Norister Inc. is considering introducing a new product line. This will require the purchase of new fixed assets of $2.4 million. The company estimates that demand for the new product will be approximately 15,000 units per year, with a price per unit of $100. The variable cost of producing each unit of the product is $35, and fixed costs per year will be $100,000. Demand for the product will remain constant for six years, after which both demand and production will cease, and the associated fixed assets will have no salvage value. Depreciation on the fixed assets will be straight-line to zero. The company’s marginal tax rate is 35%, and the required return on the project is 13%. How will the after-tax operating cash flow (ATOCF) change if the number of units sold is 10% less than the projected demand of 15,000 units?

Select one:

a. ATOCF will increase by 10%.

b. ATOCF will decrease by 10%.

c. ATOCF will increase by 8.94%.

d. ATOCF will decrease by 8.94%.

e. ATOCF will remain unchanged.

Norister Inc. is considering introducing a new product line. This will require the purchase of new fixed assets of $2.4 million. The company estimates that demand for the new product will be approximately 15,000 units per year, with a price per unit of $100. The variable cost of producing each unit of the product is $35, and fixed costs per year will be $100,000. Demand for the product will remain constant for six years, after which both demand and production will cease, and the associated fixed assets will have no salvage value. Depreciation on the fixed assets will be straight-line to zero. The company’s marginal tax rate is 35%, and the required return on the project is 13%. Due to forecasting risk, the company estimates that price per unit, variable cost, fixed costs, and quantity sold could vary by ±10%, ±15%, ±5%, and ±10%, respectively. What is the project’s net present value in the worst case scenario?

Select one:

a. -$656,606

b. -$543,413

c. -$368,020

d. -$103,677

e. $43,502

A small biotech company develops a new treatment for a rare disease. The new treatment is patented and the company is the sole monopolist in its market. The company can sell the treatment to private pharmacies and public hospitals. Pharmacies’ demand for the treatment is QPD = 84 – 0.4PP while public hospitals’ demand for the treatment is QHD = 116 – 0.6PH. The marginal cost of the new treatment is MC = 20 +2Q.

The legislature passes a new Health Costs Relief Act (HCRA) that allows biotech companies to price discriminate.

a) Once the law is enacted, does the biotech company charge the same price to pharmacies and to hospitals? Why?

b) How many doses does the company sell to hospitals? How many does it sell to pharmacies?

c) What price do hospitals pay for a dose of the new treatment? What price do pharmacies pay for a dose of the new treatment?

d) Who gains and who looses from the enactment of the HCRA?

Firm XYZ is considering a project to built a new facility to install a new production line. The firm requires a minimum return of 10% in this project, due to the risks involved. The firm is a 34% tax bracket. Sales, revenues and costs details are given in the table below:

Estimate the CCFA for the next 5 years of operation

Using the NPV and IRR decision methods, decide if the firm should take the project

A Bakery is considering the purchase of a new $18,600 donut making machine. The new machine would permit the company to reduce the amount of part-time help needed, to a cost saving of $3,800 per year. In addition, the new machine would allow the company to produce a new type of donut, which would replace one existing type, resulting in the sale of 1,000 donuts with an additional $1.2 in revenue per donut. The new machine would have a 6-year life and will depreciated straight line. The salvage value at the end of year 6 is $9,125. The cost of capital is 12 percent.

1.Compute EBIT for each year. What is the EBIT in years 1 through 6? Tax rate is 40%.

2.What is the after-tax salvage value?

3.What is the cash flow is year 0?

4.What are the cash flows in years 1-5?

5.Compute the NPV and IRR.

Your company is deciding whether to invest in a new machine. The new machine will increase cash flow by $330,000 per year. You believe the technology used in the machine has a 10-year life; in other words, no matter when you purchase the machine, it will be obsolete 10 years from today. The machine is currently priced at $1,850,000. The cost of the machine will decline by $120,000 per year until it reaches $1,250,000, where it will remain.

If your required return is 12 percent, calculate the NPV if you purchase the machine today. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

NPV          $  

If your required return is 12 percent, calculate the NPV if you wait to purchase the machine until the indicated year. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.)

Should you purchase the machine?

Yes

No

If so, when should you purchase it?

Today

One year from now

Two years from now

Sleep habits of new Yorkers. New York is known as the city that never sleeps. A random sample of 25 New Yorkers was asked how much sleep they get per night. The statistical summaries of these data are shown below. Do these data provide strong evidence that New Yorkers sleep more of less than 8 hours a night on average?

Write the hypotheses in symbols and in words

check the conditions, then calculate the test statistic, T, and the associated degrees of freedom

what is the conclusion of the hypothesis test

if you were to construct a 95% confidence interval that corresponded to this hypothesis test, would you expect 8 hours in the interval?

This is all the information I was provided with for this question. There was nothing more provided.