Assignment2_Winter2007_March112007 - AK/ADMS3530 3.0...

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AK/ADMS3530 3.0 Assignment #2 Winter 2007 Instructions: (1) This assignment is to be done individually. You must sign and submit the standard cover page supplied as the last page of this assignment . (2) Before you start, please read the note “ Writing Style Required for ADMS3530 Assignments ” posted in the “Assignments” folder on the course web site. Please stick to the writing guidelines suggested in the note. (3) This assignment is due at the start of the last class, March 28 – April 3, 2007 (please refer to your class schedule). (4) For Internet section students, the assignment must be uploaded to the Centre for Distance Education: and identified precisely in accordance with the course outline by Thursday, March 29, 2007, midnight. (5) This assignment is to be either handwritten or printed out. Work that is too difficult to read due to messiness and poor handwriting will receive zero credit. You must show your work to receive full credit. (6) This assignment carries a total mark of 100 points. (7) Late assignments will not be accepted whether for technical or any other reason. (8) Decimal places: please keep at least 2 in your calculations and final answers. Question 1 (18 marks) Blooper Technology Inc. is considering purchasing two machines, A and B, which are expected to generate $36,000 and $40,000 respectively in cash flows per year for 5 years. Although Machine B is more expensive than Machine A, its payback period (3.25 years) is shorter compared to that of Machine A (3.5 years). Blooper’s opportunity cost of capital is 10%. (a) Which machine would you take if the machines were mutually exclusive and if shareholder maximization were your basis for decision? Explain. (5 Marks)
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ADMS3530 3.0 Assignment #2 (b) If the company is willing to accept any project with a discounted payback period less than 4.25 years, would you recommend buying these machines? Explain. (4 Marks) (c) Calculate the internal rate of return on each machine. Would you buy
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This note was uploaded on 12/14/2011 for the course FINANCE 3530 taught by Professor Delta during the Spring '11 term at York University.

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Assignment2_Winter2007_March112007 - AK/ADMS3530 3.0...

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