Tuesday, April 27th, 1999
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Final Exam Room Assignments:

Sections 1-5, 23	102 Forum
Sections 6-11, 24	108 Forum
Sections 12-17	105 Forum
Sections 18-22	111 Forum

On sample exam #4, skip questions 1-9, 39, 40, 42-44, 52-55

Lecture notes:

Machine cost = 200,000
Estimated life = 10 years
Estimated increase in annual cash flows = 29,000
Estimated salvage value = 20,000
Tax rate = 40%
Discount rate = 8%

Revenues	29,000
- Dep. Exp.	- 18,000
Income before taxes	11,000
- Taxes	- 4,400
Net Income	6,600

Accounting Rate of Return

6,600 / 110,000 = 6%

Payback Period

200,000 / 24,600 = 8.13 years

Net Present Value

24,600 x PA8/10	165,066
20,000 x P8/10	9,260
	174,326
- Original Cost	- 200,000
NPV	- 25,674

Do not buy machine.

Page 1065, Exercise 4

Revenue	98,400
Operating costs	71,200
Net Income	27,200

27,200 / 178,750 = 15.2%, do not invest

Page 1065, Exercise 5

Cash revenues	397,500
- cash expenses	- 265,000
- income taxes	- 45,050
Net cash flow	87,450

415,000 / 87,450 = 4.75 years, do invest

Page 1066, Exercise 8

57,250 x PA14/6	222,645
- original cost	- 219,500
	3,145

Make the investment.

Page 1069, Problem A3

	16,000
- Dep. Exp.	- 2,250
IBT	13,750
- taxes	- 4,675
NI	9,075

Annual cash flows = 11,325

11,325 x PA14/15	69,558
10,000 x P14/15	1,400
	70,958

	50,000
- Dep. Exp.	- 12,600
IBT	37,400
- taxes	- 12,716
NI	24,684

Annual cash flows = 37,284

37,284 x PA14/25	256,253
35,000 x P14/25	1,330
Sale of old building	61,075
	318,658
- original cost	- 350,000
NPV	- 31,342

Do not invest.

Proceeds	70,000
- book value	- 43,750
Gain	26,250
Taxes	8,925

Cash flow = 70,000 - 8,925 = 61,075