1. Project A cost $1,050 and Project B cost $1,050, there expected net cash inflows are shown on the timeline below and there WACC is 9.00%. What is the Discounted Payback for Project A?

  WACC 9.00%

                   0              1              2               3              4

                   l                l               l                l               l        

ProjA    -$1,050       $675        $650

ProjB   -$1,050    $360        $360        $360        $360

1. Project A cost $1,000 and Project B cost $1,000, there expected net cash inflows are shown on the timeline below and there WACC is 10.00%. What is Project B's Modified Internal Rate of Return (MIRR)?

WACC 10.00%

                      0              1              2               3              4

                        l              l               l                l                l   

ProjA      -$1,000         $675       $650

ProjB   -$1,000       $1,000   $700        $50           $50

1. Project A cost $1,050 and Project B cost $1,050, there expected net cash inflows are shown on the timeline below and there WACC is 10.00%. What is Project A's Modified Internal Rate of Return (MIRR)?

WACC 10.00%

                      0              1              2               3              4

                        l              l               l                l                l   

ProjA      -$1,050         $675       $650

ProjB   -$1,050         $360   $360         $360        $360

A company manufacturing toys has a fixed cost of $60,000. Variable cost is 6 per toy.

Selling price is $10 per toy. Company target profit is $100,000.

The company found that its variable cost is going to increase by $1.5 and plans to raise its selling price by $3 and reduced the fixed costs by $20,000.

1. How many more (less) toys must be sold at the new price to reach the target profit of $100,000?

2. What is the markup (profit margin %) on sales price at this new sales volume? What is the markup (profit margin %) on total cost?

1. Cost Information and FIFO

   Gunnison Company had the following equivalent units schedule and cost information for its Sewing Department for the month of December:

   	Direct Materials		Conversion Costs
   Units started and completed	45,000		45,000
   Add: Units in beginning work in process ×
   Percentage complete:
   7,000 × 0% direct materials	—
   7,000 × 50% conversion Costs			3,500
   Add: Units in ending work in process ×
   Percentage complete:
   12,000 × 100% direct materials	12,000		—
   12,000 × 35% conversion Costs	—		4,200
   Equivalent units of output	57,000		52,700
   Costs:
   Work in process, December 1:
   Direct Material			$91,000
   Conversion Costs			21,000
   Total work in process			$112,000
   Current costs:
   Direct Material			$798,000
   Conversion Costs			263,500
   Total current costs			$1,061,500

   Required:

   1. Calculate the unit cost for December, using the FIFO method.
   $ per equivalent unit

   2. Calculate the cost of goods transferred out, calculate the cost of EWIP, and reconcile the costs assigned with the costs to account for.

   Cost of goods transferred out	$
   Cost of EWIP	$

   Cost to account for:
   BWIP	$
   Current (December)
   Total	$

   3. What if you were asked for the unit cost from the month of November? Calculate November's unit cost.
   $ per equivalent unit

Tybee Industries Inc. uses a job order cost system

A type of cost accounting system that provides for a separate record of the cost of each particular quantity of product that passes through the factory.

. The following data summarize the operations related to production for January, the first month of operations:

Question 5.

The Rubio’s Fantastic Cs is a medium-size, Los Angeles based company that has been in business for the last ten years. It specializes in manufacturing the air conditioners. Over the last two years, the Rubio’s has spent $20,000 developing a new energy efficient and eco-friendly air conditioner called EcoStar.

Suppose you are a financial consultant advising the Rubio’s on whether to build a new plant in San Diego that will manufacture the EcoStar. The current date is December 31, 2017. The plant will be built over the two years and will be ready to start production on January 1, 2020. The plant is expected to operate only for the two years and so it will cease production on December 31, 2021. The investment for the plant requires an outlay of $10 million to be paid at the end of 2017 year. The IRS rules prescribe that this expenditure is depreciated using the straight-line depreciation schedule (to 0$) over five years as soon as the plant starts producing. The plant is expected to be reselled for $5 million on December 31, 2021. The plant will be built on the land that could be rented out for $375,000 a year.

To launch the manufacture of the EcoStar, the firm would also need to acquire new equipment. The equipment will cost $1 million to be paid at the end of 2019 year and will be depreciated using the straight line depreciation over the two years the plant is manufacturing the EcoStar. After two-years of the manufacture the equipment has no salvage value.

The Fabio’s new plant will produce 100,000 air conditioners a year. The EcoStar air conditioner can be sold at $500 per unit. Raw materials costs are $220 per unit and total labor costs are $500,000 a year. These revenues and costs are expected to be the same for the two year the plant is producing.

The working capital required on December 31, 2019 to allow inventories to be financed during the first year of productions is $100,000. Working capital needs for the second year will be $200,000. When the plant ceases manufacture all the working capital will be recovered (i.e. working capital equals $0 on December 31, 2021).

The Rubio’s Fantastic Cs has a corporate tax rate of 20% and other profitable ongoing operations. The opportunity cost of capital for this kind of project is 10%.

For all questions state your solution in millions of dollars (i.e. instead of writing $1,000,000 write $1m).

Part (a) What are the depreciation tax shields associated with the purchase of new equipment?

Year     Depreciation Schedule    Depreciation Amount   Depreciation Tax Shields

Part (b)

What are the depreciation tax shields associated with the new plant?

Year     Depreciation Proportion Depreciation Amount   Depreciation Tax Shields

Part(c)

What is the book value of the equipment and plant in every year?

Part (d)

What is the capital gain tax (capital loss tax credit) that the firm incurs on December 31, 2021 when selling the plant?

Part (e)

What is the plant’s salvage value (net of taxes)?

Part (f)

What are the firm’s NOPAT in every year if the firm builds the plant and starts manufacturing the EcoStar? First, give the answers to the following questions and then fill in the table.

1. What are the firm’s revenues in the first year of production?
2. What are the firm’s costs in the first year of production (excluding depreciation)?
3. What is the firm’s EBIT (earnings before interest and tax) in the the first year of production?
4. What is the firm’s income taxes in the first year of production?
5. What is the firm’s NOPAT (net operating profit after tax) in the first year of production?

Part (g)

What is the level of NWC (net working capital) required for the EcoStar manufacture in every year?

Part (h)

What are the free cash flows of the firm in every year that the firm manufactures the EcoStar?

26. The graphical relationship among interest rates on bonds with identical default risk but different maturities is called the
    A. risk structure of interest rates.
    B. liquidity structure of interest rates.

    C. yield curve.
    D. bond demand curve.

27. Compared to interest rates on long-term U.S. government bonds, interest rates on three-month Treasury bills fluctuate ________ and are ________ on average.
    A. more; lower
    B. less; lower

    C. more; higher D. less; higher

28. The term structure of interest rates is

    1. the relationship among interest rates of different bonds with the same risk and

       maturity.

    2. the structure of how interest rates of the same maturity move over time.

    3. the relationship among the terms to maturity of different bonds from different

       types of issuers (municipal, corporate, treasury, etc.)

    4. the relationship among interest rates on bonds with different maturities but

       similar credit and liquidity risk.

29. Which of the following bonds usually trades at the highest market interest rate? A. 1 year C U.S. Treasury bonds
    B. 5 year U.S. Treasury bonds
    C. 10 year U.S. Treasury bonds

    D. 30 year U.S. Treasury bonds

30. According to the expectations theory of the term structure,

    1. when the yield curve is steeply upward-sloping, short-term interest rates are

       expected to rise in the future.

    2. when the yield curve is downward-sloping, short-term interest rates are expected

       to decline in the future.

    3. buyers of bonds prefer short-term to long-term bonds.

    4. all of the above.

    5. only A and B of the above.

31. The market consensus of the expected path of one-year interest rates over the next four years is:

    5% in Year 1 (current 1 year rate) 4% in Year 2
    2% in Year 3
    1% in Year 4

    Considering this projection, what would the current yield of the current bond maturing in four-years be under the pure expectations theory?
    A. 2 percent.
    B. 3 percent.

    C. 4 percent. D. 5 percent. E. 6 percent.

32. The current market interest rate of a 4 year bond is 9% and the forecasted path of 1- year interest rates over the next 3 years is:

    6% in Year 1 (current 1 year rate) 7% in Year 2
    8% in Year 3

    Considering this projection, what would the projected 1-year rate be 3 years from today (the fourth year of the rate forecast above) under the pure expectations theory?
    A. 7%
    B. 7.25%

    C. 15%
    D. 15.25%

33. According to the market segmentation theory of the term structure,

    1. the interest rate for bonds of one maturity is determined by the supply and

       demand for bonds of that maturity.

    2. bonds of one maturity are not substitutes for bonds of other maturities;

       therefore, interest rates on bonds of different maturities do not move together

       over time.

    3. investors' strong preference for short-term relative to long-term bonds explains

       why yield curves typically slope upward.

    4. all of the above.

    5. none of the above.

34. The liquidity premium theory of the term structure

    1. indicates that today's long-term interest rate equals the average of short-term

       interest rates that people expect to occur over the life of the long-term bond.

    2. assumes that bonds of different maturities are perfect substitutes.

    3. suggests that markets for bonds of different maturities are completely separate

       because people have different preferences.

    4. none of the above.

35. Under the _____________________ a flat yield curve is an indication that the market is expecting short term rates to __________ in the future.
    A. Liquidity Premium Theory | decrease
    B. Liquidity Premium Theory | stay the same

    C. Pure Expectations Theory | decrease
    D. Pure Expectations Theory | stay the same E. AandC
    F. AandD
    G. BandC
    I. BandD

36. If the yield curve has a mild upward slope, the liquidity premium theory indicates that the market is predicting

    1. a rise in short-term interest rates in the near future and a decline further out in

       the future.

    2. constant short-term interest rates in the near future and further out in the

       future.

    3. a decline in short-term interest rates in the near future and a rise further out in

       the future.

    4. a decline in short-term interest rates in the near future and an even steeper

       decline further out in the future.

37. Which theory of the term structure proposes that bonds of different maturities are not substitutes for one another?
    A. market segmentation theory
    B. expectations theory

    C. liquidity premium theory D. separable markets theory

38. Since yield curves are usually upward sloping, the ______________ indicates that, on average, people tend to prefer holding short-term bonds to long-term bonds.
    A. market segmentation theory
    B. expectations theory

    C. liquidity premium theory D. both A and B of the above E. both A and C of the above

Bob Jensen Inc. purchased a $480,000 machine to manufacture specialty taps for electrical equipment. Jensen expects to sell all it can manufacture in the next 10 years. To encourage capital investments, the government has exempted taxes on profits from new investments. This legislation is to be in effect for the foreseeable future. The machine is expected to have a 10-year useful life with no salvage value. Jensen uses straight-line depreciation. Jensen uses a 8% discount rate in evaluating capital investments, the investment is subject to taxes, and the projected pretax operating cash inflows are as follows:

Jensen has been paying 25% for combined federal, state, and local income taxes, a rate that is not expected to change during the period of this investment. The firm uses MACRS depreciation. The asset qualifies as a 5-year property. (Use Exhibit 12.4)

Required:

Compute the following for the proposed investment:

1. Its payback period (in years) under the assumption that the cash inflows occur evenly throughout the year. (Do not round intermediate calculations. Round your final answer to 1 decimal place.)

2. Its accounting (book) rate of return based on (a) the initial investment, and (b) an average investment (calculated here as a simple average of the 10 average annual book values; for each year, the average book value is the sum of the beginning-of-year and end-of-year book value, divided by two; note: the average book value for each of the last four years is $0). (Round your final answers to 1 decimal place.)

3. Its estimated net present value (NPV). Use the built-in NPV function in Excel. (Round your final answer to nearest whole dollar amount.)

4. Its internal rate of return (IRR). Use the built-in IRR function in Excel. (Round your final answer to 1 decimal place.)

5. Its modified internal rate of return (MIRR). (Round your answer to 1 decimal place.) (In conjunction with this question, you might want to consult either of the following two references: MIRR Function and/or IRR in Excel.)

This is the Matlab practice so needs Matlab code
2. Numerical Integration
Consider an industrial tank in the shape of an inverted cone. The radius of the tank at the top rim is 3 m, and the total height of the tank is 4 m.
The volume of the tank in m3 is given by: V = (1/3) R2 H.
The volume of liquid in the tank when filled to a height h measured from the bottom vertex is:
V = (1/3)pi* (R/H)2 h3
The Lab will consist of a single script, divided in two parts. In each part, the filling schedule will be different. A filling schedule is a function that provides flow rate, in m3 / h, as a function of time.
In Part I, your script will calculate the level of the liquid, h, after a two-hour filling schedule is completed. The filling schedule for Part I, Schedule I, is as follows:
During the first 30 minutes, the flow rate will increase linearly from zero to 10 m3 / h
During the following 60 minutes, the flow rate will stay constant at 10 m3 / h
During the last 30 minutes, the flow rate will decrease linearly from 10 m3 / h down to zero
In Part II, your script will calculate the time it takes to completely fill the tank with a different filling schedule, Schedule II, given by the equation:
Flow Rate (m3 / h) = 10 (1 - e-2t ) m3 / h
where t is time in hours, and the exponent, 2t, is dimensionless
Part I:
The volume of liquid calculated in Part I, from which the height of the liquid in the tank will be calculated, should be obtained by using the built-in function to integrate polynomials, polyint( )
Part I generates a single output to the console: "The height of the liquid after Schedule I is ____ meters."
Part II:
In Part II, your script first defines Schedule II as an anonymous function
In Part II your script calculates the volume at a given time by integrating Schedule II using the built-in function quad( )
For Option A, it is acceptable to use a loop to find the time at which the tank gets completely full. If you will use an iterative approach, check the tank volume in 0.01 hour steps
Part II generates a single output to the console: "The time required to fill up the tank with Schedule II is ____ hours."