A corporation is trying to raise money for a business expansion. The total cost of the expansion is $1,000,000. The expected return on assets before taxes of the business expansion project is 10% on the total asset investment. (Expected probabilities of returns are .25 of an 8% return, .5 of a 10% return and .25 of a 12% return.)

After the privately held corporation owners are considering two options which involve obtaining one of two types of loans from an area bank. The current individual stock investors will put in the needed additional equity investment capital for the expansion project.

Loan option 1: The bank is willing to lend 60% of the $1,000,000 project with a 7 year interest only loan at an annual contract rate of 8% with interest payable quarterly and a balloon note payment at the end of 7 years. The loan closing costs will be 4% of the amount borrowed and the owners will be held personally responsible for the loan. The closing costs fees must be paid in cash when the loan contract is signed and begins.

Loan option 2: The bank is also willing to lend 70% of the $1,000,000 project with a 7-year interest only loan at an annual contract rate of 9% with interest payable quarterly and a balloon note payable at the end of 7 years. The loan closing cost is 5% of the amount borrowed and the owners will also be held personally responsible for the loan. The set up fees must be paid in cash when the loan contract is signed and begins.

To assist in this financial decision making situation, calculate the follow:

What is the APR for each loan?  

Option 1 _________                      

Option 2 ___________

If Option 2 is selected, what is the incremental cost of borrowing the additional amount of money?

Incremental Cost of Borrowing ________________%

What is the expected return on investment for this business expansion project for each option of financing this expansion project?

ROE if Option 1 is used? __________                                      

ROE if Option 2 is used? ___________________

Which option do you recommend and why?  

1) Computer equipment was acquired at the beginning of the year at a cost of $53,900. It had an estimated residual value of $4,300 and an estimated useful life of 5 years.

a. Determine the depreciable cost.

b. Determine the straight-line rate.

c. Determine the annual straight-line depreciation.

2) A machine costing $45,000 with a 5-year life and $2,700 residual value was purchased January 2. Compute depreciation for each of the five years, using the double-declining-balance method.

as follows:

        Sales (160,000 units)        $960,000

        Cost of goods sold              640,000

        Gross margin                     320,000

        Operating expenses          260,000

        Operating income              $60,000

Kramer is developing the 2016 budget. In 2016 the company would like to increase selling prices by 12.5%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.

a) What is budgeted sales for 2016? $ _________

b) What is budgeted cost of goods sold for 2016? $___________

A company is planning to start an investment, which will cost an initial investment of $ 15 million. The management has already forecasted all future cash flows from this project: $4 million each year, for the next 6 years. Then the investment (machinery etc) will be sold for a price of $3 million.

Calculate the MIRR, knowing that recovered funds will be reinvested at a rate of  12% annual nominal, compounded annually.  For the external financing rate, the company uses the MARR. The MARR is 11% annual nominal, compounded annually. Should the company accept this investment or not ?

People in the aerospace industry believe the cost of a space project is a function of the mass of the major object being sent into space. Use the following data to develop a regression model to predict the cost of a space project by the mass of the space object. Determine r² and s_e.

*(Do not round the intermediate values. Round your answers to 4 decimal places.)
**(Round the intermediate values to 4 decimal places. Round your answer to 3 decimal places.)


ŷ = enter a number rounded to 4 decimal places  * + enter a number rounded to 4 decimal places * x
r² = enter a number rounded to 3 decimal places  **
s_e = enter a number rounded to 3 decimal places  **

3. Why is the cost of remittances the subject of such intense international scrutiny?

A company is considering submitting a tender for a job.
Producing the tender will cost the company $1500, which must be paid even if the company does not win the tender
The company's current expectation of the cost of the project is that there is a 0.58 probability that the cost is $7700, and otherwise the cost is $10900. These costs do not include the cost
of producing the tender.
The company also believes that their is a 0.28 probability that the lowest competing bid will be $9200, a 0.37 probability that the lowest competing bid will be $14400, and otherwise the
lowest competing bid will be $12000
In regard to the tender price the company is considering whether it should bid $10600, bid $13200, or not bid.
You may assume that the probabilities given for the costs of the project are independent to the probabilities of the values of the lowest competing bid. Thus if they submit a price of $13200
then the probability that they will make the maximum profit ($13200 - $7700 - $1500 = $4000) is P(winning) * P(low cost) = 0.37 * 0.58.
Draw a decision tree that represents this situation and show all EMVs and probabilities. Indicate selection of decision options with probability = 1 for preferred
options and probability = 0 for rejected options.
Monetary values should be answered to the nearest dollar. Probabilities should be answered to three decimal places.

People in the aerospace industry believe the cost of a space project is a function of the mass of the major object being sent into space. Use the following data to develop a regression model to predict the cost of a space project by the mass of the space object. Determine r² and s_e.

*(Do not round the intermediate values. Round your answers to 4 decimal places.)
**(Round the intermediate values to 4 decimal places. Round your answer to 3 decimal places.)


ŷ = ( ) * + ( ) * x
r2 = ( ) **
se = ( ) **

What is weighted average cost of capital, how is it used, and when is it not appropriate to use?

What is an opportunity cost? How is it used in a time value analysis? Is the opportunity rate a single number that is used in all situations? Integrate Bible passages into the discussion that address the Christian worldview.