2. You should accept both projects since both of their PIs are positive. You sho

ID: 2653880 • Letter: 2

Question

You should accept both projects since both of their PIs are positive.

You should accept project A since it has the higher PI.

You should accept both projects since both of their PIs are greater than 1.

You should only accept project B since it has the largest PI and the PI exceeds 1.

Neither project is acceptable.

Given the following information, calculate the present value break-even point.

Initial investment: $2,000
Fixed costs: $2,000 per year
Variable costs: $6 per unit
Depreciation: $250 per year
Price: $20 per unit
Discount rate: 10%
Project life: 4 years
Tax rate: 34%

100 units per year

143 units per year

202 units per year

286 units per year

None of these

A 12-year, 5% coupon bond pays interest annually. The bond has a face value of $1,000. What is the change in the price of this bond if the market yield rises to 6% from the current yield of 4.5%?

11.11% decrease

12.38% decrease

12.38% increase

14.13% decrease

14.13% increase

7.40%

8.25%

8.33%

9.45%

9.50%

The following time period(s) is/are consistent with the bubble theory:

the stock market crash of 1929.

the stock market crash of 1972.

the stock market crash of 1987.

the stock market crash of 1929 and the stock market crash of 1987.

the stock market crash of 1929; the stock market crash of 1972; and the stock market crash of 1987.

Explanation / Answer

Answer:

Calculation of after tax cash flows

Sale value of the equipment (A)

$ 50,000.00

Less: Book value

$ (38,880.00)

225000*(100% -20%-32%-19.2%-11.52%)

Profit on Sale

$ 11,120.00

Tax on profit on sale @35% (B)

$ 3,892.00

After tax cash flows =A-B

$ 46,108.00