A project will require spending $3,200,000 on new fixed assets that will be depreciated on a straight-line basis to a value of zero over five years, at which point the assets will be worthless. The project involves selling new products for $40,000 per unit, with a variable cost of $18,000 per unit. Annual fixed costs are expected to be $485,000. The company uses a 20 percent discount rate. What is the financial break-even point?

Hatch Idea Labs purchased some equipment two years ago for $287,600. These assets are classified as five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, and .0576, for Years 1 to 6, respectively. The company is currently replacing this equipment so the old equipment is being sold for $150,000. What is the aftertax salvage value from this sale if the tax rate is 21 percent and no bonus depreciation is claimed?

Leung Crafts is contemplating the purchase of a new $218,000 computer-based order entry system. The system will be depreciated straight-line to zero over the system’s five-year life. No bonus depreciation will be taken. The system will be worth $20,000 at the end of five years. The company will save $73,500 before taxes per year in order processing costs and will reduce working capital by $18,600 on Day 1. The net working capital will return to its original level when the project ends. The tax rate is 21 percent. What is the internal rate of return for this project?

Pet Supply purchased $62,800 of fixed assets two years ago. The company no longer needs these assets so it is going to sell them today for $29,500. The assets are classified as five-year property for MACRS. The MACRS rates are .2, .32, .192, .1152, .1152, .0576, for Years 1 to 6, respectively. What is the net cash flow from this sale if the firm’s tax rate is 23 percent and no bonus depreciation is taken?

Uroda Coffee has computed its fixed costs to be $.27 for every cup of coffee it sells given annual sales of 739,000 cups. The sales price is $.99 per cup while the variable cost per cup is $.12. How many cups of coffee must it sell to break even on a cash basis?

Suppose ALK Company needs $13.8 million to build a new assembly line. The target debt-equity ratio is .48. The flotation cost for new equity is 9.6 percent, but the floatation cost for debt is only 5.1 percent. What is the true cost of building the new assembly line after taking flotation costs into account?

What is the standard deviation of the returns on a portfolio that is invested in Stocks A, B, and C? Twenty percent of the portfolio is invested in Stock A and 35 percent is invested in Stock C. State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Stock C Boom .04 .17 .09 .09 Normal .81 .08 .06 .08 Recession .15 −.24 .02 −.13

You own a portfolio equally invested in a risk-free asset and two different stocks. One of the stocks has a beta of 1.32. The total portfolio is equally as risky as the market. What is the beta of the second stock?

Rachel’s has a $45,000 line of credit with an interest rate of 7.4 percent and a compensating balance requirement of 2.75 percent. The compensating balance is based on the total amount borrowed with funds being held in an interest-free account. What is the effective annual interest rate if the company requires $28,000 of borrowed funds for one year?

The relevant discount rate is 14 percent for a project with cash flows of −$9,200, $4,600, $3,300, and $3,800 for Years 0 to 3, respectively. What is the profitability index?