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Kenny, Inc., is looking at setting up a new manufacturing plant in South Park.
The company bought some land six years ago for $8.1 million in anticipation of using it as a warehouse and distribution site,
but the company has since decided to rent facilities elsewhere. The land would net $10.9 million if it were sold today.
The company now wants to build its new manufacturing plant on this land; the plant will cost $22.1 million to build,
and the site requires $960,000 worth of grading before it is suitable for construction.
  
What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?
(Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.
Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
  
Cash flow

 
Explanation:
The $8.1 million acquisition cost of the land six years ago is a sunk cost.
The $10.9 million current aftertax value of the land is an opportunity cost if the land is used rather than sold off.
The $22.1 million cash outlay and $960,000 grading expenses are the initial fixed asset investments needed to get the project going.
Therefore, the proper Year 0 cash flow to use in evaluating this project is:
  
Cash flow = $10,900,000 + 22,100,000 + 960,000
Cash flow = $33,960,000
   
H. Cochran, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2,580,000.
The fixed asset will be depreciated straight-line to zero over its three-year tax life, after which time it will be worthless.
The project is estimated to generate $2,310,000 in annual sales, with costs of $1,300,000
If the tax rate is 30 percent, what is the OCF for this project?
(Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.
Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.)
  

 
(Sales 2310000) – (Costs 1300000) – (Depreciation (2580000 / 3 = 860000) =
(Taxable Income = 150000) – (Tax Expense 45000) = (Net Income 105000)
Add Back 1 YR Depreciation = 105000 + 860000 =
OCF = 960000
 
 
Explanation:
Using the tax shield approach to calculating OCF
(Remember the approach is irrelevant; the final answer will be the same no matter which of the four methods you use.), we get:
OCF = (Sales – Costs)(1 – T_C) + Depreciation(T_C)
OCF = ($2,310,000 – 1,300,000)(1 – .30) + .30($2,580,000 / 3)
OCF = $965,000
   
Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer).
Pappy’s paid $134,000 for a marketing survey to determine the viability of the product.
It is felt that Potato Pet will generate sales of $589,000 per year. The fixed costs associated with this will be $193,000 per year,
and variable costs will amount to 18 percent of sales. The equipment necessary for production of the Potato Pet will cost $648,000
and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt the sales will end quickly).
This is the only initial cost for the production. Pappy's has a tax rate of 35 percent and a required return of 15 percent.
  
Calculate the payback period for this project.
(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
   
Calculate the NPV for this project.
(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Calculate the IRR for this project.
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
 

 
1.Calculation of Time 0 cash flow for this project :
                        Initial cash outlay at Time 0(Cost of equipment) = $ 648000
2.Calculation of operating cash flows:
working note :       Cost of equipment = $648000
                                  Useful life         = 4years
                         Annual Depreciation   = $162000
Since cash flows are same during all four years ,Calculation of one year cash flow is enough for all 4 years.

particulars	Amount($)
Sales	589000
Less:Variable cost(18%)	(106020)
Gross margin	482980
Less:fixed cost	(193000)
Depreciation	(162000)
Profit before tax	127980
Less:Tax @ 35%	(44793)
Profit after tax	83187
Add:Depreciation	162000
Annual Operating cash flow	$245187

3) Calculation of Pay back period :
                            Cost of investment = $648000
                         Annual Net cash flow = $245187
                           Pay back period      = Cost of investment / Annual net cash flow
                                                         = 648000 / 245187
                                                         = 2.643 years
4) Calculation of NPV of the project :
          NPV = (- Initial cash outlay + Annual operating cash flow * (Cumulative PV factor))
                   = - 648000 + 245187*(PVIAF@15%,4years)
                   = - 648000 + 245187 *2.8550
                   = - 648000 + 700000(approx)
                   = $52000 (Net present value)
5) Calculation of IRR of the project :
   Let us assume Two discount rates 15% and 20%. At 15% discount rate we already got NPV of 52000
   NPV at 20% discount rate = - 648000 + 245187 * (PVIAF@20%,4years)
                                          = - 648000 + 245187 * 2.5887
                                          = - 648000 + 634724
                                          = -13276
    So that IRR should be exist between these two discount rates
                      IRR = 15% + (700000 - 648000 / 700000 - 634724 )* 5%                   (5% = 20% - 15%)
                            = 15% + 52000/65276 * 5%
                            = 15% + 3.98%
                            = 19% (Approx ,18.98%)
Note : Since marketing survey cost was already incurred that cost should not be considered as initial cash outlay,
It will be treated as operating cash flow only for that year in which it incurred.
 
Explanation:
First, we need to calculate the cash flows. The marketing study is a sunk cost and should be ignored.
The net income each year will be:
  

Sales of new product	$	589,000
Variable costs		106,020
Fixed costs		193,000
Depreciation		162,000
EBIT	$	127,980
Taxes		44,793
Net income	$	83,187

So, the OCF is:
OCF = EBIT + Depreciation – Taxes
OCF = $127,980 + 162,000 – 44,793
OCF = $245,187
  
The only initial cash flow is the cost of the equipment, so the payback period is:
Payback period = $648,000 / $245,187
Payback period = 2.64 years
   
The NPV is:
NPV = –$648,000 + $245,187(PVIFA_15%,4)
NPV = $52,003.58
  
And the IRR is:
   
0 = –$648,000 + $245,187(PVIFA_IRR%,4)
IRR = 18.92%
   
CSM Machine Shop is considering a four-year project to improve its production efficiency.
Buying a new machine press for $502,000 is estimated to result in $201,000 in annual pretax cost savings.
The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $63,500.
The press also requires an initial investment in spare parts inventory of $22,700, along with an additional $4,700 in inventory for
each succeeding year of the project. The shop’s tax rate is 35 percent and its discount rate is 12 percent.
  
Calculate the NPV.
(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  

 
INITIAL CASH FLOW IN YEAR 0
COST OF THE NEW MACHINE = $502000
ADD SPARE PARTS = $22700
TOTAL = $524700
INBETWEEN CASH FLOW
CALCULATION OF DEPRICIATION
YEAR 1 ($502000 * 0.2000) = $100400
YEAR 2 ($502000 * 0.3200) = $160640
YEAR 3 ($502000 * 0.1920) = $96384
YEAR 2 ($502000 * 0.1152) = $57830
THE BOOK VALUE OF THE POJECT AT END OF THE LIFE
$502000 - ($100400 + $160640 + $96384 + $57830) = $86746
THE ASSET SOLD LOSS TO THE BOOK VALUE SO IT CREATES A TAX REFUND
AFTER TAX SALVAGE VALUE = $63500 + ($86746 - $63500) 0.35 = $71636
CASH FLOW YEAR 1 = $201000(1 - 0.35) + 0.35($100400) - $4700 = $130650 + $35140 - $4700 = $161090
CASH FLOW YEAR 2 = $201000(1 - 0.35) + 0.35(160640) - $4700
= $130650 + $56224 - $4700 = $182174
CASH FLOW YEAR 3 = $201000(1 - 0.35) + 0.35($96384) - $4700
= $130650 + $33734 - $4700 = $159684
CASH FLOW YEAR 4 = $201000(1 - 0.35) + 0.35($57830) - $4700 + $41500 + $71636
= $130650 + $20241 - $4700 + $41500 + $71636 = $259327

YEAR	CASH FLOW $	DISCOUNTING FACTOR	DISCOUNTED CASH FLOW $
0	(524700)	1.000	(524700)
1	161090	0.8929	143837
2	182174	0.7972	145229
3	159684	0.7118	113663
4	259327	0.6355	164802
		NPV	$42831

 
Explanation:
First, we will calculate the depreciation each year, which will be:
  
D₁ = $502,000(.2000) = $100,400
D₂ = $502,000(.3200) = $160,640
D₃ = $502,000(.1920) = $96,384
D₄ = $502,000(.1152) = $57,830
  
The book value of the equipment at the end of the project is:
  
BV₄ = $502,000 – ($100,400 + 160,640 + 96,384 + 57,830)
BV₄ = $86,746
  
The asset is sold at a loss to book value, so this creates a tax refund.
  
Aftertax salvage value = $63,500 + ($86,746 – 63,500)(.35)
Aftertax salvage value = $71,636
  
Using the depreciation tax shield approach, the OCF for each year will be:
  
OCF₁ = $201,000(1 – .35) + .35($100,400) = $165,790
OCF₂ = $201,000(1 – .35) + .35($160,640) = $186,874
OCF₃ = $201,000(1 – .35) + .35($96,384) = $164,384
OCF₄ = $201,000(1 – .35) + .35($57,830) = $150,891
  
Now, we have all the necessary information to calculate the project NPV.
We need to be careful with the NWC in this project. Notice the project requires $22,700 of NWC at the beginning,
and $4,700 more in NWC each successive year. We will subtract the $22,700 from the initial cash flow, and subtract
$4,700 each year from the OCF to account for this spending. In Year 4, we will add back the total spent on NWC,
which is $36,800. The $4,700 spent on NWC capital during Year 4 is irrelevant. Why? Well, during this year the
project required an additional $4,700, but we would get the money back immediately. So, the net cash flow for
additional NWC would be zero. With all this, the equation for the NPV of the project is:
  
NPV = –$502,000 – 22,700 + ($165,790 – 4,700) / 1.12 + ($186,874 – 4,700) / 1.12²
+ ($164,384 – 4,700) / 1.12³ + ($150,891 + 36,800 + 71,636) / 1.12⁴
NPV = $42,825.30
   
Aria Acoustics, Inc., (AAI) projects unit sales for a new seven-octave voice emulation implant as follows:
  

Year	Unit Sales
1	109,500
2	128,500
3	116,500
4	99,500
5	85,500

   
Production of the implants will require $1,530,000 in net working capital to start and additional net working capital
investments each year equal to 10 percent of the projected sales increase for the following year. Total fixed costs are
$1,380,000 per year, variable production costs are $228 per unit, and the units are priced at $348 each. The equipment
needed to begin production has an installed cost of $24,500,000. Because the implants are intended for professional
singers, this equipment is considered industrial machinery and thus qualifies as seven-year MACRS (MACRS Table) property.
In five years, this equipment can be sold for about 10 percent of its acquisition cost. AAI is in the 30 percent marginal tax
bracket and has a required return on all its projects of 15 percent.
  
What is the NPV of the project?
(Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
  
Net present value (NPV):        $8,068,334.69
  
What is the IRR of the project?
(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Internal rate of return
 

 
The company should accept the project.
 
 
Explanation:
This is an in-depth capital budgeting problem. We will use the bottom up approach,
so we will need to construct an income statement for each year. Beginning with the initial cash flow at Time 0,
the project will require an investment in equipment. The project will also require an initial investment in
NWC of $1,530,000. So, the cash flow required for the project today will be:
  

Capital spending	–$24,500,000
Change in NWC	–1,530,000
Total cash flow	–$26,030,000

  
Now we can begin the remaining calculations. Sales figures are given for each year, along with the price per unit.
The variable costs per unit are used to calculate total variable costs, and fixed costs are given at $1,380,000 per year.
To calculate depreciation each year, we use the initial equipment cost of $24.5 million, times the appropriate MACRS
depreciation percentage each year. The remainder of each income statement is calculated below. Notice at the bottom
of the income statement we added back depreciation to get the OCF for each year.
The section labeled "Net cash flows" will be discussed below:
  

Year	1			2			3			4			5
Ending book value	$	20,998,950		$	14,998,900		$	10,713,850		$	7,653,800		$	5,465,950
Sales	$	38,106,000		$	44,718,000		$	40,542,000		$	34,626,000		$	29,754,000
Variable costs		24,966,000			29,298,000			26,562,000			22,686,000			19,494,000
Fixed costs		1,380,000			1,380,000			1,380,000			1,380,000			1,380,000
Depreciation		3,501,050			6,000,050			4,285,050			3,060,050			2,187,850
EBIT	$	8,258,950		$	8,039,950		$	8,314,950		$	7,499,950		$	6,692,150
Taxes		2,477,685			2,411,985			2,494,485			2,249,985			2,007,645
Net income	$	5,781,265		$	5,627,965		$	5,820,465		$	5,249,965		$	4,684,505
Depreciation		3,501,050			6,000,050			4,285,050			3,060,050			2,187,850
Operating cash flow	$	9,282,315		$	11,628,015		$	10,105,515		$	8,310,015		$	6,872,355
Net cash flows:
Operating cash flow	$	9,282,315		$	11,628,015		$	10,105,515		$	8,310,015		$	6,872,355
Change in NWC		–661,200			417,600			591,600			487,200			694,800
Capital spending		0			0			0			0			3,354,785
Total cash flow	$	8,621,115		$	12,045,615		$	10,697,115		$	8,797,215		$	10,921,940

  
After we calculate the OCF for each year, we need to account for any other cash flows.
The other cash flows in this case are NWC cash flows and capital spending, which is the aftertax salvage of the equipment.
The required NWC capital is 10 percent of the the change in sales in the next year.
We will work through the NWC cash flow for Year 1.
The total NWC in Year 1 will be 10 percent of the sales increase from Year 1 to Year 2, or:
  
Change in NWC for Year 1 = .10($38,106,000 – 44,718,000)
Change in NWC for Year 1 = −$661,200
  
Notice that the NWC cash flow is negative. Since the sales are increasing,
we will have to spend more money to increase NWC. In Year 2, the NWC cash flow is positive since sales are declining.
And, in Year 5, the NWC cash flow is the recovery of all NWC the company still has in the project.
  
To calculate the aftertax salvage value, we first need the book value of the equipment.
The book value at the end of the five years will be the purchase price, minus the total depreciation. So, the ending book value is:
  
Ending book value = $24,500,000 – ($3,501,050 + 6,000,050 + 4,285,050 + 3,060,050 + 2,187,850)
Ending book value = $5,465,950
  
The market value of the used equipment is 10 percent of the purchase price, or $2.45 million,
so the aftertax salvage value will be:
  
Aftertax salvage value = $2,450,000 + ($5,465,950 – 2,450,000)(.30)
Aftertax salvage value = $3,354,785
  
The aftertax salvage value is included in the total cash flows as capital spending.
Now we have all of the cash flows for the project. The NPV of the project is:
  
NPV = –$26,030,000 + $8,621,115 / 1.15 + $12,045,615 / 1.15² + $10,697,115 / 1.15³
+ $8,797,215 / 1.15⁴ + $10,921,940 / 1.15⁵
NPV = $8,068,334.69
  
And the IRR is:
  
NPV = 0 = –$26,030,000 + $8,621,115 / (1 + IRR) + $12,045,615 / (1 + IRR)²
+ $10,697,115 / (1 + IRR)³ + $8,797,215 / (1 + IRR)⁴ + $10,921,940 / (1 + IRR)⁵
IRR = 27.26%
  
The company should accept the project.
   
A project has sales of $462,000, costs of $274,000, depreciation of $26,000, interest expense of $3,400, and a tax rate of 35 percent. What is the value of the depreciation tax shield?
a. $9,564
b. $10,800
c. $9,100
d. $11,350
e. $10,650
 
26,000 × 0.35 = 9,100
   
Rocky Top, Inc. purchased some welding equipment six years ago at a cost of $579,000.
Today, the company is selling this equipment for $110,000. The tax rate is 35 percent.
What is the aftertax cash flow from this sale? The MACRS allowance percentages are as follows, commencing with year
1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent.

a. $96,152
b. $110,000
c. $81,380
d. $98,635
e. $101,540
 
110,000 - {[110,000 - 579,000 × (0.0893 + 0.0446)] × 0.35} = 98,635
   
What is the net effect on a firm's working capital if a new project requires: $34,867 increase in inventory,
$42,427 increase in accounts receivable, $35,000.00 increase in machinery, and a $42,993 increase in accounts payable?
 
34,301

34867 + 42427 - 42993
   
What is the amount of the operating cash flow for a firm with $303,534 profit before tax, $100,000 depreciation expense,
and a 35% marginal tax rate?
 
297,297.1

(303,534) (.65) = 197,297.1 + 100,000 = 297,297.1
   
A company just paid $10 million for a feasibility study. If the company goes ahead with the project, it must immediately
spend another $75,902,842 now, and then spend $20 million in one year. In two years it will receive $80 million,
and in three years it will receive $90 million. If the cost of capital for the project is 11 percent, what is the project's NPV?
 
36,816,159

-75,902,842 - 20,000,000 / (1 + 0.11)¹ + 80,000,000 / (1 + 0.11)² + 90,000,000 / (1 + 0.11)³ = 36,816,158.95
   
A new restaurant is ready to open for business. It is estimated that the food cost (variable cost) will be 40% of sales,
while fixed cost will be $429,056. The first year's sales estimates are $1,250,000.
Calculate the firm's degree of operating leverage (DOL).`
 
2.34

1,250,000 × .4 = 500,000
Fixed cost FC = $429,056
(1,250,000 - 500,000) / (1,250,000 - 500,000 - 429,056)
750,000 / 320,944 = 2.34
   
A new restaurant is ready to open for business. It is estimated that the food cost (variable cost) will be 66.3% of sales,
while fixed cost will be $450,000.
The first year's sales estimates are $905,373. Calculate the firm's operating breakeven level of sales.
 
1,335,311.57

1 - 0.663 = 0.337
450000 / 0.337
   
Maverick Technologies has sales of $3,000,000. The company's fixed operating costs total $455,689 and its variable costs equal 60% of sales.
The company's interest expense is $500,000. What is the company's degree of total leverage (DTL)?
 
4.91

3,000,000(1 - .6 / [(3,000,000(1 - .6) – 455689 - 500,000]
   
Maverick Technologies has sales of $3,000,000. The company's fixed operating costs total $500,000 and its variable costs equal
60% of sales, so the company's current operating income is $700,000. The company's interest expense is $583,829.
What is the company's degree of financial leverage (DFL)?
 
6.03

700,000 / (700,000 - 583829)
   
Carlisle Transport had $4,520 cash at the beginning of the period. During the period, the firm collected $1,654 in receivables,
paid $1,961 to supplier, had credit sales of $6,916, and incurred cash expenses of $500.
What was the cash balance at the end of the period?
 
3713

4520 + 1654 - 1961 – 500
   
Davis Supply maintains an average inventory of 2,000 dinosaur skulls for sale to filmmakers.
The carrying cost per skull per year is estimated to be $150.00 and the fixed order cost is $53.
What is the economic order quantity (EOQ)? (Round to the nearest whole number.)
 
38

(220,0053) / 150)^1/2
   
A cost-cutting project will decrease costs by $37,400 a year.
The annual depreciation on the project's fixed assets will be $4,700 and the tax rate is 34 percent.
What is the amount of the change in the firm's operating cash flow resulting from this project?

$21,582
$26,791
$23,610
$25,805
$26,282

[37,400 ×(1 -.34)] + [4,700 ×.34] = 26,282
   
A project requires $428,000 of equipment that is classified as seven-year property.
What is the depreciation expense in Year 3 given the following MACRS depreciation allowances, starting with
Year 1: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent?

$104,817.20
$74,857.20
$89,038.42
$56,038.15
$48,447.30
$74,857.20

428,000 × .1749 = 74,857.20
   
Custom Tailored Shirts is a specialty retailer offering T-shirts, sweatshirts, and caps. Its most recent annual sales consisted of $21,000 of T-shirts,
$18,000 of sweatshirts, and $2,900 of caps. The company is adding polo shirts to the lineup and projects that this addition will result in sales
next year of $18,000 of T-shirts, $16,000 of sweatshirts, $11,500 of Polo shirts, and $2,100 of caps.
What sales amount should be used when evaluating the Polo shirt project?

$6,100
$4,900
$5,700
$5,000
$11,500

18,000 + 16,000 + 11,500 + 2,100) - (21,000 + 18,000 + 2,900) = 5,700
   
A project has an annual operating cash flow of $52,620. Initially, this four-year project required $5,160 in net working capital,
which is recoverable when the project ends. The firm also spent $39,700 on equipment to start the project.
This equipment will have a book value of $17,014 at the end of Year 4.
What is the cash flow for Year 4 of the project if the equipment can be sold for $15,900 and the tax rate is 35 percent?

$73,290.10
$63,749.90
$73,680.00
$73,862.00
$74,069.90

52,620 + 5,160 + 15,900- [(15,900 -17,014) ×.35] = 74,069.90
   
Over the past five years, a stock returned
6.2 percent
-10.4 percent
-2.2 percent
16.9 percent
5.8 percent
What is the variance of these returns?

.010439
.076290
.008351
.091306
.012547

(.062 - .104 -.022 + .169 + .058) / 5 = .0326
σ² = [(.062 -.0326)2 + (-.104-.0326)² + (-.022 -.0326)² + (.169 -.0326)² + (.058 -.0326)2] / (5 - 1) =.010439
   
Over the past six years, a stock had annual returns of 18 percent, -6 percent, 2 percent, 27 percent, -11 percent, and 13 percent.
What is the standard deviation of these returns?

15.08 percent
15.27 percent
13.59 percent
14.66 percent
14.38 percent

Average return = (.18-.06 + .02 + .27 -.11 + .13)/6 = .071667
σ² = [(.18-.071667)² + (-.06-.071667)² + (.02 -.071667)² + (.27 -.071667)² + (-.11 -.071667)² + (.13-.071667)²]/ (6 - 1) = .021497
σ = .021497.5 x 100 = 14.66 percent
   
Floral Shoppes has a new project in mind that will increase accounts
receivable by $19,000, decrease accounts payable by $4,000, increase
fixed assets by $27,000, and decrease inventory by $2,000. What is the
amount the firm should use as the initial cash flow attributable to net
working capital when it analyzes this project?
 
a. -$21,000
b. -$25,000
c. -$12,000
d. -$52,000
e. -$17,000
 
19,000 - 4,000 + 2,000 = -21,000
   
Green Woods sells specialty equipment for mountain climbers. Its sales for last year included $387,000
of tents and $718,000 of climbing gear. For next year, management has decided to sell specialty sleeping bags
also. As a result of this change, sales projections for next year are $411,000 of tents, $806,000 of climbing gear,
and $128,000 of sleeping bags. How much of next year's sales are derived from the side effects of
adding the new product to its sales offerings?
 
a. $112,000
b. $0
c. $128,000
d. $240,000
e. $251,000
$112,000
 
 (411,000 + 806,000) - (387,000 + 718,000) = 112,000
   
Rock Haven has a proposed project that will generate sales of 1,840 units annually at a selling
price of $31 each. The fixed costs are $13,400 and the variable costs per unit are $7.47. The
project requires $32,000 of fixed assets that will be depreciated on a straight-line basis to
a zero-book value over the four-year life of the project. The salvage value of the fixed assets
is $8,500 and the tax rate is 35 percent. What is the operating cash flow for Year 4?
 
a. $16,970.16
b. $22,231.88
c. $16,347.78
d. $22,416.67
e. $17,258.4
 
{[1,840 × (31 -7.47] - 13,400} × {1 -.35} + {32,000/4 ×.35} = 22,231.88
   
British Metals is reviewing its current accounts to determine how a proposed project might affect the
account balances. The firm estimates the project will initially require $81,000 in additional current assets and
$57,000 in additional current liabilities. The firm also estimates the project will require an additional $8,000 a
year in current assets in each of the first three of the four years of the project. How much net working capital will
the firm recoup at the end of the project assuming that all net working capital can be recaptured?
 
a. $81,000
b. $48,000
c. $24,000
d. $68,000
e. $105,000
 
81,000 -57,000 + (3 × 8,000) = 48,000
   
One year ago, Peyton purchased 7,200 shares of Broncos stock for
$329,640. Today, he sold those shares for $58.92 a share. What is the
total return on this investment if the dividend yield is 2.2 percent?
 
a. 33.98 percent
b. 30.89 percent
c. 24.50 percent
d. 20.10 percent
e. 28.40 percent
 
 [(58.92-(329,640/ 7,200)]/(329,640 / 7,200) + .022 = .3089, or 30.89 percent
   
Western Steer purchased some three-year MACRS property three years ago.
What is the current book value of this equipment if the original cost was $94,250?
The MACRS allowance percentages are as follows, commencing with Year 1: 33.33, 44.45, 14.81, and 7.41 percent.
 
$20,842.35
$8,868.20
$0
$11,506.15
$6,983.93
 
94,250 × (1 - 0.3333 - 0.4445 - 0.1481)