Assume that Stafford Township decided to construct a bridge in 2018 that is expected to cost $3,000,000. The bridge construction and related costs are to be financed as follows;

Federal Grant                                   $1,200,000

Bond Issue Proceeds                        1,500,000

Transfer from the General Fund      300,000

                                                              $3,000,000

The Federal Grant is for 40% of the qualifying project expenditures with a maximum grant limit of $1,200,000. It is an expenditure driven grant. Any excess unearned grant cash received will be refunded to the federal government at the completion of the project. Stafford Township applies encumbrances to control expenditures.

The bridge is to be constructed by Ace Construction Company. The Stafford Township government workforce will perform all earthmoving & landscaping work. The estimated cost of the bridge is as follows:

Bridge Structure

            Ace Construction Company                                 $2,400,000

Earthmoving & landscaping

Stafford Township                                                  600,000

3,000,000

Please fill in Jounral entry:

1. Beta bought a computer at a cost of $ 45,000. To finance the purchase, he signed a five-year promissory note, which requires five equal annual payments. Beta will make the first payment in a year. Each payment will be in the amount of $ 12,795.
to.
a. Determine the interest rate on this note.
b. Prepare the wage entries Beta will do for the first payment and for the last payment.
c. Suppose that immediately after making the second payment, Beta refinances and signs a new three-year note for the amount owed on the first note and the interest rate is 10.25%, how much will be the annual payment on the new note.

2. Suppose the note from the previous year carries an interest rate of 12% and Beta will pay $ 10,000 annually over the five years of the note. At the end of year 5, in addition to the $ 10,000, Beta will pay an additional amount.
a) What additional amount will Beta have to pay to pay off the promissory note?
b) How much will Beta owe after making the third annual payment?
c) What is the wage entry for the fifth payment, including the amount calculated in question (a)?

1. A new operating system for an existing machine is expected to cost $531,000 and have a useful life of six years. The system yields an incremental after-tax income of $155,000 each year after deducting its straight-line depreciation. The predicted salvage value of the system is $15,000.
2. A machine costs $390,000, has a $22,000 salvage value, is expected to last eight years, and will generate an after-tax income of $65,000 per year after straight-line depreciation.

Assume the company requires a 11% rate of return on its investments. Compute the net present value of each potential investment. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Suppose a zoo price discriminates by age. If the marginal cost of a ticket is $10.00 and the elasticity of demand for children’s tickets is 4 and adults is 8 . Then what are the ticket prices? What important conditions are necessary for price discrimination to work.

Also define (i) the following string of terms and (ii) the relation between the terms and give an example of each. bundling, gate pricing, two part pricing.

Roger has a levered cost of equity of 0.17. He is thinking of investing in a project with upfront costs of $8 million, which pays $2 million per year for the next 8 years. He is going to borrow $4 million to offset the startup costs at a rate of 0.05. His tax rate is 0.4. He will repay this loan at the end of the project. What is the NPV of this project, using the FTE method?

When financial frictions increase, the real cost of borrowing ____, and the AD curve ____.

A. increases, shifts left

B. decreases, shifts right

C. increases, shifts right

D. decreases, shifts left

When inflation increases, the AD curve _____. (What way does the AD curve shift or does it not shift?)

Suppose that, in each period, the cost of a security either goes up by a factor of u = 2 or down by a factor d = 1/2. Assume the initial price of the security is $100 and that the interest rate r is 0.

a). Compute the risk neutral probabilities p (price moves up) and q = 1−p (price moves down) for this model

b). Assuming the strike price of a European call option on this security is $150, compute the possible payoffs of the call option given that the option expires in two periods. It may help to sketch a diagram of the possible security price movement over two periods.

c). What is the expected value of the payoff of the call option?

d). What should the no-arbitrage price of the call option be?

Gamma Inc. is looking at a new product line with an installed cost of $520,000. This cost will be depreciated straight-line to $20,000 over the project’s five-year life. At the end of the project life, the installed machine can be scrapped and sold for $27,265. The machine will add $185,000 per year as sales and incur an additional $55,000, but will decrease $7,368 from the existing product line's sales. The system requires an initial investment in net working capital of $38,815. The NWC level will be maintained throughout the project years and recoverable at the end of the project. Assume the cost of capital is 6.5%, and Gamma Inc. belongs to the 35% tax bracket. Compute the NPV of the project and determine whether you will invest in this project. Round your answer to two decimal places.

Gamma Inc. is looking at a new product line with an installed cost of $520,000. This cost will be depreciated straight-line to $20,000 over the project’s five-year life. At the end of the project life, the installed machine can be scrapped and sold for $27,644. The machine will add $185,000 per year as sales and incur an additional $55,000, but will save $22,983 from the existing product line. The system requires an initial investment in net working capital of $42,315. The NWC level will be maintained throughout the project years and recoverable at the end of the project. Assume the cost of capital is 6.5%, and Gamma Inc. belongs to the 35% tax bracket. Compute the NPV of the project and determine whether you will invest in this project. Round your answer to two decimal places.

Gamma Inc. is looking at a new product line with an installed cost of $520,000. This cost will be depreciated straight-line to $20,000 over the project’s five-year life. At the end of the project life, the installed machine can be scrapped and sold for $27,644. The machine will add $185,000 per year as sales and incur an additional $55,000, but will save $22,983 from the existing product line. The system requires an initial investment in net working capital of $42,315. The NWC level will be maintained throughout the project years and recoverable at the end of the project. Assume the cost of capital is 6.5%, and Gamma Inc. belongs to the 35% tax bracket. Compute the NPV of the project and determine whether you will invest in this project. Round your answer to two decimal places.