Albert Co. is considering a four-year project that will require an initial investment of $9,000. The base-case cash flows for this project are projected to be $12,000 per year. The best-case cash flows are projected to be $20,000 per year, and the worst-case cash flows are projected to be –$1,000 per year. The company’s analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is a 25% probability of the project generating the best-case cash flows and a 25% probability of the project generating the worst-case cash flows.

What would be the expected net present value (NPV) of this project if the project’s cost of capital is 11%?

$24,351

$19,481

$25,569

$20,698

Albert now wants to take into account its ability to abandon the project at the end of year 2 if the project ends up generating the worst-case scenario cash flows. If it decides to abandon the project at the end of year 2, the company will receive a one-time net cash inflow of $4,000 (at the end of year 2). The $4,000 the company receives at the end of year 2 is the difference between the cash the company receives from selling off the project’s assets and the company’s –$1,000 cash outflow from operations. Additionally, if it abandons the project, the company will have no cash flows in years 3 and 4 of the project.

Using the information in the preceding problem, find the expected NPV of this project when taking the abandonment option into account.

$29,570

$25,713

$24,427

$23,142

What is the value of the option to abandon the project?     

$1,362

$885

$1,090

$1,430

$1,498

There are 5 parts to the question.

Patient Medical History

Georgia is a 32 year old woman who has been suffering from recurrent (sometimes severe) headaches, and periods of fatigue since late childhood (~10-11 years of age). In her early twenties (21 years of age) she was diagnosed with gastroesophageal reflux disease (GERD) and began to experience periods of unexplained abdominal pain.

Georgia’s symptoms have waxed and waned over times, sometimes she feels fine but other times (since ~10-11 years of age) the headaches, fatigue and abdominal pain (since ~21 years of age) seem overwhelming. Lately the fatigue and abdominal pains have been particularly bad.

Georgia is afraid to eat because she does not know when the abdominal pain will strike or what is causing it. She has begun to lose weight but her food restriction has not addressed the pain. Regardless of whether she has eaten a large or small meal, and regardless of ingredients the pain can occur.

Georgia’s doctor performed several tests and noticed symptoms of inflammation in some areas of the intestine, after ruling out other conditions her doctor has suggested Georgia may have Inflammatory Bowel Disease (IBD). However, IBD would not explain why Georgia sometimes experiences upper abdominal pain or why the location of the pain seems to move around different areas of the abdomen.

Georgia feels tired all of the time; the amount of sleep she gets does not seem to lessen the fatigue. She finds mornings especially difficult but fatigue is present throughout the day. She finds it difficult to concentrate and her performance at work has begun to suffer. She sometimes feels too tired to climb the stairs to her second floor apartment.Her doctor sent her to a sleep clinic but an overnight sleep observation study did not find anything abnormal.

While Georgia is most concerned with the abdominal pain and fatigue she has other symptoms as well.

Georgia's Symptoms

• Mild cognitive dysfunction (“brain fog”)
• Dermatographism
• Inflammation and pain in several joints (hips, knees, elbows, hands/fingers) and lower back pain
• Occasional flushing (noticeably red face and sometimes other areas of the skin with no cause; different from blushing which is usually milder and caused by emotions such as embarrassment)
• Occasional diaphoresis (excessive sweating for no apparent reason usually across the whole body or multiple areas of the body)
• Occasional mild dyspnea (shortness of breath; feeling like you can’t get enough air)

Georgia’s doctor has consulted some colleagues who recommended a full blood work up and tests to measure the levels of some key immune response molecules.

Georgia's Test Results

• Mild and transient leukocytosis (transient = in blood drawn at some times but not others)
• Mild and transient elevated serum total tryptase level (transient = in blood drawn at some times but not others)
• Elevated urinary histamine metabolites and urinary levels of PGD2 (prostaglandin D2)

1. How might an immune response contribute to abdominal pain?

2. What common immune response involves all of the markers elevated in Georgia’s tests: tryptase, histamine and prostaglandin D2 (1 mark)?

After reviewing her tests Georgia’s doctor concludes she has Mast Cell Activation Syndrome (MCAS), a disease characterized by chronic multi-system inflammation. Her doctor rules out mastocytocis (accumulation of mast cells).

Basically Georgia’s mast cell responses are too strong which could be because she has too many mast cells, her mast cells are hyperactive or both. Since her doctor has ruled out mastocytosis there are not an abnormal number of mast cells.

We initially looked at white blood cells commonly found in circulation and therefore when it came to granulocytes focused on basophils, eosinophils and neutrophils. Mast cells are also granulocytes but are found in tissues.

We initially looked at white blood cells commonly found in circulation and therefore when it came to granulocytes focused on basophils, eosinophils and neutrophils. Mast cells are also granulocytes but are found in tissues.

3. What do granulocytes all have in common both in structure and in immune response roles ?

4. Describe the link between aberrant (too strong) mast cell responses and chronic multi-system inflammation .

In other words, how does it “make sense” – if you tell an immunologist that a chronic multi-system inflammatory disorder is caused by overactive mast cells that explanation “makes sense”, why? (Don’t forget there are three words – chronic, multi-system, inflammation)

Dermatographism

Let’s revisit the dermatographism now that you know more about Georgia’s condition.

Dermatographism is sometimes referred to as “skin writing disease”. In people with dermatographia/dermatographism non-pathogenic stimuli like mild scratching can cause localized hives to quickly and transiently (temporarily) form at the site of the stimulation.

The immune responses that cause the “writing” are not triggered by pathogens but by simple pressure/scratching (sometimes heat or other non-pathogenic stimuli too). However, the underlying reactions are similar to the immune responses you’d see if a foreign particle was introduced under the skin.

This is also true for conditions like MCAS. For example Georgia’s mast cells are over-reacting to a scratch on her skin but they are still releasing all the same signalling molecules and causing a similar reaction to ‘normal’ mast cell responses (i.e., they might be reacting more strongly, and responding to things that aren’t dangerous but they aren’t acting radically different).

One of Georgia's symptoms was dermatographism.

5. Using what you know of the immune response and knowing Georgia's diagnosis (MCAS) describe how her skin “writing” is occurring. Assume that while the trigger for the response is pressure on the skin (a scratch) the response itself is “normal” (i.e., similar to what you’d see if a foreign organism was under the skin; 5 marks). Make sure to relate the symptoms (what we're seeing in dermatographism) to the immune response underlying them.

Some symptoms of MCAS occur after an easily identifiable trigger/triggering event and some seem to appear randomly. Whether triggers can be identified (and therefore modified/avoided) depends on the symptom and/or patient. Even those symptoms that appear “random” can still be due to a triggering event but triggers can be variable and not always easy to identify.

For example, Georgia only notices the symptoms of dermatographism when pressure is applied to her skin (like a scratch or wearing clothing that is too tight). She has begun to wear looser clothing and is less likely to scratch at minor skin irritations. However her stomach pains seem to be random and nothing she eats or doesn’t eat impacts the presence or level of pain.

Depending on the type and severity of symptoms, and how they impact a patient’s quality of life there are different treatment options. Usually trying to identify and avoid triggers of mast cell responses, when possible, is the first step. Why might avoidance of triggers be the first step instead of trying to modify the mast cell responses (i.e., “fix” the mast cells; stop them from overacting)? (Hint: this is a general question, no particular pathways necessary; tie your answer into what you know of the immune responses in general)

Like many patients, Georgia could identify triggers for some of her symptoms and not others. Georgia’s doctor prescribed an H1 and H2 antihistamine, as well as cromoglicic acid to help lower the overactivity of her mast cells. Georgia was also given a proton-pump inhibitor to help with the stomach pain and GERD, and told to take acetaminophen for more general pain. She was put on a brief course of prednisone to decrease gastrointestinal inflammation but is now off the prednisone.

Georgia is feeling better and while her symptoms are not gone she now has less acute episodes.

Galbraith Co. is considering a four-year project that will require an initial investment of $12,000. The base-case cash flows for this project are projected to be $14,000 per year. The best-case cash flows are projected to be $20,000 per year, and the worst-case cash flows are projected to be a -$2,500 per year. The company's analysts have estimated that there is a 50% probability that the project will generate the base-case cash flows. The analysts also think that there is a 25% probability of the project generating the best-case cash flows and a 25% probability of the project generating the worst-case cash flows.

What would be the expected net present value (NPV) of this project if the project's cost of capital is 10%?

(a) $22,365 (b) $26,093 (c) $24,850 (d) $19,880

Galbraith now wants to take into account its ability to abandon the project at the end of year 2 if the project ends up generating the worst-case scenario cash flows. If it decides to abandon the project at the end of year 2, the company will receive a one-time net cash inflow of $4,000 (at the end of year 2). The $4,000 the company receives at the end of year 2 is the difference between the cash the company receives from selling off the project's assets and the company's -$2,500 cash outflow from operations. Additionally, if it abandons the project, the company will have no cash flows in years 3 and 4 of the project.

Using the information in the preceding problem, find the expected NPV of this project when taking the abandonment option into account.

(a) $227.089 (b) $24,380 (c) $29,798 (d) $31,152

What is the value of the option to abandon the project?

(a) $1,567 (b) $2,239 (c) $2,351 (d) $2,463 (e) $1,791

A firm has purchased for $14,000 a machine with a five year useful life. The machine will be
depreciated using ADS on a three-year depreciation schedule. The uniform annual benefits are
$3600. The firm’s effective tax rate is 47% and the MARR before tax is 10%. The firm estimates
that there is a 40% likelihood that the machine will have a salvage value of $5,000 and
due to the probability of obsolescence, a 60% likelihood that the machine will have no salvage
value. Determine if this is a satisfactory investment.

Below are some data from the land of milk and honey.

YEAR       PRICE OF MILK        QUANTITY OF MILK    PRICE OF HONEY        QUANTITY OF HONEY

2001                $1                                100 Qts.                     $2                               50 qts.

2002                $1                                200                              $2                                100

2003                $2                                200                              $4                                100

1. Compute for each year the following below using 2001 as the base year.

a) nominal GDP

b) real GDP,and

c) the GDP deflator for each year, using 2001 as the base year.

2. Why do economists use real GDP rather than nominal GDP to gauge economic well being?

In this question we will reflect on the Australian fires from last year. A wide part of Australia has experienced severe fires in the last year, which made the economy much less productive and had severe impacts on business activities.

1. a) Explain why you could expect negative shifts in the aggregate demand curve following the fires. What would you expect are the drivers of this shift? Reflect on each of the components of the aggregate demand and comment on whether they are likely to change due to the fires. [6 marks]

2. b) Explain why you could expect negative shifts in the aggregate supply curve following the fires. What would you expect are the drivers of this shift? Reflect on each of the components of the aggregate supply and comment on whether they are likely to change due to the fires. [6 marks]

3. c) Show the shifts discussed in parts a) and b) graphically. You may assume an upward sloping AS curve for simplicity. Can you predict what happens to real GDP and the price level? [8 marks]

4. d) The fires in Australia can also be considered a decrease in the country’s stock of capital. You may use the Solow model to show what happens when capital decreases and what the model predicts for the new growth rate. Are these con- sequences likely to happen in practice? [10 marks]

1. bank Is offering bonds with a face value of $10,000 and a coupon rate per year of 7%,good for 5 years and the Interest is paid quarterly. Blom bank Is offering bonds with a face value of $10,000 and a coupon rate of 8% paid every 6 months also good for 5

years. The purchasing cost for the Byblos bond is $9,500 and for the Blom bank Is $9,750

,if your Marr is 5% a year CMPOUNDED MONTHLY ,which is a better investment based on present worth analysis?

Practice questions

(1)        The standard costs of wooden ducks on wheels, for the CURRENT year, for 5 mm board and for cutting are as follows:-

            5 mm board: 0.2 sq. metre at £4.50 per sq. metre.

            Cutters: 1.5 minutes at £7.20 per hour.

In the most recent period, 120 wooden ducks on wheels were produced.

25 sq. metres of 5 mm board were requisitioned from stores at a total cost of £110.

            2.75 hours were recorded for cutters at a total cost of £22.

            Required

(a)        Calculate the material price variance and material usage variance for 5 mm board

(ii)        Calculate the wage rate variance and labour efficiency variance for cutters

Suggest possible reasons for the variances calculated.

(2)        Given standard cost per unit:

            Direct materials (4 kg. @ 75p per kg)

            Direct labour (2 hrs @ £1.60 per hr)

            Actual details are:

            Calculate:         Material and labour variances.

3rd year Macroeconomics Question

(a) Suppose that output is at the full-employment level and that nominal wages are slow to adjust. Using the AD-AS framework to explain the short-run and long-run effects of the coronavirus on output and the price level. (Hint: How does the coronavirus affect the short-run and long-run aggregate supply curves and the aggregate demand curve?)

A 20 year loan of $120, 000 at i = 6% is paid off by paying 130% of each year’s interest at the end of each year for the first 12 years, and then for the next 8 years pay off the loan by paying off constant principle at the end of each year. Find the value of the last payment.