# · Chapter 9: Problem 10 o Nguyen, Inc. is considering the purchase of a

· Chapter 9: Problem 10
o Nguyen, Inc. is considering the purchase of a new computer system (ICX) for \$130,000. The system will require an additional \$30,000 for installation. If the new computer is purchased, it will replace an old system that has been fully depreciated. The new system will be depreciated over a period of 10 years using straight-line depreciation. If the ICX is purchased, the old system will be sold for \$20,000. The ICX system, which will have a useful life of 10 years, is expected to increase revenues by \$32,000 per year over its useful life. Operating costs are expected to decrease by \$2,000 per year over the life of the system. The firm is taxed at a 40 percent marginal rate.
a. What net investment is required to acquire the ICX system and replace the old system?
b. Compute the annual net cash flows associated with the purchase of the ICX system.
· Chapter 10: Problem 22
o International Foods Corporation, a U.S.-based food company, is considering expanding its soup-processing operations in Switzerland. The company plans a net investment of \$48 million in the project. The current spot exchange rate is SF6.25 per dollar (SF = Swiss Francs). Net cash flows for the expansion project are estimated to be SF5 million for 10 years and nothing thereafter. Based on its analysis of current conditions in Swiss capital markets, International Foods has determined that the applicable cost of capital for the project is 16 percent. Calculate the net present value of the proposed expansion project.
· Chapter 11: Problems 5
o American Steel Corporation is considering two investments. One is the purchase of a new continuous caster costing \$100 million. The expected net present value of the project is \$20 million. The other alternative is the purchase of a supermarket chain, also costing \$100 million. It, too, has an expected net present value of \$20 million. The firm’s management is interested in reducing the variability of its earnings.
a. Which project should the company invest in?
b. What assumptions did you make to arrive at this decision?