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FIN 445
Homework #2
The goal of this assignment is to prepare you for the exam.
This assignment is due on
Monday, March 8
.
Please make a copy of your answers, as I will post the answers to
the homework for your use as a study aid.
Finally, for those of you using calculators, I do not require that you write anything down
on the paper.
If you want to exclusively use the calculator and only write down the
answer, that is your right.
However, no partial credit will be given for a wrong answer.
This policy will apply to the exam as well.
If I can not clearly read your work, I will assume it is wrong.
“There are no stupid questions, just stupid people that ask questions.”
-unknown

1.
You have just landed a job as a financial analyst at a convenient store.
On your first
day, your boss walks into your cube and asks you to evaluate two mutually exclusive
projects:
one is a new hot dog warmer and the other is nacho cheese station.
Thoroughly
disgusted and questioning your decision to take this job, you begin work immediately.
Your boss provided you with the following information:
The required rate of return is
10.75 percent for the hot dog warmer and 12 percent for the nacho cheese station.
The
convenient store has a 2 year payback cutoff on all capital expenditures.
Year
Hot Dog Warmer
Nacho Cheese Station
0
-36,000
-69,900
1
21,600
52,600
2
18,200
46,100
3
22,100
0
Not knowing which metric your boss wants you to use to evaluate the project, you solve
for two.
What is the payback period for each of the 2 projects?
Hot Dogs:

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