Delta Inc. is considering the purchase of a new machine which is expected to increase sales by $10,000

Use the following information to answer the following question(s).

Delta Inc. is considering the purchase of a new machine which is expected to increase sales by $10,000 in addition to increasing non-depreciation expenses by $3,000 annually. Due to the sales increase, Delta will need to increase working capital by $1,000 at the beginning of the project. Delta will depreciate the machine using the straight-line method over the project's five year life to a salvage value of zero. The machine's purchase price is $20,000. The firm has a marginal tax rate of 34 percent, and its required rate of return is 12 percent.

The machine's initial cash outflow is

A) $20,000.

B) $21,000.

C) $27,000.

D) $23,000.

The machine's incremental after-tax cash inflow for year 1 is

A) $6,420.

B) $7,980.

C) $8,620.

D) $5,980.

The machine's after-tax incremental cash flow in year five is

A) $6,980.

B) $5,980.

C) $7,120.

D) $8,620.

The machine's NPV is

A) $1,556.56.

B) $2,556.56.

C) $1,123.99.

D) $2,123.99.

The machine's IRR is

A) less than 0.

B) greater than 12 percent.

C) less than 12 percent.

D) equal to 12 percent.

XYZ, Inc. is considering adding a product line that would utilize floor space in their manufacturing plant which is currently used for storage. XYZ will need to rent new storage space elsewhere. The floor space would be considered a(n)

A) variable cost.

B) opportunity cost.

C) sunk cost.

D) irrelevant cash flow.

Which of the following is included in the calculation of the initial outlay for a capital investment?

A) Investment in working capital

B) A feasibility study conducted the previous year.

C) Installation

D) A and C but not B

Which of the following would decrease after-tax operating cash flows? A decrease in

A) depreciation expense.

B) interest expense.

C) incremental sales.

D) both A and C.

Project H requires an initial investment of $100,000 and the produces annual cash flows of $50,000, $40,000, and $30,000

Project H requires an initial investment of $100,000 and the produces annual cash flows of $50,000, $40,000, and $30,000. Project T requires an initial investment of $100,000 and the produces annual cash flows of $30,000, $40,000, and $50,000. If the required rate of return is greater than 0% and the projects are mutually exclusive

A) H will always be preferable to T.

B) T will always be preferable to H.

C) H and T are equally attractive.

D) The project rankings will change with different discount rates.

Project H requires an initial investment of $100,000 and the produces annual cash flows of $45,000 per year for each of the next 3 years. Project T also requires an initial investment of $100,000 and produces cash flows of $30,000 in year 1, $40,000 in year 2, and $70,000 in year 3. If the discount rate is 10% and the projects are mutually exclusive

A) Project H should be chosen.

B) Project T should be chosen.

C) H and T are equally attractive.

D) Both projects should be chosen.

Project H requires an initial investment of $100,000 and the produces annual cash flows of $45,000 per year for each of the next 3 years. Project T also requires an initial investment of $100,000 and produces cash flows of $30,000 in year 1, $40,000 in year 2, and $70,000 in year 3. If the discount rate is 10% and the projects are not mutually exclusive

A) Project H should be chosen.

B) Project T should be chosen.

C) H and T are equally attractive.

D) Both projects should be accepted.

Project H requires an initial investment of $100,000 and the produces annual cash flows of $45,000 per year for each of the next 3 years. Project T also requires an initial investment of $100,000 and produces cash flows of $30,000 in year 1, $40,000 in year 2, and $70,000 in year 3. If the discount rate increases from 10% to 16%

A) Project T should be chosen.

B) Both projects should be rejected.

C) H and T are equally attractive.

D) The project rankings will change.

A machine costs $1,000, has a three-year life, and has an estimated salvage value of $100. It will generate after-tax annual cash flows (ACF) of $600 a year, starting next year. If your required rate of return for the project is 10%, what is the NPV of this investment? (Round your answer to the nearest $10.)

A) $490

B) $570

C) $900

D) -$150