Quiz 3

# Quiz 3 - Quiz III-Example November -, 2009 BA 3341...

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1 Quiz III-Example November --, 2009 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. 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. The project requires an initial investment of \$3,000 and is expected to last for 5 years and the firm pays no taxes. The initial investment will be depreciated straight-line over 5 years to a final value of zero and the discount rate is 10 percent. Tax rate is 40%. Please, complete the Table below: a. What is the accounting break-even level of sales in terms of number of pairs sold? b. What is the economic break-even level of sales? Year 0 Year 1-5 Sales Variable Costs Fixed Costs Depreciation Pretax Profit (EBIT) Profit After Tax (NI) CF from Operations Investment Total CF
3 2. Portfolio Analysis (-- points) Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock B Recession 0.25 0.03 –0.25 Normal 0.50 0.09 0.15 Boom 0.25 0.14 0.35 Formulas with values: Calculations: a) Calculate the expected return for the two stocks.

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## Quiz 3 - Quiz III-Example November -, 2009 BA 3341...

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