Please solve by hand, not using excel. No discount rate provided.

Suppose Blue Thumb Tools is considering the introduction of a new, heavier hammer to be used for driving spikes. The new hammer will cost $490,000. The cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the new hammer can be scrapped for $40,000. The new hammer will save the firm $146,000 per year in pretax operating costs, and it required an initial investment in net working capital of $35,000. The tax rate of the firm is 30%.

What are the cash flows of firm’s new project (using a time line)?

What is the net present value of this project (list your setups)?

What is the IRR of this project (list your setups)?

You will write Stack class in c++ that will be integrated into a larger software product provided by the instructor. This Stack class uses a dynamically allocated array to store data values (integers) that have been pushed onto the stack object. When the client code attempts to push another integer onto a full stack, your Push operation should invoke the Resize() function which attempts to double the capacity of the stack and then add the new data value to the resized stack array. In Resize() a new array (that holds twice as many integers) is dynamically allocated, data from the old stack array is copied into the new larger stack array, the old stack array is deallocated, and the new data value is pushed onto the new array.

EGI is a firm in the gaming sector with 350 million of equity and $175 million of debt in its capital structure (market values). It has 10 million shares outstanding with a 12% unlevered cost of capital and 4% risk free interest rate on its debt. The corporate tax rate is 30%. The firm is planning to come up with a new handheld video game that is expected to have an initial investment of $25 million with project having the same business risk as that of EGI’s existing assets. The new investment is expected to generate annual EBIT of $8 million which is expected to grow at 2% per annum until perpetuity?

a.  EGI initially proposes to fund the new project by issuing equity. If investors were not expecting this investment, and if they share EGI’s view of the project’s profitability, what will the share price be once the firm announces the project plan?

b.  Suppose investors think that the EBIT from EGI’s new project will be only $3 million per year without any growth (i.e. $3 million every year to perpetuity). What will the share price be in this case? How many shares will the firm need to issue?

c.  Suppose EGI issues equity as in part (b). Shortly after the issue, new information emerges that convinces investors that management was, in fact, correct regarding the cash flows from the new project. What will the share price be now? Why does it differ from that found in part (a)? How much will the old and new shareholders gain after the new information arrives?

d.  Suppose EGI instead finances the expansion with a $25 million issue of permanent risk-free debt. If EGI undertakes the expansion using debt, what is its new share price once the new information comes out?

B Company is considering replacing an existing processor with a new one that costs $240,000. Shipping and setup costs for the new processor are estimated.to be $13,000. B Company's working capital is expected to increase by $15,000 when the new processor begins operation and is expected to be fully recoverable at the end of the project. The new processor's useful life is expected to be 5 years and its salvage value at that point is estimated to be $49,900. The old processor had an installed cost of $120,000 when it was placed in service three years ago and is being depreciated to a zero book value using a 5 year ACRS life. The processor can be sold today for $33,200. The increase in revenues and before tax cash operating expenses for the new processor compared to continuing with the old processor are shown in the table below. B Company has a marginal tax rate of 34% and a cost of capital of 10%.

The initial investment for the project is:

$231,295

$223,876

$224,266

$228,952

The installed cost of the new processor is:

$207,000

$228,000

$253,000

$238,000

Incremental depreciation expense for year 2 in the life of the new processor is:

$34,120

$31,680

$32,900

$30,460

Operating Cash Flow After Tax (OCFAT) for year 3 of the life of the new processor is:

$58,324

$54,074

$63,106

$43,448

After tax salvage value of the new processor at the end of year 5 is:

$32,934

$37,545

$29,641

$36,886

Operating cash flow after tax (OCFAT) for year 5 of the life of the new processor is

$99,011

$105,598

$102,305

$103,622

NPV of the project is:

$129

$122

$103

$110

The Plant department of the local telephone company purchased four special pole hole diggers eight years ago for $14,000 each. They have been in constant use to the present time. Due to an increased workload, it is considered that additional machines will soon be required. Recently it was announced that an improved model of the digger has been put on the market. The new machines have higher production rate and lower maintenance expense than the old machines, but their cost will be $32,000 each. The service life of the new machines is estimated to be 8 years with salvage estimated at $750 each. the four original diggers have an immediate salvage of $2,000 each and an estimated salvage of $500 each eight years hence. The estimated average annual maintenance expense associated with the old machines is approximately $1,500 each compared to $600 each for the new machines. A field study and trial indicates that the workload would require three additional new type machines if the old machines are continued in service. However, if the old machines are all retired from service, the present workload plus the estimated increased load could be carried by 6 new machines with an annual savings of $12,000 in operator costs. Because the new machines employ a new principle of operation, it is contrmplated that the special personnel-training program will be necessary before the machines can be placed in operation it is estimated that this training program will cost about $700 per new machine. if the MARR is 9% before taxes, what should the company do?

A) 6 new machines because they save/ cost $X per year. (find this amount X)

B)3 new machines and 4 old machines because they save/cost $X per year. (find this amount X)

C)Collect more information because with the given information, this problem cannot be solved.

Magnolia Manufacturing makes wing components for large aircraft. Kevin Choi is the pro-

duction manager, responsible for manufacturing, and Michelle Michaels is the marketing

manager. Both managers are paid a flat salary and are eligible for a bonus. The bonus is

equal to 1 percent of their base salary for every 10 percent profit that exceeds a target. The

maximum bonus is 5 percent of salary. Kevin’s base salary is $180,000 and Michelle’s is

$240,000.

The target profit for this year is $6 million. Kevin has read about a new manufacturing

technique that would increase annual profit by 20 percent. He is unsure whether to employ the

new technique this year, wait, or not employ it at all. Using the new technique will not affect

the target.

Required

a. Suppose that profit without using the technique this year will be $6 million. By how much

will Kevin’s bonus change if he decides to employ the new technique? By how much will

Michelle’s bonus change if Kevin decides to employ the new technique?

b. Suppose that profit without using the technique this year will be $8.5 million. By how

much will Kevin’s bonus change if he decides to employ the new technique? By how much

will Michelle’s bonus change if Kevin decides to employ the new technique?

c. Suppose that profit without using the technique this year will be $4.8 million. By how

much will Kevin’s bonus change if he decides to employ the new technique? By how much

will Michelle’s bonus change if Kevin decides to employ the new technique?

d. Is it ethical for Kevin to consider the impact of the new technique on his bonus when

deciding whether or not to use it? Explain.

e. Assess the management control system used at Magnolia Manufacturing and provide

recommendations for changes, if any are required. Be sure to discuss:

• Decision authority

• Performance measures

• Compe nsation

Please summarize the below two articles in you own words 150 words each article

Article 1

HIPAA Privacy Rule Thwarts Clinical Research Recruitment

Feb. 15, 2005 — Since the federal government's sweeping medical privacy rule went into effect two years ago, the additional paperwork required of academic institutions to obtain patients' consent to participate in clinical research trials has caused enrollment to plummet by as much as 50% at one institution and confusion among many others, a new editorial concludes.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) included a major provision that required covered entities (hospitals, physicians, health plans, and other entities that handle patient information) to obtain confidentiality documentation from researchers before disclosing health data. This section of the law, which took effect as part of the overall medical privacy law in April 2003, was intended to ensure that patients' protected health information (PHI) would not be inappropriately disclosed or used during the course of a research trial.

But a lack of guidance by the U.S. Department of Health and Human Services (HHS) about how to interpret this provision and the resulting variability in approaches by research institutions "could not have been what was intended by the law and is not optimal for balancing the need for confidentiality and research progress," said Roberta B. Ness, MD, MPH, chairman of the Department of Epidemiology at the University of Pittsburgh Medical Center in Pennsylvania. "To put out the rules without guidance has resulted in a lack of clarity," she told Medscape in an interview.

Writing in the February issue of the Annals of Epidemiology, Dr. Ness describes the before-and-after effect of HIPAA's rules governing medical research as it applied to patient recruitment in a single-institution, prospective study to determine the cause of preeclampsia.

In the pre-HIPAA phase of the study, called the Pregnancy Exposures and Preeclampsia Program Project (PEPP I), 2,892 women were recruited in 55 months, for an average of 12.4 women per week. The study was renewed in early 2002, but recruitment was shut down for four months while the maternity hospital at which the study was conducted decided how to comply with upcoming medical privacy laws.

Between April and September 2003, recruitment into the study took place under new rules that disallowed all waivers of HIPAA medical record review, according to Dr. Ness. (Waivers allowing an institution to use or disclose PHI for research purposes can be granted if specific conditions are met, according to the privacy rule).

Under that restriction, "the only medical records PEPP II staff could review to determine potential eligibility were for women who had enrolled into a research registry," Dr. Ness writes. "Only about 10% of women enrolled into the registry, presumably because only a clinical staff was authorized to initiate registry enrollment."

Shortly afterward, the hospital's institutional review board allowed applications for a waiver so that researchers could review medical records and flag those that represented potentially eligible subjects, as had been done before HIPAA. Recruitment was further hindered because health provider consent was required before the clinical research staff could approach potential research subjects, and when the maternity hospital merged with the University of Pittsburgh in June 2004.

After HIPAA took effect, the average recruitment rate for participation in PEPP II was 2.5 women per week without a waiver, 5.7 women per week with a waiver, and 3.3 women per week since retraction of the HIPAA waiver, according to Dr. Ness.

"[R]ecruitment with a HIPAA waiver, as compared to pre-HIPAA, decreased by half; and recruitment without a HIPAA waiver fell by half again as compared to with a waiver," Dr. Ness writes. "We cannot identify other systematic explanations for these trends other than the obvious: local interpretation of the HIPAA regulations had a negative effect on the pace of our research."

The slowdown in Pittsburgh's ability to recruit additional subjects into the preeclampsia study has put the program "way behind where we should be," said Dr. Ness. "I have a long career of running prospective studies, and we have never been this far behind on a study at this juncture."

Many research institutions report being in a similar situation, Dr. Ness notes in the editorial. Nearly three quarters (72%) of the 331 U.S. investigators polled by the Association of American Medical Colleges reported that HIPAA was having an adverse effect on clinical research during the first six months after its implementation. Negative effects on patient recruitment, data access, and data acquisition were cited by more than 68% of the respondents.

An HHS advisory committee has proposed modifications to HIPAA that would better coordinate the rule's requirements with those of the Common Rule, a federal law that protects human research subjects, Dr. Ness writes. "We can only hope that the new Secretary for Health and Human Services will adopt these modifications," she concludes.

Article 2

Established by FDA to Expedite Patient Access to Medications

Approximately 10-15 years elapse between the discovery of a new drug in the laboratory and its therapeutic use in the clinical setting.^[1] One factor influencing the duration of drug development is the Food and Drug Administration's (FDA's) review of an agent's efficacy and safety data. In 2001, FDA's Center for Drug Evaluation and Research (CDER) and Center for Biologics Evaluation and Research (CBER) approved 31 new molecular entities.^[2-4] The average time from sponsor submission of a new drug application (NDA) or biologics license application (BLA) to FDA approval of these compounds was 18.6 months, an increase from 17.2 months in 2000, 12.9 months in 1999, and 12.5 months in 1998.

FDA has implemented several programs intended to reduce the review time of a new pharmaceutical and accelerate patient access to medications for the treatment of serious or life-threatening diseases. This review article provides an overview of these initiatives, with a focus on fast-track designation, priority review, accelerated approval, and orphan drug status. Imatinib mesylate (Gleevec, Novartis), which was approved for three phases (chronic, accelerated, and blast crisis) of chronic myelogenous leukemia (CML) in May 2001 and gastrointestinal stromal tumors (GIST) in February 2002, serves as an example of drug development focused on expedited patient access. The information on the clinical development and approval of imatinib was available through the Freedom of Information Act. Imatinib will be discussed throughout this review to illustrate the highlights and opportunities of each FDA program. Finally, the clinical implications of the programs will be described.

Regulatory Overview

There are multiple regulatory documents that outline the responsibilities of FDA and the industry sponsor throughout the drug development process, including the Prescription Drug User Fee Act (PDUFA) of 1992, the five-year renewal of PDUFA (PDUFA II), the recently approved PDUFA III, and the Food and Drug Modernization Act of 1997 (FDAMA). In addition, supporting regulatory documents (i.e., guidance documents) have been established that specifically relate to fast-track designation, accelerated approval, priority review, and orphan drug status. Although these four programs share features, each is a distinct initiative with different requirements. Fast-track designation relates to the interactions between the sponsor and FDA during the drug development process. Accelerated approval refers specifically to the design of studies performed by the sponsor, and priority review sets the time frame for FDA review of a submitted BLA or NDA. Finally, allowing drug manufacturers to seek orphan drug status encourages the development of drugs to treat rare diseases.

Rights Offerings?Sheary, Inc., is proposing a rights offering. Presently, there are 375,000 shares outstanding at $60 each. There will be 65,000 new shares offered at $57 each.

What is the new market value of the company?

How many rights are associated with one of the new shares?

What is the ex-rights price?

What is the value of a right?

In a clinical trial, 50 patients who received a new medication are randomly selected. It was found that 10 of them suffered serious side effects from this new medication. let p denote the population proportion of patients suffered serious side effects from this new medication. The 90% confidence interval for p is about

Consider two countries: Canada and Sri Lanka. Assume that each can produce only two goods: maple syrup and jaggery. In a single year, Canada can produce 250,000 tons of maple syrup, or 90,000 tons of jaggery. In the same period of time, Sri Lanka can produce 1,000 tons of maple syrup, or 70,000 tons of jaggery.

Suppose that both nations are initially in a state of autarky. If Canada were to produce 170,000 tons of maple syrup and 36,000 tons of jaggery, then this allocation would be:

(A) Feasible and productively efficient. (B) Feasible and productively inefficient. (C) Infeasible. (D) Like Saturdays: for the boys

Suppose that both nations are initially in a state of autarky. If Sri Lanka were to produce 300 tons of maple syrup and 49,000 tons of jaggery, then this allocation would be:

(A) Feasible and productively efficient. (B) Feasible and productively inefficient. (C) Infeasible. (D) Built different.

Assume that both nations are productively efficient. Initially, before trade, Canada makes 125,000 tons of maple syrups and 45,000 tons of jaggery. Sri Lanka makes 200 tons of maple syrups and 56,000 tons of jaggery. Now they decide to trade. Which of the following is a beneficial trade for both nations?

(A) Canada gives Sri Lanka 1,000 tons of maple syrup in exchange for 1,000 tons of jaggery. (B) Canada gives Sri Lanka 3,000 tons of maple syrup in exchange for 1,000 tons of jaggery. (C) Canada gives Sri Lanka 6,000 tons of maple syrup in exchange for 1,500 tons of jaggery. (D) None of the above.

If each country were to specialize in the goods for which they have comparative advantage, how much would each produce?

(A) Canada would produce 250,000 tons of maple syrup, and Sri Lanka would produce 70,000 tons of jaggery. (B) Canada would produce 250,000 tons of maple syrup, and Sri Lanka would produce 1,000 tons of maple syrups. (C) Canada would produce 90,000 tons of jaggery, and Sri Lanka would produce 1,000 tons of maple syrup. (D) Canada would produce 90,000 tons of jaggery, and Sri Lanka would produce 70,000 tons of jaggery.