This preview shows pages 1–4. Sign up to view the full content.
1
Quiz IIIExample
, 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 multiplechoice 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!!!
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document 2
Problems
1.
BreakEven 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 breakeven levels of sales?
The
initial investment will be depreciated straightline over 5 years to a final value of
zero and the discount rate is
10 percent.
a)
accounting
breakeven level of sales in terms of number of keepsakes sold:
20x1,600=0
x=80
b)
economic
breakeven level of sales in terms of number of keepsakes sold:
0=NPV=3,000+ (20x1,000)*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
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)
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
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.
 Fall '08
 Polkovnichenko
 Finance

Click to edit the document details