Quiz 3 Solution - Quiz III-Example -, 200BA 3341...

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1 Quiz III-Example -------------, 200- BA 3341 Instructor: Nataliya Polkovnichenko Name: _________________________ Please do not open the examination until you are told to do so. Instructions: The exam has 5 problems. Total number of points is 100. All books and notes MUST be closed. You may use your calculators. The last three pages contain formulas that you may find helpful. You may detach the pages with formulas. For each of the multiple-choice questions, circle the best answer. You will not receive any points if you circle more than one answer. Be neat and show ALL your work to receive full credit. Partial credit will be given. You have 1 hour 15 minutes to complete the exam. Do not consult with anyone while you are working on the exam. GOOD LUCK!!!
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2 Problems 1. Break-Even Analysis (-- points) Modern Artifacts can produce keepsakes that will be sold for $80 each. Fixed costs are $1,000 per year and variable costs are $60 per unit. If the project requires an initial investment of $3,000 and is expected to last for 5 years and the firm pays no taxes, what are accounting and economic break-even levels of sales? The initial investment will be depreciated straight-line over 5 years to a final value of zero and the discount rate is 10 percent. a) accounting break-even level of sales in terms of number of keepsakes sold: 20x-1,600=0 x=80 b) economic break-even level of sales in terms of number of keepsakes sold: 0=NPV=-3,000+ (20x-1,000)*3.7908 x=89.57 or 90 000 , 1 20 000 , 3 Flow Cash Net 000 , 1 20 flow cash Operating 600 , 1 20 after tax Profit 0 0% @ .Taxes 600 , 1 20 profit Pretax 600 on Depreciati 000 , 1 Costs Fixed 60 Costs Variable 80 Sales 000 , 3 Investment 5 - 1 Years 0 Year x x x x x x
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3 2. Portfolio Analysis (-- points) Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Portfolio Recession 0.25 0.03 –0.25 -0.138 Normal 0.50 0.09 0.15 0.126 Boom 0.25 0.14 0.35 0.266 Formulas with values: Calculations: a) Calculate the expected return for the two stocks. b)
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This note was uploaded on 11/24/2009 for the course BA 3341 taught by Professor Polkovnichenko during the Fall '08 term at University of Texas at Dallas, Richardson.

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Quiz 3 Solution - Quiz III-Example -, 200BA 3341...

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