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Test2 Solutions - VERSION 1 CLASS TEST#2 SOLUTIONS TO...

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VERSION 1 9 CLASS TEST #2 SOLUTIONS TO MULTIPLE-CHOICE QUESTIONS #1 True #2 True #3 True #4 The selection of one project excludes the selection of any other. #5 MR > AC #6 In the Theory of the Business Firm, the maximum marginal profit is achieved at the production rate asso- ciated with the point of inflexion on the total production cost curve. #7 In the short run, produce as long as the selling price is above the MC. In the figure, the MC curve crosses the selling price a little below a quantity of 10 units. #8 Using CF worksheet, enter +CFs and with I/Y=4%, CPT NPV 19 281 CF 0 = 19 281 – 10 000 = -9281 #9 NPV @ 8%: -140 000 + 20 000 (P/A,8%,10) + 15 000 (P/A,8%,5) / 1.08 10 +12 000 (P/A,8%,5) / 1.08 15 = 37 047 Or using CF worksheet with I/Y= 8%, CPT NPV 37 047 #10 Average net income: (2000 + 1900 + 1500 + 900) / 4 = 1575 Average investment: (25 + 0) / 2 = 12.5 ARR: 1575 / 12.5 = 12 600 % #11 Cumulative CF: (0) -9000, (1) -7000, (2) -1500, (3) 100, (4) 7600 PP: 2 + 1500 / 1600 = 2.94 (below 3 years) #12 Semi-annual after-tax interest payment: (1000 (0.08) / 2) (1 - 0.36) = 25.60 With N=14, PV= -1106, PMT=25.60 and FV=1000, CPT I/Y 1.70 % Convert to an effective annual rate: (1 + 0.017) 2 - 1 = 3.43 %
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VERSION 1 10 #13 Using PVRs as guide: Investment NPV PVR 1) Fort McMurray, AB 130 300 2.31 2) Colk Lake, AB 450 600 1.33 3) Offshore, Nunavut 1200 1900 1.58 4) Turtle Lake, SA 500 750 1.50 5) Offshore, Prince Rupert, BC 900 1400 1.56 Combinations: 1) Fort McMurray, AB 130 300 2.31 3) Offshore, Nunavut 1200 1900 1.58 Total: 1330 2200 1) Fort McMurray, AB 130 300 2.31 5) Offshore, Prince Rupert, BC 900 1400 1.56 2) Colk Lake, AB 450 600 1.33 Total: 1480 2300 4) Offshore, Prince Rupert, BC 900 1400 1.56 5) Turtle Lake, SA 500 750 1.50 Total: 1400 2150 Choose 1, 2 and 5.
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