MU - S1 2004 - Business Finance

MU - S1 2004 - Business Finance - 04117036 Office Use Only...

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Office Use Only Monash University Semester One Examinations 2004 Faculty of Business and Economics EXAM CODES: AFC2140 TITLE OF PAPER: BUSINESS FINANCE EXAM DURATION: 180 minutes writing time READING TIME 10 minutes THIS PAPER IS FOR STUDENTS STUDYING AT: (tick where applicable) ± Berwick ; Clayton ± Malaysia ± Distance Education ± Open Learning ± Caulfield ± Gippsland ± Peninsula ± Enhancement Studies ± Other (specify) INSTRUCTIONS TO CANDIDATES: This paper contains 8 questions. Students must answer ALL questions. Begin each question on a fresh page of the examination script book. A formula sheet is included which can be detached. Candidates are reminded that they should have no material on their desks unless their use has been specifically permitted by the following instructions. AUTHORISED MATERIALS CALCULATOR WITH NON-ALPHABETIC KEYBOARD ; YES ± NO OPEN BOOK/NOTES ± YES ; NO SPECIFICALLY PERMITTED ITEMS ± YES ; NO If yes, items permitted are: Candidates must complete this section if required to answer in this paper STUDENT ID __ __ __ __ __ __ __ __ DESK NUMBER __ __ __ __ SURNAME .............................................................. SIGNATURE. ............................................. OTHER NAMES (in full) . ............................................................................................................. Page 1 of 7
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Question 1 [14 marks] A company owns a machine, which could be used in production for two more years at most. The machine originally cost $45,000 five years ago. Its residual value is currently $8,000 (because a special opportunity for selling it has arisen), but the machine would have a scrap value of $0 at all subsequent times. If the machine were to be used for two more years, it would require a major overhaul at a cost of $9,000 at the end of one year. A new model of the machine is now being marketed. It costs $40,000 and has a maximum life of ten years, if special maintenance is undertaken at a cost of $10,000 after five years, and at a cost of $20,000 after eight years. The new machine would have no residual value at any time. Assume that no other models are expected to become available in the foreseeable future, and that no changes are expected in either costs or demand for output of the new machine. The company’s required rate of return is 15% per year. Required: Prepare all necessary calculations to show whether the company’s existing machine should be replaced now, or after one or two years. (Hint: substitute the equivalent annual cost method for the replacement cycle approach.) Question 2 [15 marks] ABC Company Ltd has $201,000 cash, which is surplus to its current requirements.
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This note was uploaded on 08/25/2008 for the course AFF 3111 taught by Professor Smith during the Three '08 term at Monash.

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MU - S1 2004 - Business Finance - 04117036 Office Use Only...

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