Net Present Value-Unequal Lives

Al a Mode, Inc., is considering one of two investment options. Option 1 is a $26,000 investment in new blending equipment that is expected to produce equal annual cash flows of $8,000 for each of seven years. Option 2 is a $27,000 investment in a new computer system that is expected to produce equal annual cash flows of $10,000 for each of five years. The residual value of the blending equipment at the end of the fifth year is estimated to be $5,000. The computer system has no expected residual value at the end of the fifth year.

Assume there is sufficient capital to fund only one of the projects. Determine which project should be selected, comparing the (a) net present values and (b) present value indices of the two projects, assuming a minimum rate of return of 10%. Use the present value tables appearing above.

a. Determine the net present values of the two projects.

b. Determine the present value indices of the two projects. If required, round the present value index to two decimal places.

Which project should be selected? (If both present value indices are the same, either project will grade as correct.)
SelectBlending EquipmentComputer SystemItem 9

Net Present Value—Unequal Lives Daisy's Creamery Inc. is considering one of two investment options. Option 1 is a $75,000 investment in new blending equipment that is expected to produce equal annual cash flows of $19,000 for each of seven years. Option 2 is a $90,000 investment in a new computer system that is expected to produce equal annual cash flows of $27,000 for each of five years. The residual value of the blending equipment at the end of the fifth year is estimated to be $15,000. The computer system has no expected residual value at the end of the fifth year. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 Assume there is sufficient capital to fund only one of the projects. Determine which project should be selected, computing the (a) net present values and (b) present value indexes of the two projects. Assume a minimum rate of return of 10%. Use the present value tables appearing above. a. Determine the net present values of the two projects. Blending Equipment Computer System Total present value of cash flows $ $ Less amount to be invested Net present value $ $ b. Determine the present value indexes of the two projects. If required, round the present value index to two decimal places. Present Value Index Blending Equipment Computer System Which project should be selected? Computer System

Net Present Value-Unequal Lives

Daisy’s Creamery Inc. is considering one of two investment options. Option 1 is a $69,000 investment in new blending equipment that is expected to produce equal annual cash flows of $21,000 for each of seven years. Option 2 is a $79,000 investment in a new computer system that is expected to produce equal annual cash flows of $27,000 for each of five years. The residual value of the blending equipment at the end of the fifth year is estimated to be $14,000. The computer system has no expected residual value at the end of the fifth year.

Assume there is sufficient capital to fund only one of the projects. Determine which project should be selected, comparing the (a) net present values and (b) present value indices of the two projects, assuming a minimum rate of return of 12%. Use the present value tables appearing above.

a. Determine the net present values of the two projects.

b. Determine the present value indices of the two projects. If required, round the present value index to two decimal places.

Which project should be selected? (If both present value indices are the same, either project will grade as correct.)

1. The amount of money spent by a customer at a discount store has a mean of $100 and a standard deviation of $30. What is the probability that a randomly selected group of 50 shoppers will spend a total of more than $5700? (Hint: The total will be more than $5700 when the sample average exceeds what value?) (Round the answer to four decimal places.)
P(total > 5700) =  

2. Five students visiting the student health center for a free dental examination during National Dental Hygiene Month were asked how many months had passed since their last visit to a dentist. Their responses were as follows.

Assuming that these five students can be considered a random sample of all students participating in the free checkup program, construct a 95% confidence interval for the mean number of months elapsed since the last visit to a dentist for the population of students participating in the program. (Give the answer to two decimal places.)

3.

In a study investigating the effect of car speed on accident severity, 5,000 reports of fatal automobile accidents were examined, and the vehicle speed at impact was recorded for each one. For these 5,000 accidents, the average speed was 47 mph and the standard deviation was 16 mph. A histogram revealed that the vehicle speed at impact distribution was approximately normal. (Use the Empirical Rule.)

(a)

Approximately what percentage of vehicle speeds were between 31 and 63 mph?

approximately  %

(b)

Approximately what percentage of vehicle speeds exceeded 63 mph? (Round your answer to the nearest whole number.)

approximately  %

4.

The average reading speed of students completing a speed-reading course is 400 words per minute (wpm). If the standard deviation is 40 wpm, find the z score associated with each of the following reading speeds. (Round the answers to two decimal places.)

Henrietta’s Pine Bakery

Background

You are an Analyst for the professional service firm, FINACC LLP. Your firm specializes in providing a wide variety of internal business solutions for different clients. Given the outstanding feedback you received on your first engagement working for Big Spenders Inc., a Senior Manager in the Financial Advisory group requested your support on a compilation engagement.

Additional Information

Henrietta’s was established in 1963 when it first opened its doors in Dwight, Muskoka on highway 60. Over the past 50 years, there have been four owners and is currently owned by Carine & Geoff Harris who incorporated and took over the store on January 1, 2013. Their sons, Kyle and Nicholas have been an intricate part of the business from dishwashing to head bakers. Henrietta's has grown over the years with the addition of new items all the time, but the "Sticky Buns and Clouds" remain the most popular items amongst the 150 varieties of breads and pastries.

Henrietta’s runs out of 90 square meters (1,000 share feet) of space. It has one entrance into the bakery and doors leading out to highway 60. Henrietta’s pays $5,000 per month for the rental of the space. Carine and Geoff were able to negotiate with the landlord and were not required to pay the first month’s rent in advance. All of the rental payments are current and up to date. For the last two years, Henrietta’s has had a very reliable accountant prepare its year-end financial statements and everything has been correct. This year, Henrietta’s accountant retired and Geoff did the best he could recording his own financial information. For the information he was not sure about, he kept all of the required supporting documentation. Geoff hired your firm, FINACC LLP to prepare his financial statements for the year. Geoff supplied you with his unadjusted trial balance and the information in Exhibit I to assist you.

Supplementary Information

·    The amount currently sitting in prepaids arose due the insurance policy last year. Geoff didn’t know how to correct it, so he left it. This year’s insurance policy was purchased on November 1 for $9,000. The policy runs from November 1 to October 31 of each year.

·    Geoff has a note that he owed $900 in wages to his employees for the period ending December 31st.

·    The loan was incurred when the bakery was opened. The loan carried an interest rate of 8%. The interest is payable two months after year end and the principal is due in 2019.

·    Henrietta’s will sometimes book special events with small organizations that are allowed to pay after the event has taken place. On December 29th, a small company had a gathering at the bakery. The company was billed $1,089 and has 30 days to pay it. Geoff has not yet recorded this in his financial records.

·    Henrietta’s declared a dividend of $5,000 on December 30th.

·    Geoff didn’t know how to record amortization for the year and so left it for you to record. Amortization for all assets is charged using a straight-line method by taking the cost of the asset and dividing it by its expected useful life. The assets have expected useful lives as follows:

o    Computer: 5 years

o    Bakery equipment: 10 years

o    Furniture and fixtures: 20 years

·    The information shows that Henrietta’s owes $400 for a telephone bill and $400 for electricity for December. These amounts have not been recorded yet.

Exhibit I

Henrietta’s Pine Bakery

Unadjusted Trial Balance

December 31, 2015

Based on the information you have  prepare the closing journal entries and the posting closing trial balance. Ensure you show all of your work, and prepare proper journal entries and properly formatted financial statements.

What is value of standard deviation of the 3-year moving average of Germany’s GDP from 1951 to 1982? (Note: You should compare this value with the standard deviation of the original German GDP time series).

a. 4.24 b. 4.33 c. 4.41 d. 4.56 e. 4.69

no explanation required
Question 5

A researcher increases his level of confidence from 90% to 95%. What will happen to the precision of his estimate?

Select one:

a. It depends on the size of the population.

b. The estimate will be less precise.

c. The estimate will be more precise.

d. The precision of his estimate will not change.

Q 6

Question 6

A researcher reports the following result for a two-tailed one-sample test at a .05 level of significance, t(30) = 2.020, and correctly decides to fail to reject the null hypothesis.

Select one:

True

False

Q 7

Question 7

If the value stated by a null hypothesis is ______ the confidence interval, then the decision would likely be to reject the null hypothesis.

Select one:

a. inside

b. outside

Q 8

Question 8

A therapist has a goal to reduce the mean number of patient symptoms expressed for a particular disorder to two symptoms per day. Following therapy, she determines that the z-score for two symptoms per day is 0. Assuming the data are normally distributed, did she reach her goal?

Select one:

a. No, because the z-score is not negative (indicating a reduction in symptoms).

b. No, because the z-score indicates 0 improvement.

c. Yes, because a z-score of 0 is the average, or mean.

d. Yes; in fact, she actually reduced the mean number of symptoms to 0.

Problem 21-05

Given the following, determine the firm’s optimal capital structure:
Debt/Assets   After-Tax Cost of Debt   Cost of Equity
0   %   6   %   11   %
10       6       11  
20       7       11  
30       7       12  
40       9       14  
50       10       15  
60       12       16  
Round your answers for capital structure to the nearest whole number and for the cost of capital to one decimal place.

The optimal capital structure:
% debt and
% equity with a cost of capital of
%

If the firm were using 60 percent debt and 40 percent equity, what would that tell you about the firm’s use of financial leverage? Round your answer for the cost of capital to one decimal place.
If the firm uses 60% debt financing, it would be using financial leverage. At that combination the cost of capital is
%. The firm could lower the cost of capital by substituting .

What two reasons explain why debt is cheaper than equity?
Debt is cheaper than equity because interest expense . In addition, equity investors bear risk.

If the firm were using 20 percent debt and 80 percent equity and earned a return of 9.5 percent on an investment, would this mean that stockholders would receive less than their required return of 11.0 percent?
If the firm earns 9.5% on an investment, the stockholders will earn than their required 11.0%.

What return would stockholders receive? Round your answer to one decimal place.

%

5. 6) I am interested in the amount of $ my friends win or lose while playing blackjack at the casinos. So I go out and collect a sample of data an obtain the following distribution of data (negative numbers mean $ was lost)
   -13, -12, -8, -4, -3, 0, 2, 4, 6, 8, 12,14

   1. What is the Range? (2pts)

   2. What is the Mean? (3pts)

   3. What is the Median? (3pts)

   4. What is the standard deviation of your sample ‘s’ (6pts)

   5. Sketch an informative error-bar chart showing the mean with error

      bars showing one standard deviation away from the mean (5pts)

   6. What are the two Quartiles (3pts)

   7. What is the 5-number summary? (3pts)

   8. What is the Interquartile Range? (3pts)

6. According to the 1.5*IQR rule, are there any potential outliers? (10pts)

7. Sketch an informative Box Plot of the distribution. (5pts)

A 50-year-old male arrived at the ED via ambulance after c/o chest pain 8/10 while at work. The medics treated him with? 2 sprays of SL nitro with relief. He is pain free in the ED BP 104/64, HR 88, RR 22, SPO2 94% on RA, T 37.5 PMHX: HTN, High Cholesterol, married with three daughter and two sons, drinks alcohol socially. Father MI 5 years ago, high cholesterol and mother DM: Type 2 and HTN He is placed on the cardiac monitor and a? is obtained. He says” the pain has been on and off for two days, but today it seems the worse”. While he is being assessed he redevelops CP 7/10 and he tells you “ the pain is worst than before”. He is diaphoretic, pale, SOB, and appears anxious. VS are BP 100/40, HR 100, RR 26, SPO2 88% on RA, T 36. He is reconnected to the cardiac monitor and it shows ST Elevation in the inferior leads. A few minutes after complaining of chest pain he suddenly collapses and is pulseless What are the priority nursing interventions? What are the Testing, Diagnostic and Treatment?