommend the purchase of this machine?

4) A machine will run for 3 years (probability .35) or 4 years (probability .65). The annual revenue from the machine, before taxes, is \$12,000. The proper discount rate in this case is 14% and there are no taxes. The machine will cost \$40,000. Should the firm buy the machine?

5) Hammond Corp. has an income tax rate of 32% and its after-tax discount rate is 9%. Hammond plans to buy a machine for \$53,000 that will depreciate on a straight-line basis for 6 years with no salvage value. What is the minimum annual pretax income generated by this machine per year to justify its purchase?

6) Gore Corporation wants to buy a machine that will save it \$2,000 before taxes per year. This machine will last for 5 years and Gore will depreciate it over that period with no resale value. The tax rate of Gore is 30% and its discount rate is 12%. Find the maximum price that Gore should pay for this machine.

7) Greenland Corporation needs a machine that costs \$40,000. The company will depreciate it over 4 years using straight-line depreciation. The machine, however, has a useful life of 5 years during which it will generate \$10,000 annually in pretax revenue. The cost of capital for Greenland is 11% and its income tax rate is 30%. Should Greenland buy the machine?

8) Allen Corp. is considering the purchase of a machine that costs \$27,000 and is expected to run for 5 years and then resold for \$2,000. The total available depreciation is thus \$25,000. The yearly earnings before taxes from this machine are \$6,000. The tax rate of Allen is 30% and its cost of capital is 12%. Should Allen buy the machine?

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