The Ajax Manufacturing Company is selling in a purely competitive market. Its output is 100 units, which sell at $4 each. At this level of output, total cost is $600, total fixed cost is $100, and marginal cost is $4. The firm should

A purely competitive seller should produce (rather than shut down) in the short run

You just got hired at a brand new hospital as a financial analyst and the Board wants to buy an MRI machine but they are unsure if this makes financial sense. You gather some figures so you can make an informed decision to present to the Board. (questions 40-44) Use CF’s given, no further calculation has to be done for CF’s.

Cost of the MRI machine 1.5 million

Salvage value after 5 years 50k

Working capital to hire an operator 200k only initially and not recoverable.

CF yr 1-3 400k

CF yr 4-5 300k

The hospital currently has no common stock or preferred stock or debt in their capital structure as it was funded with a 25 million dollar gift from Bill Gates. The machine is to be financed with a 5%, 5 year loan. Interest is tax deductible and the tax rate is 30%. ANSWERS IN EXCEL PLEASE

40. The IRR on this MRI machine is:

1. 4%
2. 3%
3. 7.7%
4. 6.8%

41. T/F Based on the IRR decision criteria we should accept this project

42. Based on the NPV analysis what should you recommend to the board

a. Do not recommend as it will take away 89k of value

b. Recommend as it will add 135k in value

c. Recommend as it will add 177k in value

d. Do not recommend as it will take away 23k of value

43. Assume now that the hospital was financed with 60% debt and 40% equity. The cost of debt is 6% and taxes are 20%, while the risk free rate is 3%, beta is .8 and the return of the market is 9%. If cash flow in years 1-3 are now assumed to increase to 500k instead of 400k, what would you recommend to the board?

a. Yes as it adds 136k in value

b. Yes as it adds 98k in value

c. no as the IRR<WACC

d. Yes as it adds 100k in value

44. T/F the payback under the original MRI assumptions is 4.67 years

You just got hired at a brand new hospital as a financial analyst and the Board wants to buy an MRI machine but they are unsure if this makes financial sense. You gather some figures so you can make an informed decision to present to the Board. (questions 40-44) Use CF’s given, no further calculation has to be done for CF’s.

Cost of the MRI machine 1.5 million

Salvage value after 5 years 50k

Working capital to hire an operator 200k only initially and not recoverable.

CF yr 1-3 400k

CF yr 4-5 300k

The hospital currently has no common stock or preferred stock or debt in their capital structure as it was funded with a 25 million dollar gift from Bill Gates. The machine is to be financed with a 5%, 5 year loan. Interest is tax deductible and the tax rate is 30%.

40. The IRR on this MRI machine is:

1. 4%
2. 3%
3. 7.7%
4. 6.8%

41. T/F Based on the IRR decision criteria we should accept this project

42. Based on the NPV analysis what should you recommend to the board

a. Do not recommend as it will take away 89k of value

b. Recommend as it will add 135k in value

c. Recommend as it will add 177k in value

d. Do not recommend as it will take away 23k of value

43. Assume now that the hospital was financed with 60% debt and 40% equity. The cost of debt is 6% and taxes are 20%, while the risk free rate is 3%, beta is .8 and the return of the market is 9%. If cash flow in years 1-3 are now assumed to increase to 500k instead of 400k, what would you recommend to the board?

a. Yes as it adds 136k in value

b. Yes as it adds 98k in value

c. no as the IRR

d. Yes as it adds 100k in value

44. T/F the payback under the original MRI assumptions is 4.67 years

A Sheraton Hotel bond has a par value of $1,000, and has a coupon rate of 7.25%. The coupon in paid monthly. The investor's rate of return is 9%. The bond will mature in 12 years, and the investor is planning to keep this bond until maturity. Based on this information, the value of this bond is equal to:

A. $817.85

B. $871.85

C. $858.71

D. $885.71

Peter Morgan sells pigeon pies from his pushcart in Central Park. Due to the abundant supplies of raw materials, his costs are zero. The demand schedule for his pigeon pies is p(y) =80-y/4 . What level of output will maximize Peter’s profits?

1. 164

2. 480

3. 32

4. 320

5. None of the above

You are camping in Glacier National Park. In the midst of a glacier canyon, you make a loud holler. You hear an echo 1.22 seconds later. A. How far away are the canyon walls if you assume that the speed of sound in air is 343m/s? B. If the temp of the air drops significantly, what would happen to the speed of the sound in the air?

Ada Hotel Group has set up a pension fund for employee benefits. The company plans to put $50,000 in the fund at the end of each quarter. If this is a 20-year fund that earns 6.4% annual interest compounded quarterly, what would be fund balance at the end of 20 years?

a. $7,459,234.56

b. $9,268,201.30

c. $8,001,194.75

d. $10,238,430.10

14. The health of the adult dinosaur population in Jurassic Park is monitored by periodic measurements from drugged and sleeping animals. A sample of 54 dinosaurs has mean height of 182.9 in. Assuming that “sigma” is known to be 121.8 in., use a 0.05 significance level to test the claim that the population mean of all such dinosaur heights should be greater than 150 in.