BA103-F04-quiz_01answers

BA103-F04-quiz_01answers - your name Quiz 1 UGBA 103 Friday...

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your name: _____________________________ your section - circle one: 101 102 201 202 your student id#: _____________________________ Quiz 1, UGBA 103 Friday 10-Sep-2004 Page 1 of 2 1. Your company is considering investing in a Cal Wear manufacturing plant that costs $1,200,000. The plant will produce five (5) years of equal cash flows. The first cash flow comes one year from today and is $600,000. The plant will need maintenance three (3) years from today at a cost of $75,000. The maintenance will not interfere with production. After five years, the plant will be worthless. The correct risk-adjusted discount rate is constant at 10% step 1: draw the cashflow diagram with all relevant cashflows: (1 point) 1,200,000 600,000 600,000 600,000 600,000 600,000 75,000 Yr 0 Yr 2 Yr 1 Yr 3 Yr 4 Yr 5 (value 1 point) the cashflow diagram should look like this. it is hard to imagine another drawing being correct. If the student omits the year 0 (zero) cashflow, but solves the problems correctly, then still award one point. However, if the student omits the year 0 cashflow and gets the answer wrong, the award zero points.
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