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21) Ballantyne Uniforms will be purchasing one or other of two models of high efficiency industrial washing machines. It will also have to purchase an extension of the racking with linen bags that move dirty laundry to the washers. The racking system should be viewed as a A) Sunk cost B) Common future cost C) Opportunity cost D) Ancillary cost E) Variable cost 22) Sam’s Super Simonizing is a small car detailer that is replacing its upholstery cleaning machine at the beginning of the next fiscal. The old one will be worthless. A used one could be purchased leaving the company as well off as before. However, the preference is for a new one for $42,000 if it can be economically justified. To make a determination, after-tax cash flows for the investment period have to be calculated. The company estimates that the machine’s efficiency will contribute to an improvement to EBIT of $7,400. Straight-line amortization is used and a projected lifetime of 10 years and no salvage value is expected. The company’s tax rate is 28%, has no debt and its discount rate is 12%. The machine’s CCA class has a rate of 25%. What is the after-tax cash flow at the end of Year 2? A) $6,040 B) $6,238 C) $8,469 D) $10,925 E) $12,899 23) Which of the following is considered a relevant cost when undertaking an investment analysis? A) Sunk cost. B) Common future cost. C) Interest payments. D) Standard costs. E) Opportunity cost. 24) A company can invest $20,000,000 for three years in Option A paying out $7,500,000, $8,500,000, and $9,500,000 respectively. For an investment of $1,500,000, Option B will pay out $650,000, $750,000, and $850,000. Where should the company invest its money given a hurdle rate of 9%? A) Option A as it has the higher IRR. B) Option B as it has the higher IRR. C) The analysis does not indicate a better option. D) Option A as it has the higher NPV. E) Option B as it has the higher NPV. 25) In periods of accelerating interest rates, what are the best measures to use when deciding between investment alternatives? A) Payback B) ARR and Payback C) Payback and NPV D) NPV and IRR E) IRR 26) When evaluating investment opportunities for a company, what is the best discount rate to use? A) The company’s hurdle rate. B) Current interest rates. C) The company’s ROCE from the previous period. D) The interest rate for the company’s next best opportunity. E) The published bank rate. 27) Berringer International Inc. has invested $20 million and launched its new product. The company projected sales of over the next 10 years of $500,000, $3.2 million, $6.5 million, and $7.5 million for the first four years and $11 million for the next 6 years. A capital injection of 5 million will be required in Years 5 and 7 and a residual value of $4.5 million is expected at the end. If Berringer expects a return of 18%, what is the net present value of this project? A) ($0.5) million B) $0.5 million C) $5.6 million D) $7.5 million E) $10.4 million 28) A customer has approached CapiCal industries with a purchase order for a specialty product it needs for the next three years. CapiCal no longer produces the product and the related fully depreciated manufacturing equipment was going to be sold for $50,000. It will take $35,000 to recondition it and approximately 155 hours employee time at $18.50 an hour to set the equipment up. Both set up and production can be incorporated in the current space and in the factory schedule without having to hire additional labour. Sales Revenue for the special order is expected to be $120,000 per year. Direct material for the special order will amount to 55% of revenue. Working capital will expand by $16,000 immediately. Allocated administration costs amount to $5,000. Interest expense is $1,400. The company uses straight-line amortization and a hurdle rate of 10%. What is the net present value (NPV) of the order? A) $33,290 B) $70,853 C) $75,744 D) $79,393 E) $82,874 29) Which of the following is essential to consider when making the calculations required for NPV, IRR, PP or APP? A) Deciding as to whether to include amortization costs or not. B) Determining the amount of interest payments to be included in expenses. C) Reviewing the assumptions on which the revenue forecasts are based. D) Including the total of costs that have already been incurred. E) Determining the extent of management’s support of the project. 30) Ridman Academy’s annual cash inflow from its $40,000 tuition per student is $5,000, net of expenses, and before amortization and interest. At a cost of $2.8 million, the Academy has acquired and refurbished an older office building to accommodate classrooms for 120 additional students. What is the expansion worth to the academy if the school expects a 9% return over the next 15 years? A) $1,247,379 B) $1,463,971 C) $1,893,308 D) $2,036,413 E) $14,816,540

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