1. XYZ Corp. Is considering investing in a project (shoe factory) that cost the company $300,000 today. This project can be depreciated using straight line method over its useful life of 10 years. The sales and related costs are as follows: Sale: 2000 shoes can be sold at $80 per shoe. Variable cost: $30 per shoe. Annual fixed cost: $20,000 Administrative expenses; $10,000

2. Tax rate : 40 percent Salvage value : $30,000 Cost of capital: 12 % What is NPV? What is IRR? What is MIRR if the company can reinvest the cash flows at 10% percent per year.

3. Sales 2000 X $80160,000 VC 2000X $30 -60,000 FC -20,000 Operating profits 80,000 Administrative Exp -10,000 Minus Depreciation -30,000 EBIT 40,000 Interest 0 EBT 40,000 -Taxes (.4) -16,000 Net Income 24,000

4. Annual cash flow = Net Income + Depreciation = 24,000 + 30,000 = 54,000 Salvage value after tax =30,000 (1-.4) = 18000 NPV = PV of operating cash flow + PV of salvage – initial cost = 305,112 +5,796 – 300,000 = $10,908, NPV > 0, accept the project IRR = ?

5. MIRR: FV of CF = 860,621 + 18,000 = 878,621 MIRR = 11.34% < 12%, Reject the project