Lincoln Brothers is evaluating a project that will increase annual sales by $258,000 and annual costs by $109,000. The project will initially require acquisition of a $120,000 machine that will be depreciated straight-line to a zero book value over the 4-year life of the project. Lincoln Brothers’ combined federal, state and local tax rate is 45 percent. What is the operating cash flow for this project?

Maribel Musical Instruments is considering a project that will produce sales of $87,000 a year for the next 3 years. The profit margin is estimated at 6 percent. The project has an initial fixed asset investment requirement that will cost $90,000 and will be depreciated straight-line to a book value of zero over the life of the project. The firm has a required accounting return of 9.5 percent. This project should be _____ because the AAR is _____ percent.

Sailcloth & More currently produces boat sails and is considering expanding its operations to include awnings for homes and travel trailers. The company owns land beside its current manufacturing facility that could be used for the expansion. The company bought this land 5 years ago at a cost of $495,000. At the time of purchase, the company paid $64,000 to level out the land so it would be suitable for future use. Today, the land is valued at $545,000. The company currently has some unused equipment on its books at a depreciated value of $66,000 – this equipment could be sold for $48,000. Alternatively, this equipment could be used for producing awnings if $28,000 is spent for modifications. Other new equipment costing $610,000 will also be required for the expansion. What is the amount of the initial cash flow for this expansion project?

McElroy Carousel Horses is considering adding a new product line that will require an initial investment of $484,500 in fixed assets and that will be depreciated using the straight-line method to a zero book value over the 6-year life of the project. The project is expected to increase annual sales by $338,000 and annual cash expenses by $184,000. The company has a marginal tax rate of 32 percent. What is the annual value of the depreciation tax shield?

Parker Propulsion Company is analyzing a new project that has a projected initial cost of $175,000. The projected cash inflows for the four-year life of the project are $56,400, $61,800, $72,000 and $75,000 respectively. Parker requires a payback period of 2.5 years or less on all its projects. Based on the information gathered, this proposed project has a payback period of _________ years and Parker should ____________ the project.

Laser Technology, Inc. is analyzing a proposed new product. The company expects to sell 2,200 units, give or take 4 percent. The expected variable cost per unit is $290 and the expected fixed costs are $589,000. Cost estimates are considered accurate within a plus or minus 3 percent range. The depreciation expense is $286,000. The sales price is estimated at $750 per unit, plus or minus 3 percent. What is the sales revenue under the worst case scenario?