o The initial capital cost will be $500,000 paid at the beginning of year 1 (i.e., immediately). The impact on cottage owners will involve a loss of $50,000 at the end of each year for the first four years (because of the construction activities affecting property values) but cottage owners will benefit by $55,000 per year in perpetuity from the end of year 5 onwards. The benefits from recreational fishing will not start until the end of year 5 and will be $35,000 per year in perpetuity. Development, stocking and management costs of the recreational fishery will start at the beginning of year 3 and continue forever. These costs are $10,000 per year

0. The province is considering a water resource development that will enhance recreational fishing and recreational cottage values (property values).

   1. a) Calculate the net present value using a 5% discount rate. Interpret the result. (15 points)

   2. b) Calculate the gross benefit cost ratio using a discount rate of 5%. Interpret the result. (5 points)

   3. c) Which value best approximates the internal rate of return: 4 %, 5%, 6%, 7%, 8%, or 9%? (Note – you are not being asked to calculate the internal rate of return!) (5 points)

1. a) A fisheries firm is considering a proposed cooling facility project with an initial cost of $390,000 and projected revenue (in thousands of $) of successively 100, 200, and 150 in the next 3 years. Show whether the firm should go ahead with the project if the discount rate is 5%. Would you recommend a different decision if the discount rate is 10%?

b) A proposed Aquaculture project cost $870,000 and it’s expected to generate revenue (in thousand $) in the next 4 years of 230, 410, 390, 170. At a discount rate of 7%, is the project worthwhile? What is the Internal Rate of Return of the investment project?

Irwin, Inc., constructed a machine at a total cost of $58 million. Construction was completed at the end of 2014 and the machine was placed in service at the beginning of 2015. The machine was being depreciated over a 10-year life using the sum-of-the-years’-digits method. The residual value is expected to be $3 million. At the beginning of 2018, Irwin decided to change to the straight-line method. Ignoring income taxes, prepare the journal entry relating to the machine for 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 1 decimal place (i.e., 5,500,000 should be entered as 5.5).)

Journal entry worksheet

Record the entry relating to the machine for 2018.

Note: Enter debits before credits.

Daily Enterprises is purchasing a $10 million machine. It will cost $50,000 to transport and install the machine. The machine will be depreciated straight-line to zero over its five-year life. What are the depreciation expenses associated with this machine per year?

2,010,000

The machine in #11 will generate incremental revenues of $4 million per year along with incremental costs of $1.2 million per year. If Daily’s marginal tax rate is 35%, what are the incremental (after-tax) earnings associated with the new machine?

What are the incremental operating cash flows associated with the new machine?

Which of the following statementsis CORRECT?

a.   Cost of preferred stock is the rate of return investors require on the firm’s preferred stock it is calculated as the common stock dividend divided by the current price.

b.   When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation.

c.   Because of tax effects, an increase in the risk-free ratewill have a greater effect on the after-tax cost of debt than on the cost of common stock as measured by the CAPM.

d.   Cost of new common stock is based on the cost of retained earnings, but decreased for flotation costs necessary to issue new common stock.

Cost of external equity (selling common stocks) is greater than the cost of internal equity (retained earnings) because

a.   of high inflation rate

b.   of high interest rate

c.   of high dividends payment

d.   of the flotation costs

The River Valley Power Company common stock has a beta of 1.20. If the current risk-free rate is 3% and the expected return on the stock market is 15%, determine the cost of equity capital for the firm using the Capital Assets Pricing Model (CAPM). Show All Work

            a.   17.4%                    b. 15.8%                      c. 18.9%                      d. 14.4%

Which of the following statementsis CORRECT?

a.   Cost of preferred stock is the rate of return investors require on the firm’s preferred stock it is calculated as the common stock dividend divided by the current price.

b.   When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation.

c.   Because of tax effects, an increase in the risk-free ratewill have a greater effect on the after-tax cost of debt than on the cost of common stock as measured by the CAPM.

d.   Cost of new common stock is based on the cost of retained earnings, but decreased for flotation costs necessary to issue new common stock.

Cost of external equity (selling common stocks) is greater than the cost of internal equity (retained earnings) because

a.   of high inflation rate

b.   of high interest rate

c.   of high dividends payment

d.   of the flotation costs

The River Valley Power Company common stock has a beta of 1.20. If the current risk-free rate is 3% and the expected return on the stock market is 15%, determine the cost of equity capital for the firm using the Capital Assets Pricing Model (CAPM). Show All Work

            a.   17.4%                    b. 15.8%                      c. 18.9%                      d. 14.4%

Compute the cost of the​ following:

a. A bond that has ​$1,000 par value​ (face value) and a contract or coupon interest rate of 7 percent. A new issue would have a floatation cost of 7 percent of the ​$1,120 market value. The bonds mature in 15 years. The​ firm's average tax rate is 30 percent and its marginal tax rate is 22 percent.

b. A new common stock issue that paid a $1.80 dividend last year. The par value of the stock is​ $15, and earnings per share have grown at a rate of 11 percent per year. This growth rate is expected to continue into the foreseeable future. The company maintains a constant​ dividend-earnings ratio of 30 percent. The price of this stock is now ​$23​, but 9 percent flotation costs are anticipated.

c. Internal common equity when the current market price of the common stock is ​$47. The expected dividend this coming year should be ​$3.60​, increasing thereafter at an annual growth rate of 9 percent. The​ corporation's tax rate is 22 percent.

d. A preferred stock paying a dividend of 11 percent on a ​$110 par value. If a new issue is​ offered, flotation costs will be 15 percent of the current price of ​$175.

e. A bond selling to yield 12 percent after flotation​ costs, but before adjusting for the marginal corporate tax rate of 22 percent. In other​ words, 12 percent is the rate that equates the net proceeds from the bond with the present value of the future cash flows​ (principal and​ interest).

Describe your plan or countermeasures, regarding to developing a Cost Estimating Relationship, as an engineer in controlling the effects/impacts given by the following items from the perspective of Engineering Economics

- Direct labor hours

-. Machine hours

-. Number of units

-. Number of production runs

-. Number of orders

Assume you are in support of the historical cost basis as required by GAAP. Discuss why you think the historical cost approach best values the long-term assets on the balance sheet. In addition, provide an example to support your position.

In a slow year, Deutsche Burgers will produce 3.200 million hamburgers at a total cost of $4.600 million. In a good year, it can produce 6.200 million hamburgers at a total cost of $6.400 million. a. What are the fixed costs of hamburger production? (Do not round intermediate calculations. Enter your answer in millions rounded to 1 decimal place.) b. What is the variable cost per hamburger? (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. What is the average cost per burger when the firm produces 3 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) d. What is the average cost per burger when the firm produces 4 million hamburgers? (Do not round intermediate calculations. Round your answer to 2 decimal places.) e. Why is the average cost lower when more burgers are produced? The fixed costs are spread across more burgers. Variable costs are lower per burger. Fixed costs are constant per burger. rev: 09_25_2017_QC_CS-101934 Next Visit question mapQuestion 1 of 6 Total 1