1. You own 15 barrels of oil that you can sell this year or next year and is otherwise worthless. The price of abarrelofoilineachyearisp0 =21−1q0 andp0 =17−1q1 withadiscountfactorof.95andacostof

   1 dollars per barrel. Find the optimal extraction plan, the prices in each period and total discounted net revenue.

2. You own 15 barrels of oil that you can sell this year, next year, or the year after next year and is otherwise worthless. The price of a barrel of oil in each year is pi = 14 − 1 qi with a discount factor of .96 and no costs.

   2

   Find the optimal extraction plan, the prices in each period and total discounted net revenue.

3. You own 30 barrels of oil that you can sell this year or next year and is otherwise worthless. The price of a barrel of oil in each year is pi = 6 − qi with a discount factor of .92 and no costs. Find the optimal extraction plan, the prices in each period and total discounted net revenue.

An investment pays $1,900 per year for the first 4 years, $3,800 per year for the next 7 years, and $5,700 per year the following 12 years (all payments are at the end of each year). If the discount rate is 7.70% compounding quarterly, what is the fair price of this investment?

Work with 4 decimal places and round your answer to two decimal places. For example, if your answer is $345.667 round as 345.67 and if your answer is .05718 or 5.718% round as 5.72.

Assuming monetary benefits of an information system at $150 at Year 1, $200 at Year 2, and $250 at Year 3, one-time costs of $200, recurring costs of $50 per year, a discount rate of 7 percent, and a three-year time horizon, please fill in the cost-analysis benefit table below. Please round each value to 2 decimal places (which indicates that you should keep at least 3 decimal places for intermediate calculations). Each blank between (1) and (23) is worth 0.25 point, while blank (24) is worth 0.75 point.

A company is considering a project with the following expected cash flows:

Year 0: -$685,000
Year 1: $305,000
Year 2: $305,000
Year 3: $305,000
The company requires a 15% return on investment. Compute the NPV for the project.

Laura and John qualify for a 6-year car loan with a 9.1% APR or a 3-year car loan with an 7.5% APR. They found a new 2018 Ford Tundra listed at $49,400. Their combined monthly income is $5800 during surf season, but they know that will drop in the winter. They know they shouldn’t pay more than 10% of their income on car payments.

b. Assuming Laura and John will make payments for the entire life of the loan, how much will they pay monthly for each loan option? Are either of these options within 10% of their monthly income?

c. Assuming Laura and John will make payments for the entire life of the loan, how much will they pay in total for each loan option?

COMPSYS is a start-up computer company. This year, the first year of operations, the company expects to reach a Sales Revenue of $750,000. The company expects its sales to grow at a rate of 15% per year. Its Cost of Goods Sold (COGS) is running at 34% of Sales Revenue, and is expected to remain at that rate. Its Selling Costs are 12% of Sales in the first year and are expected to increase by an additional 3% per year after that. Its General and Administrative Costs (including Research and Development) are $410,000 this year, and are scheduled to rise at 4% every year after that. Earnings Before Taxes (EBT) is Sales Revenue less Cost of Goods Sold, Selling Costs, and General and Administrative Costs. Taxes are 25% of Earnings Before Taxes, if the Earnings Before Taxes are greater than zero but less than or equal to $50,000. If earnings are greater than $50,000 per year, then the tax rate is 35%. Use IF statements for computing taxes.

a)        Design and implement a worksheet to make a 5-year income statement projection for COMPSYS starting from this year. First, plan the format and layout of your worksheet areas. You should have separate areas for documenting the spreadsheet, indicating areas of the worksheet, and identifying assumptions with well-labeled separate cells for each of the growth rates and proportional factors. You should have a separate row for each item in the income statement and a separate column for each year. The final row should be for Earnings After Taxes. Use the Fill operation wherever possible.

b)        Calculate the Net Present Value (NPV) of the Earnings After Taxes for the 5 years. Use a Discount Rate of 7%. Provide a label to indicate the results and place the value at the bottom of your worksheet.

c)         Format your spreadsheet in an attractive manner. The first sheet should contain a brief documentation of the software package that you develop. The second sheet should be the EXCEL model. Here, the assumptions (given in the initial paragraph) should be first stated followed by the actual spreadsheet. The third sheet should contain the graphs you generate.

Optional (the following sections: d and e are optional but will be awarded bonus points if completed correctly)

d)        The management feels that the estimate for the first year's Sales Revenue, Cost of Goods Sold, Selling Costs, and General and Administrative Expenses may not be as certain. Since these four items are critical to the success of the operations, the management would like you to perform a sensitivity analysis to see what would the NPV look like when these numbers fluctuate within a range of +/- 20% of the estimate. That is, provide estimates of costs and revenues for this range which should be 80, 85, 90, 95, 100, 105, 110, 115, and 120% of the standard estimates.

(Hint: When you are formulating for these four items, add a certainty factor to the formulas. The certainty factor should not be hardcoded in the formulas. Always keep the input assumptions in a separate area in your worksheet. Use the Create Data Table under Data to perform the sensitivity analysis.)

e)        Produce the following graphs to present to the management:

• Sales and total expenses over the five-year period. Mark where the business starts to make a profit;

• The impact of fluctuations of the initial estimates for the cost of goods sold percentage; sales revenue; and the general and administrative expenses on the NPV.

(Hint: The horizontal axis should be from 80% to 120% of the original estimates, whilst the vertical axis should be the NPV. Remember, the 100% point is your original estimates. The curves for sales, cost of goods sold and the general and administrative expenses should be in the same graph.)

Assume an investor with a 5 year investment horizon is considering purchasing an 8 year semiannual 5% coupon bond that is currently selling at 99. The investor expects to reinvest the coupons at 2% and that the bond will be selling to offer a yield to maturity of 6% in five years. What is the expected total return for this bond? Express your answer on a bond-equivalent basis and on an effective annual rate basis.

Al-bracken Co. began the year with an accounts receivable balance of $78,000, and ended the year with an accounts receivable balance of $54,000. During the year, Al-bracken Co. recorded $445,400 of sales on account. How much cash did Al-bracken Co. collect from its customers during the year?

Elle’s Soap Co. began the year with an accounts payable balance related to inventory purchases of $15,000. The balance in the account at the end of the year was $26,800. During the year, Elle’s Soap Co. purchased $118,000 of inventory on account. How much cash did Elle’s Soap Co. pay for inventory purchases during the year?

Machine 1:

- Saves nothing in year 1
- Save you $2,000 in year 2
- Saves $1,000 in year 3
- Assume 5%

What is the PV of the savings for machine 1?

Machine 2:

- Saves nothing in year 1
- Save you $1,000 in year 2
- Saves $2,000 in year 3
- Assume 5%

What is the PV of the savings for machine 2?

Based on the PV of the savings for each machine, which would you buy?