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PROBLEMS Problem 12-1 Johnsons Industries is consid

Resolved Question:

PROBLEMS

Problem 12-1

Johnson’s Industries is considering an expansion project. The necessary equipment could be purchased for $9 million, and the project would also require an initial $3 million in investment net operating work capital. The company’s tax rate is 40%. What is the projects initial investment outlay?

Problem 12-2

Nixon’s Communications is trying to estimate the first year operating cash flow (at-1) for a proposed project. The financial staff has collected the following information.

Projected Sales $10 million

Operating costs(not including depreciation) $7 million

Depreciation $2 million

Interest expense $2 million

The company faces a 40% tax rate. What is the projects operating cash flow for the first year? (t-1)

Problem 12-4

The Campbell company is evaluating the proposed acquisition of a new milling machine. The machines base price is $108,000, and it would cost another $12,500 to modify it for special use. The machine falls into the MACRS 3 year class, and it would be sold after 3 years for $65,000. The machine would require an increase in net working capital (inventory) of $5,500. The milling machine would have no effect on revenues, but it is expected to save the firm $44,000 per year in before tax operating costs, mainly labor. Campbell marginal tax rate is 35%.

a. What is the net cost of the machine for capital budgeting purposes? (That is what is the Year 0 net cash flow?)
b. What are the net operating cash flows in Years 1, 2 and 3?
c. What is the additional Year 3 cash flow (that is, the after tax salvage and the return of working capital)
d. If the projects cost of capital is 12%, should the machine be purchased?
Problem 4-1

Greene Sisters has a DSO of 20 days, The company’s average daily sales are $20,000. What is the level of its accounts receivable? Assume there are 365 days in a year.

Problem 4-4

A company has an EPS of $1.50, a cash flow per share, and a price /cash flow ratio of 8.0 times. What is its P/E ration?