Solution Library

Calculate Payback Period and Discounted Payback Period

Question 1. It will cost $2,600 to acquire a small ice cream cart Cart sales are expected to be $1,400 a year for three years. After the three years, the cart is expected to be worthless as that is the expected remaining life of the cooling system. What is the payback period of the ice cream cart? ... Read More

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New Strategy for International Business from Finance Point of View

Question To introduce the CEO’s new strategy to the entire financial and accounting department, the CFO has asked you to create a PowerPoint presentation. As most of the department has not been involved in any kind of international finance or accounting, your presentation is meant to be both ... Read More

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Working Capital Challenges for International Operations

Question The components of a firm’s working capital are cash, accounts receivable, inventory, and accounts payable. Any CFO’s objective is to ensure that current assets less current liabilities—known as net working capital—is a positive number, while also not having an exces ... Read More

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Tax Liability for Income from other countries in the United States

Question As Pharma Heal Corporation has grown successful, so have Akosua and Isabella. With record sales this past year (thanks to the help of its international business consultant), Isabella realized the substantial income from a variety of sources in several nations. Assume that Isabella is a cit ... Read More

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Evaluate Projects with Cash Flows

Question Your company’s cost of capital is 12%.  You are currently evaluating three projects that have the following cash flow streams:   Cash Flows at Time t Project 0 1 2 3 4 A -10,000 4,000 4,000 4,000 ... Read More

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Calculating NPV for Two Potential Projects

Question Tri-City Industries is considering two possible capital projects. Project A requires an initial investment of $240,000 and provides cash flows before tax of $120,000 in year one, $140,000 in year two, and $160,000 in year three. If project A is accepted, project B may be undertaken. It pro ... Read More

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How to Calculate the Present Value of New Equipment

Question PC Shopping Network may upgrade its modem pool. It last upgraded 2 years ago, when it spent $115 million on equipment with a life of 5 years and a salvage value of $15 million. The old equipment can be sold today for $80 million. A technology consultant hired by PC Shopping Network has sug ... Read More

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Comparison of Depreciation between Two Machines

Question You have been asked to choose between two pollution devices. The “Wet Scrub” costs $1,000 to set up and $500 per year to operate. It must be completely replaced every 3 years and it will have a salvage value of $100 when replaced. The “Dry Scrub” device costs $2,000 ... Read More

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Calculate Returns for a New Machine for the Next 10 Years

Question Kenneth Su Gold Corp (KSGC) is considering the purchase of a new piece of machinery. The new machinery would cost $80,000. You are given the following facts: The new machine will replace an existing machine that has a current market value of $30,000. The new machine would reduce before ... Read More

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Prepare a CCA table with UCC and Annual Tax Shield

Question Nortel is considering the purchase of a new call routing system.  The system will cost $50M to purchase, an additional $7M to install, and will last for 30 years.  The CCA rate associated with the system is 6%, the firm’s margin tax rate is 20%, and the firm’s WACC is ... Read More

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Calculating the Highest Returns from Potential Projects

Question Your division has been allocated $15M for capital projects for the coming year.  You`ve been able to identify five potential projects, as outlined in the table below, each of which will last 10 years. Project Name   Initial Cost    Annual Cash Flows &nbs ... Read More

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Capital Cost Allowance for New Machine and Old Machine Being Sold Off

Question Your firm purchased a line of computer equipment for $1.5M four years ago. It is assigned a CCA rate of 20% and the firm has a tax rate of 35%.  At the end of this year (year 4 for the machine) you decide to sell the computer equipment and as a result you will terminate the asset pool ... Read More

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