Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment

Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. The equipment can be scraped at the end of the project for 5 percent of its original cost. Annual sales from this project are estimated at $420,000. Net working capital equal to 20 percent of sales will be required to support the project. All of the net working capital will be recouped. The required return is 16 percent and the tax rate is 35 percent. What is the amount of the aftertax salvage value of the equipment?    A.  $17,150 B.  $31,850 C.  $118,800 D.  $237,600 E.  $343,000 Aftertax salvage value = $980,000 × 0.05 × (1 - 0.35) = $31,850

89.

Keyser Mining is considering a project that will require the purchase of $980,000 in new equipment. The equipment will be depreciated straight-line to a zero book value over the 7-year life of the project. The equipment can be scraped at the end of the project for 5 percent of its original cost. Annual sales from this project are estimated at $420,000. Net working capital equal to 25 percent of sales will be required to support the project. All of the net working capital will be recouped. The required return is 16 percent and the tax rate is 35 percent. What is the recovery amount attributable to net working capital at the end of the project?    A.  $21,000 B.  $54,600 C.  $105,000 D.  $178,000 E.  $196,000 NWC recapture = $420,000 × 0.25 = $105,000

90.

Winnebagel Corp. currently sells 28,200 motor homes per year at $42,300 each, and 11,280 luxury motor coaches per year at $79,900 each. The company wants to introduce a new portable camper to fill out its product line. It hopes to sell 19,740 of these campers per year at $11,280 each. An independent consultant has determined that if Winnebagel introduces the new campers, it should boost the sales of its existing motor homes by 4,700 units per year, and reduce the sales of its motor coaches by 1,222 units per year. What is the amount that should be used as the annual sales figure when evaluating this project?    A.  $297,613,400 B.  $301,002,300 C.  $314,141,800 D.  $323,839,400 E.  $327,289,500 Sales = (19,740 × $11,280) + (4,700 × $42,300) + (-1,222 × $79,900) = $323,839,400

AACSB: Analytic