Final Exam: Compose your work using Excel (or other software as appropriate) and save it frequently to your computer. Each problem should be represented on a separate tab in your Excel file. Save your file using your last name, first name and assignment number (For example, DoeJohnM1A1). When you're ready to submit your work, click Browse My Computer and find your file. Once you've located your file click Open and, if successful, the file name will appear under the Attached files heading. Scroll to the bottom of the page, click Submit and you're done. Be sure to check your work and correct any spelling or grammatical errors before you post it. You must show all of your work explaining how you came to your conclusions.
Answer the following questions:
Problem 1: Sally deposited $100 a month in her savings account for 24 months. For the next five years she made no deposits. What is the future worth in Sally's savings account at the end of seven years, if the account earned 6% annual interest, compounded monthly?
Problem 2: Able Plastics, an injection-molding ?rm, has negotiated a contract with a national chain of department stores. Plastic pencil boxes are to be produced for a 2-year period. Able Plastics has never produced the item before and requires all new dies. If the ?rm invests $67,000 for special removal equipment to unload the completed pencil boxes from the molding machine, one machine operator can be eliminated. This would save $26,000 per year. The removal equipment has no salvage value and is not expected to be used after the 2-year production contract is completed. The equipment, although useless to Able, would be serviceable for about 15 years. What is the payback period? Should Able Plastics buy the removal equipment?
Problem 3: Bonka Toys is considering buying a robot that will cost $20,000. After seven years its salvage value will be $2,000. An overhaul costing $5,000 will be needed in Year 4. O&M costs will be $2,500 per year. Draw the cash flow diagram.
Problem 4: The XYZ Block Company purchased a new of?ce computer and other depreciable computer hardware for $4,800. During the third year, the computer is declared obsolete and is donated to the local community college. Using an interest rate of 15%, calculate the PW of the depreciation deductions using each of the following methods. Assume that no salvage value was initially declared and that the machine was expected to last five years.
(a) Straight-line depreciation
(b) Sum-of-the-years'-digits depreciation
(c) MACRS depreciation
(d) Double declining balance depreciation
Problem 5: A married couple ?ling jointly have a combined total adjusted gross income of $75,000. They have computed that their allowable itemized deductions are $4,000. Compute their federal income tax.
Problem 6: In evaluating projects, LeadTech's engineers use a rate of 15%. One year ago a robotic transfer machine was installed at a cost of $38,000. At the time, a 10-year life was estimated, but the machine has had a downtime rate of 28%, which is unacceptably high. A $12,000 upgrade should ?x the problem, or else a labor-intensive process costing $3,500 in direct labor per year can be substituted. The plant estimates indirect plant expenses at 60% of direct labor, and it allocates front of?ce overhead at 40% of plant expenses (direct and indirect). The robot has a value in other uses of $15,000. What is the difference between the EACs for upgrading and switching to the labor-intensive process?
Problem 7: An economist has predicted 7% in?ation during the next 10 years. How much will an item that presently sells for $10 bring a decade hence?
Problem 8: A public university wants to apply the concept of the WACC to developing its interest rate for analyzing capital projects. It has an endowment of $68 million which is earning 6.3% interest. It is paying 4.5% interest on $29 million in bonds. It believes that $94 million in general funds from the taxpayers should be assigned an interest rate of 13%. What is the university's cost of capital? Note that only the interest on the endowment is available to fund capital projects.
Problem 9: Calculate the conventional and modi?ed bene?t cost ratios for the following project.
Required ?rst costs = $1,200,000
Annual bene?ts to users = $500,000
Annual disbene?ts to users = $25,000
Annual cost to government = $125,000
Project life = 35 years
Interest rate = 10%
Problem 10: In 200-300 words, discuss how you will apply the materials from this course.