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Emily Home Catering (EHC) is considering switching from its old food
maker to a new Wonder Food Maker. Both food makers will remain useful
for the next 10 years, but the new food maker will generate a depreciation
expense of $5,000 per year, while the old food maker will generate a
depreciation expense of $4,000 per year. What is the after-tax cash flow
effect from deprecation of switching to the new food maker for EHC if the
company’s tax rate is 30 percent and the correct discount rate is 12
percent?
You purchased 100 shares in an oil company, Vic Energy Ltd at the
price of $50/share. The company has 1 million shares outstanding. Ten
days later Vic Energy announced an investment in an oil field in east
Victoria. The probability that the investment will be successful and
generate an NPV of $10 million is 0.2; the probability that the
investment will be a failure and generate a negative NPV of negative $1
million is 0.8. How would you expect the share price to change upon
the company’s announcement of the investment?
Alan’s Fine Furniture creates custom bed frames. Fixed cash
expenditures are expected to be $120,000, the projected EBIT for the
project is $130,000, and the Accounting DOL will be 2.5. What is the
depreciation and amortisation for the company as well as Cash Flow
