Question : 165.3-D Studios evaluating a film project. The president estimates the : 1302840

165.3-D Studios is evaluating a film project. The president estimates the film will cost $7,200,000 to produce. In its first year, 2014, the film is expected to generate $5,800,000 in net revenue, after which the film will be released to video. The video is expected to generate $900,000 in net revenue 2014, $1,200,000 in 2015, and $400,000 in 2016. Amortization of the film cost will be $5,500,000 in 2014 and $1,700,000 in 2015. The company’s tax rate is 30% and it requires an 8% rate of return on its films. All outlays to produce the film occur at the beginning of January 2014. How much is the net present value of the film project? Should the company produce the film?

166.Sweet Thing Limo is considering an acquisition of an additional vehicle for its limo chauffeur service. The model under consideration will cost $140,000, have a 5-year life, and a $25,000 residual value. The company anticipates that the effect on annual net income will be as follows:

Revenue $138,000

Expenses

Driver$49,000

Fuel9,000

Maintenance2,000

Insurance1,800

Depreciation23,000

Miscellaneous   2,000                 86,800

Income before taxes               51,200

Income tax expense   20,480

Net income $  30,720

The company has a required rate of return of 14%. Calculate the net present value of the investment. Should the company invest in the new limo?

167.Recording Tunes is planning a $120,000 investment in microphones for its recording business. The microphones has an expected 4-year life with a salvage value of $12,000. The company uses the straight-line method of depreciation, has an income tax rate of 30%, and a required rate of return of 9%. How much is the present value of the tax savings related to depreciation of the equipment?

168.Chap Creations reported revenues of $540,000 and expenses of $480,000 last year, which included depreciation expense totaling $62,000. The company pays income taxes at a 35% rate. How much is the company’s annual operating cash flows?

169.U-Vision is deciding whether to buy a machine that packages products so that it can reduce labor costs. The machine has an initial cost of $580,000. The company estimates the new machine will speed up production and be able to generate annual revenues totaling $716,000 up from the current revenue of $660,000. U-Vision estimates the machine can be sold at the end of its estimated 8-year life for $60,000. Labor saved per year as a result of acquiring the machine is expected to be $26,000. Additional maintenance and operating expenses as a result of the pending acquisition are expected to be $12,000 per year. U-Vision’s required rate of return is 8% and its income tax rate is 35%. Calculate annual operating cash flows for U-Vision.

170.Deli Pizza is considering an investment that will generate cash revenues of $91,000 per year for 8 years, and have cash expenses of $80,000 per year for 8 years. The cost of the asset is $60,000, and it will be depreciated using straight-line depreciation over its 8-year life. The company pays income taxes at a rate of 30%. The required rate of return is 6%.

a.                   Prepare a schedule showing the annual cash flows associated with this asset.

b.                   Compute the net present value of this investment.