# Zinc, Inc. is considering the acquisition of a new processing line

1. Zinc, Inc. is considering the acquisition of a new processing line. The processor can be purchased for \$4,550,000. It will cost \$65,000 to ship and \$190,500 to install the processor. A recently completed feasibility study that was performed at a cost of \$45,000 indicated that the processor would produce a positive NPV. Studies have shown that employee-training expenses will be \$150,000. What is the total investment in the processing line for capital budgeting purposes? (Points : 1)
\$4,550,000
\$4,700,000
\$4,955,500
\$5,000,500

2. Zellars, Inc. is considering two mutually exclusive projects, A and B. Project A costs \$95,000 and is expected to generate \$65,000 in year one and \$75,000 in year two. Project B costs \$120,000 and is expected to generate \$64,000 in year one, \$67,000 in year two, \$56,000 in year three, and \$45,000 in year four. Zellars, Inc.’s required rate of return for these projects is 10%. The internal rate of return for Project A is (Points : 1)
31.43%.
29.42%.
25.88%.
19.45%.

3. Welltran Corp. can purchase a new machine for \$1,875,000 that will provide an annual net cash flow of \$650,000 per year for five years. The machine will be sold for \$120,000 after taxes at the end of year five. What is the net present value of the machine if the required rate of return is 13.5%. (Points : 1)
\$558,378
\$513,859
\$473,498
\$447,292

4. The simulation approach provides us with (Points : 1)
a single value for the risk-adjusted net present value.
an approximation of the systematic risk level.
a probability distribution of the project’s net present value or internal rate of return.
a graphic exposition of the year-by-year sequence of possible outcomes.

5. Porky Pine Co. is issuing a \$1,000 par value bond that pays 8.5% interest annually. Investors are expected to pay \$1,100 for the 12-year bond. Porky will pay \$50 per bond in flotation costs. What is the after-tax cost of new debt if the firm is in the 35% tax bracket? (Points : 1)
8.23%
4.55%
4.70%
7.45%

6. A new machine can be purchased for \$1,800,000. It will cost \$35,000 to ship and \$15,000 to fine-tune the machine. The new machine will replace an older version that is fully depreciated and will be sold for \$200,000. The firm’s income tax rate is 35%. What is the initial outlay for capital budgeting purposes? (Points : 1)
\$1,580,000
\$1,630,000
\$1,650,000
\$1,720,000

7. Asian Trading Company paid a dividend yesterday of \$5 per share (D0 = \$4). The dividend is expected to grow at a constant rate of 8% per year. The price of Asian Trading Company’s stock today is \$29 per share. If Asian Trading Company decides to issue new common stock, flotation costs will equal \$2.50 per share. Asian Trading Company’s marginal tax rate is 35%. Based on the above information, the cost of new common stock is (Points : 1)
28.38%.
24.12%.
26.62%.
31.40%.

8. Kelly Corporation will issue new common stock to finance an expansion. The existing common stock just paid a \$1.50 dividend, and dividends are expected to grow at a constant rate 8% indefinitely. The stock sells for \$45, and flotation expenses of 5% of the selling price will be incurred on new shares. What is the cost of new common stock be for Kelly Corp.? (Points : 1)
11.33%
11.51%
11.60%
11.79%
12.53%

9. A new machine can be purchased for \$1,200,000. It will cost \$35,000 to ship and \$15,000 to modify the machine. A \$12,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm, which would have otherwise been sold for \$180,000. The firm will borrow \$750,000 to finance the acquisition. Total interest expense for 5-years is expected to approximate \$350,000. What is the investment cost of the machine for capital budgeting purposes? (Points : 1)
\$2,180,000
\$1,780,000
\$1,442,000
\$1,430,000

10. PDF Corp. needs to replace an old lathe with a new, more efficient model. The old lathe was purchased for \$50,000 nine years ago and has a current book value of \$5,000. (The old machine is being depreciated on a straight-line basis over a ten-year useful life.) The new lathe costs \$100,000. It will cost the company \$10,000 to get the new lathe to the factory and get it installed. The old machine will be sold as scrap metal for \$2,000. The new machine is also being depreciated on a straight-line basis over ten years. Sales are expected to increase by \$8,000 per year while operating expenses are expected to decrease by \$12,000 per year. PDF’s marginal tax rate is 40%. Additional working capital of \$3,000 is required to maintain the new machine and higher sales level. The new lathe is expected to be sold for \$5,000 at the end of the project’s ten
\$6,000

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