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1.

The following table shows the expected cash flows from a project. There are no cash flows beyond year 4. The cost of capital is 7%.

Calculate the projects NPV.

Note: Do not round your intermediate calculations. Enter your answer in thousands rounded to nearest whole number.

Calculate the economic rent in year 1.

Note: Do not round your intermediate calculations. Enter your answer in thousands rounded to 2 decimal places.

Cash flows ($000s)
C0	C1	C2	C3	C4
200	80	75	70	65

2.

You are considering a proposal to produce and market a new sluffing machine. The most likely outcomes for the project are as follows: Expected sales: 30,000 units per year Unit price: $50 Variable cost: $30 Fixed cost: $300,000 The project will last for 10 years and requires an initial investment of $1 million, which will be depreciated straight-line over the project life to a final value of zero. The firms tax rate is 30%, and the required rate of return is 12%. However, you recognize that some of these estimates are subject to error. In one scenario a sharp rise in the dollar could cause sales to fall 30% below expectations for the life of the project and, if that happens, the unit price would probably be only $40. The good news is that fixed costs could be as low as $200,000, and variable costs would decline in proportion to sales. a. What is project NPV if all variables are as expected? (Do not round intermediate calculations. Enter your answer in thousands not in millions and round your answer to the nearest whole dollar amount.) b. What is NPV in the bad-case scenario? (Do not round intermediate calculations. Enter your answer in thousands not in millions and round your answer to the nearest whole dollar amount. Negative amount should be indicated with a minus sign.)

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