134A07M2_soln - Economics 134a Midterm Exam 2 Summer 2007...

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Economics 134a Midterm Exam 2 Summer 2007 Version 1 Name: _________________________________________ Perm: __________________________________________ Section which you attend : 9.30 or 12.30 Questions 1 – 9 are multiple choice, worth 8 points each. Questions 10 is worth 13 points, and question 11 is worth 15 points each. For any calculations, please show your work .
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1. Interest rates or rates of return on investments that have been adjusted for the effects of inflation are called _____ rates. a. real b. nominal c. effective d. stripped e. coupon 2. A project will increase sales by $60,000 and cash expenses by $51,000. The project will cost $40,000 and be depreciated using straight-line depreciation to a zero book value over the 4-year life of the project. The company has a marginal tax rate of 35%. What is the PER YEAR operating cash flow (OCF) of the project using the tax shield approach?
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