Unformatted text preview: Fin 3001 Mid-term #2 Review Questions Exercise #1 A firm can buy a truck at a cost of $80,000 with annual maintenance expenses of $10,000. The truck can be sold at the end of 4 years for $20,000. What is the equivalent annual cost? Exercise #2 The Finnegan Company wants to set up a private cemetery business. According to CFO, Barry M. Deep, business will provide net cash inflow of $60,000 for the firm the first year, and the cash flows are projected to grow at a rate of 6 percent per year forever. The project requires an initial investment of $925,000. a. If Finnegan requires a 13 percent return on such an undertaking, should the cemetery business be started? b. The company is somewhat unsure about the assumption of a 6 percent growth rate in its cash flows. At what constant rate would the company just break even if it still required a 13 percent return on investment? Exercise #3 Modern Artifacts can produce keepsakes that will be sold for $90 each. Non-depreciation fixed costs are $2,000 per year and variable costs are $60 per unit. If the project requires an initial investment of $4,000 $2,000 per year and variable costs are $60 per unit....
View Full Document
- Spring '10
- Net Present Value, initial investment, percent return, The Finnegan Company