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NEW QUESTION: 1
Erwin DeLavall, the Plant Manager of Patch Grove Cabinets, is trying to decide whether or not to replace the old manual lathe machine with a new computerized lathe. He thinks the new machine will add value, but is not sure how to quantify his opinion. He asks his colleague, Terri Wharten, for advice. Wharten's son just happens to be a Level 2 CFA candidate. DeLavall and Wharten provide the following information to Wharten's son:
Company Assumptions:
New Machine Assumptions:
Which of the following choices is most correct? Patch Grove Cabinets should:
A. replace the old lathe with the new lathe because the new one will add $10,316 to the firm's value.
B. replace the old lathe with the new lathe because the new one will add $3,760 to the firm's value.
C. not replace the old lathe with the new lathe because the new one will decrease the firm's value by
$3,132.
D. not replace the old lathe with the new lathe because the new one will decrease the firm's value by
$5,370.
Answer: B
Explanation:
Explanation/Reference:
Explanation:
The valuation method that shows the project's impact on the value of the firm is net present value (NPV).
To calculate NPV, we need to determine the initial investment outlay, the operating cash flows, and the terminal year cash flows. Then, we discount the cash flows at the WACC. The calculations are as follows:
Step 1: Initial Investment Outlay:
= cost of new machine + proceeds/loss from old machine + change in net working capital (NWC)
= -$90,000 + $30,000 - $6,800 + $5,000 =-$61,800(cash outflow)
Details of calculation:
o Sales price = $30,000inflow
o Tax/tax credit: $6,800outflow
o NWC =current assets -current liabilities = 20,000 - 25,000 = -5,000 (a decrease in working capital is a source of funds) Step 2: Operating Cash Flows (years 1-4):Given as$16,800inflow
Step 3: Terminal Value:
=year 5 cash flow + return/use of NWC + proceeds/loss from disposal of new machine + tax/tax credit
=$16,800 - $5,000 + $15,000 + $1,920 =$28,720inflow
Details of calculation:
o Sales price = $15,000inflow
o Tax/tax credit: $1,920inflow
Step 4:Calculate NPV:
NPV = -$61,800 + ($16,800 / 1.131) + ($16,800 / 1.132) +($16,800 / 1.133) +($16,800 / 1.134) +($28,720 /
1.135) =$3,759.
Since the NPV is positive, Patch Grove should replace the old lathe with the new one, because the new lathe will increase the firm's value by the amount of the NPV, or $3,759.
You may also solve this problem quickly by using the cash flow (CF) key on your calculator.
NEW QUESTION: 2
A legal hold has been requested on an employee's mailbox by the company's legal office. The company IT
group is unable to implement the legal hold since the email system has recently been outsourced to the
cloud. Which of the following has the company failed to consider when migrating the email service to the
cloud?
A. Archival procedures
B. Business continuity plan
C. Retention policy
D. Email restoration process
Answer: C
NEW QUESTION: 3
If the IKEv2 tunnel were to establish successfully, which encryption algorithm would be used to encrypt traffic?
A. AES
B. DES
C. AES256
D. 3DES
E. AES192
Answer: C
Explanation:
Both ASA's are configured to support AES 256, so during the IPSec negotiation they will use the strongest algorithm that is supported by each peer.
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