A company is considering two mutually exclusive expansion plans. Plan A requires a $40 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.39 million per year for 20 years. Plan B requires a $11 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.47 million per year for 20 years. The firm's WACC is 11%.

1. Calculate each project's NPV. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round your answers to two decimal places.

   Plan A:     $   million

   Plan B:     $   million

   Calculate each project's IRR. Round your answers to one decimal place.

   Plan A:       %

   Plan B:       %

2. By graphing the NPV profiles for Plan A and Plan B, determine the crossover rate. Round your answer to the nearest whole number.
     %
   
3. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to one decimal place.
     %
   
4. Is NPV better than IRR for making capital budgeting decisions that add to shareholder value?
   -Select-YesNo

Two positive charges of 2e-10 C are placed on the x axis at distances +40 cm and -40 cm from the origin, respectively. A third positive charge of 3e-11 C can be moved along the y axis. At what value of y the electrostatic force on the third charge is maximal?

Design a muff coupling to connect two shafts transmitting 40 kW at 120 r.p.m. The permissible shear
and crushing stress for the shaft and key material (mild steel) are 30 MPa and 80 MPa respectively.
The material of muff is cast iron with permissible shear stress of 15 MPa. Assume that the maximum
torque transmitted is 25 per cent greater than the mean torque.

Two converging lenses with focal lengths of 40 cm and 20 cm are 10 cm apart. A 3.0 cm -tall object is 15 cm in front of the 40 cm -focal-length lens. Calculate the image height.

QUESTION TWO ( 2 )

Attempt All

1. Merlo, Inc. maintains a debt-equity ratio of .40 and follows a residual dividend policy. The company has after-tax earnings of $1,600 for the year and needs $1,400 for new investments. What is the total amount Merlo will pay out in dividends this year?    (   3 Marks )

2. You recently purchased a stock that is expected to earn 12 % in a booming economy, 8 % in a normal economy and lose 5 % in a recessionary economy. There is a 15 % probability of a boom, a 75 % chance of a normal economy, and a 10 % chance of a recession. What is your expected rate of return on this stock?    (   3   Marks )

3. Shares are currently selling for $4.4625. At the beginning of the year you bought them for $4.25 and during the year a dividend of 21.25 cents per share was paid. What is the return? (   3 Marks )

4. Which one of the following stocks is correctly priced if the risk-free rate of return is 2.5 percent and the market risk premium is 8 percent? (   3 Marks   )

5. Using the following information, calculate the portfolio beta and expected return:

(   3 Marks )

Consider Cardano's problem of finding two numbers whose sum is 10 and whose product is 40.

a) Cardano knew beforehand that no such (real) numbers existed. How did he know? Can you prove it?

b) Solve the system of equations x+y=10 and xy=40 to find Cardano's complex solution.

c) Check that this solution does work-that is, thatb the sum of your complex numbers is 10 and that their product is 40.

Given a result of t (40) = 1.90 for a two-tailed paired samples t-test, answer the following: 10) What is the sample size? 11) What is the tcv? 12) What is the tobt? 13) What should the researcher conclude (accept or reject the null)?

You have an income of $40 to spend on two goods. Good 1 costs $10 per unit, and Good 2 costs $5 per unit.

1. Write down your budget equation

2. If you spent all your income on good 1, how much could you buy?

3. If you spent all your income on good 2, how much could you buy?

4. Draw a budget line in a graph, with good 1 on the x-axis and good 2 on the y-axis.

5. Suppose the price of good 1 falls to $5 while everything else stays the same. Write down your new budget equation. On the graph above, draw your new budget line.

6. Suppose the amount you are allowed to spend falls to $30, while the prices of both goods remain at $5. Write down your budget equation. Draw this budget line on the same graph. Label each line.

7. On your diagram, shade in the area representing good bundles that you can afford with the budget in part 6), but could not afford in part 1). Use another color of ink to shade the area that you could afford with budget in part 1) bud cannot afford with budget in part 6). Label the area properly

1. A consumer buys only two goods x and y, with income, I =$40. Price of y = $2.

In the following problems you are asked to draw the budget lines for the consumer under different situations using Excel. Note the equation of the budget line is given by P_xx+P_yy=I

In order to draw the budget line, first create a column of values of x. Then using the equation of the budget line, create a column of corresponding values of y. (You need to create a formula to get the values of y using prices of x and y, the amount of x that you used in the previous column and the value of income. Copy that formula as needed to create the column of y.) Finally, using Excel’s chart option draw a line diagram for the budget line with x in the horizontal axis and y in the vertical axis.

(a) Initial Budget Line.

P_x=$4 Plot x =0,1,2,3…..10. Draw the budget line, BL₁.

(b) Price Discount for Bulk Purchase.

P_x=$4 After the consumer buys 5 units of x, he/she can buy every additional unit of x at a price of $2. Consider x=0,1,2,3…..15. Draw the new budget line, BL₂.

(c) BOGO—Buy One Get One Free.

P_x=$4 If the consumer buys one unit of x, he/she gets one unit of x free. But there is a limit. The consumer can have only one unit of x free of cost. Consider x =0,1,2,3….11. Draw the new budget line BL₃.

(d) Cash Subsidy or Voucher.

(i) Cash Subsidy P_x=$4 . Suppose x is food and y is gasoline. In order to help the consumer the government gives the consumer a cash subsidy of $20 that he/she can use towards purchase of x and/or y. So the consumer’s effective income is $60. Consider x=0,1,2,3….15. Plot the new budget line BL₄. In the same diagram copy BL₁ from part (a). Label each budget line.

(ii) Voucher (Food Stamps).P_x=$4 Suppose that instead of a cash subsidy that can be used for both food and gasoline, the government gives the consumer $20 worth of food stamps that the consumer can use only towards the purchase of food. Consider, x =0,1,2,3….15. Draw the new budget line, BL₅ in the same diagram as in d (i) that includes both BL₁ and BL₄. Label all budget lines.

(Hint: It may be useful to add a column that includes the dollar amount of voucher used, which ranges between 0 to 20.)

A company is considering two mutually exclusive expansion plans. Plan A requires a $40 million expenditure on a large-scale integrated plant that would provide expected cash flows of $6.39 million per year for 20 years. Plan B requires a $13 million expenditure to build a somewhat less efficient, more labor-intensive plant with an expected cash flow of $2.91 million per year for 20 years. The firm's WACC is 9%.

A. Calculate each project's NPV. Round your answers to two decimal places. Do not round your intermediate calculations. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. ////Plan A: $ ____ million / Plan B: $ ____ million

B. Calculate each project's IRR. Round your answer to two decimal places. / Plan A: ____ % / Plan B: ____ %

C. By graphing the NPV profiles for Plan A and Plan B, approximate the crossover rate to the nearest percent. ____ %

D. Calculate the crossover rate where the two projects' NPVs are equal. Round your answer to two decimal places. / ____ %

E. Why is NPV better than IRR for making capital budgeting decisions that add to shareholder value? / ______