Fall 2011 Midterm Solutions

Fall 2011 Midterm Solutions - BEE-14.13: Cmp-orate Finsnee...

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Unformatted text preview: BEE-14.13: Cmp-orate Finsnee MidLerm Exam 21111 Last name .—— The management of a firm's nun—financial shun-lean assets and liabilities is called: :1. cash management b. tressurtr management £3) nursing capital management d. upper-balanee sheet management e. capital budgeting 2.. The process nfplsinling and managing a firm's lung-term investments is called: a. wnrking eapitsl management h. financial depreciaiinn c. agency eust analysis (ED capital budgeting e. capital structure management ii. The prim-.111: goal uF financial management is tn: :1. maximise current dividends per share Uni—the existing 511 rel»; @ maximize the current value per share of die existing stuck e. as'uiti financial distress. d. minimize uperatic-nal ensts and maximize firm eitieienq' b e. mainlsin steady grnwth in brth sales and net earnings 4. .-'i{n} asset is one which can he quickly eunverted intn essh n-‘ithuut significant lust—tin TJalue. ‘d— CUIIEI'JT is. fixed 1.11 is calculated In; adding hack nnneash espcnses tu net income and adiusfing t'ur changes in current assets and liahili1ies. s. asset cash fluw [3. capital ti‘l'htfi'Iding :2. net Wflfillflg capital cash flew Frnm uperadnns e. ensh Flt-1W to credilnrs Page 1’- 0+' 17 lrhbusi-fl'ifi i'le mil-indium amml wilfidfla: DESI-4438: Corp-Dent: Finance Til—Jill:ch Exam Hill East nfllIlt .—— The management ut' a Finn's nun—financial shun-terns assets and liabiiiries is called: a. cash management is. treasuqrnanagemnt {43) working capital management d. upper-baimee sheet management 6:. capi In] budgeting 2.. The Fm-ccss crfplsnning and managing a firm's iung-Lcrm incest-trients is called: a. working capital management is. fin anciai depreciation c. agenq :05! malts-ls @ capitsi budgeting c. capital strucLLu-e management 3. The p-I-itnni'r}r goal. ui'finsnciai management is In: a. maximize cuncnl dividends PEI“ share 0F 1he existing struck @ maxin'iize Lhc current value per fiilflE of the existing stuck c. m'uid financiai disercss d. minimirc i'rp-erntional exists and maximize firm efficiency w e. mainLain stendy gmde in had: sales and net earnings 4. .-".[nj asset is Dr”: which can be quickly a ms'ertcd inn: cash arid-mm. significant lost. in value. a. CIlIICI'I-T 1:. fixed 5. is calculated 113' adding i'SHIL‘l-L nuncas'r: expenses tn 11c: maime and adjusting For clmngcs in cufl'cnt assets and liabilities. a. asset cash fiuw 1:. capital spending c. net necking Cfipilfli @ cash fiuw from operations :2. cash flow to crediLors Page 3 “F 1". h'."-.b1:lsi‘11'|i'i ffll 2G11'tmidtem: ficnlai silidnrcx WMEH '6. Projected Future financial statements are ealled: a. plug statements (3' pm fauna statements e. reameiled statements d. aggregated Emmants e. vananee analysis statements '.-'_ Pt seintlardizes items en the income statement and halanee sheet as a percentage “1' total sales and total assets, respective]? nennalized reeeneiliatien statement statement eF staruiardiaaden smlernent of cash Flint-s: eernmen-lmse rear statement mmtnen-size statetnent saw? 8. The current resin is measured as: a. current assets minus current liabilities current assets divider] by current liuhililjes current iiahiiities minus int-emery, divider! 11;.- euttenl: assets eash en hanii iii-rideri by current liabilities sue: current liabilities divided eurrent assets ‘J. The financial miie measured as net ineeme divided 113- sales is known as the firrnls: Gr) preflt margin I 1;. return (in assets e. reLern en equity tl. asset tut-never e. earnings befiire interest and taxes 1U. The firmnein raeie measured as net ineeme divided by total equity is known as the fin'n‘s: a. profit margin In. return en assets 9 return en iatltu'ttr ei. asset Ulfllfl'fll']: e. earnings hefiire interest and taxes Page I [ti-"IT h:"._b115i4{|8 fall lell'tmldren'rl Hirtuul ilJEfiDE BUSH-IE: Cents-out: Fm hfidltrm Exam 2011 Last name 11. The :iebt-cquiLj.’ ratio is rnensured as Lora]: a. equin- minus n roll deht h. equity divided by total debt (E) debt divided h}; totai equin- d. deht plus toLai equin- e. debt minus niLal assets, divided bv total 13:11.th 12. The present value of Future eash fltm-s minus initial cost is mailed: a. the future value of the project @ the net presth value of the projeet e. the equivalent sum of the investment d. the initial investment risk equivalent value e. None of tlio shove. 13. The discount rate Lhat makes the net present value of an investment exaeth.‘ equal to zero is oalled the: a. extemal rate of return U @ internal rate oF return it. average amounting return d. profitability index t1. equalizer 14. You are ounsidefing a Pl'ujfflt with the fiallowing data: Internal rate of return Fifi-’1: Profitabilin- ratio .93 Net present value 5393 Payback period 2.4-1- teats Required return 9.5% E'C'hieh one of Lhe foilovringis eon-eel given this information?- Ix.’ The discount rate usod iu tompuLiug the net present value must have been less than 33%. ’14., The discounted pavhaoit period will have to be less than 2.44 years. " _,_.—I-'-'_ / 'l‘he discount rate used to compute the profitaliiiitv ratio was equal to the internal rate of return. Id, This project should he aeoepted hosed on the pntfilabifin- ratio. sir i i...“ @ This project should he rejected based on the internal rate of return. Page 5 of 1'-’ ltz‘tbu-si-il'lfl EaLI. 21:51 litmidtcrm art-11ml xiiid-ucs 31751-158: CD'I'PDI'II‘EI: finance Midtern‘t Exam EU} 1 Ins: numc _ _ cllulpmcm hat; been flcprccimcd four cimc-s using the spent SEDJIHD to purchase bum; fuuf ycanc 9gb. 't'his t5 could ncLuaUy 11c scald fur SILL'P-“JU. 214:: Wr.:rking ‘15. Cap: Fcar Corp. s1raighr Hm: method 1with 2.51 Ltsrimatccl useful life: of fiyt: ycnrs. Thu: hon SUM-L10 and long-tum dchL is SHJHJIJ. .-"L$5uming tl'm: cqujyrmcm is ch: firm“; nnly fixed asscuwhmis the bcmk min-:- capitn] L5 uf 5111chhchldurs' equity? M 1 '2 RACL M, I?" m @ summits FA (“Jag-Q 3M 9; ---""" '3‘ 1: b. .—$=- ‘3 rnq Jami) c. 4 J ’ _ “4 at. = H. :1. 31mm 30% i i 3 L. LTD 3.0% c. 'I."hcrr: 1-3 insuffician infnfumt'iufl pnn'idcd LD sub-c thfi prcrbIcm ____?:_.—-u- i Em a Accuunc t High 1.1.11] pay a smtcd inccrcm rate of 11.23%, [Dntlaluuuhly' llfi. If you will invest $1D,UWI in ma uccuunt Eur Lllccn: y'cnfi. Ind interest rate of 112%, annually- cnmltmufldcd. Tifhich account is t'IeialgLsfigB I 2! €- CUIT‘IPDUT'IdCd. Account an will pay a “Stat how much additional muncy will yuu hay-r. undcr 11:: “better” account by the cm! ofycur fl'u'cc? 2. .iccuunt ihgb by 321014.40 1 fl 1 i 5 I I 52.? b. Account High by 534.83 . _____.7 l 1 “EU 4: ‘3 by thc and of ycur chm: c. Both accuums gcnemtc 1bc Eumc arnflunt n1" munty‘ g @ Account Low by 534.33 I n j : (I, I: h_______._-—u—— V c. .‘Lccuun: 111w by $2,014.4fl ¢ 0 G g S. K gm! {#613 ff ' ES {Nil} :1 ycflr for 25 years: with your firm anmcut flfih‘ll‘lg ______—. rutbjy, what is Lhis prize WL'n'Eh To you mduy? 17. Tm; 'rusc 1.1-1 :51 ch: loamy: $5 your prize ynu will [active 5175, mmcrflcrw. If ym: cam 11 9'1"» smtcd annual rcmm. cu-rnp-ounded rm' ___.——--II a. 31,fi48,bfifl.4? ‘ 1:. 3,667,230.34 (T. omian CfiFEA J I \ (WW £13301 @6bufl c. $1,718,951.43 @ s1 182165.14? a Page 5 NF 1'- h:"-. msH'i'lH fall 2||]1\_r-.ai:ilcm'l :Icuml yiifific‘pczc [351:5le: Fmpurate Finance Midterm I".me 21TH 1 Last name 115. You tutu-rott- SESlLUUU to ltttfr a house. The monthly eff-retire morLgage one '55 |J.:'t"-'n (one. half of one percent] anti the loan period is 30 fee-11's. Pet'menrta are made monthly {assuttte the pet'rnenfi ere wooded If.) the nests-Ht penny). If you 1:33: For the how much totttiintet'est tt'ill you put? (Shooter: tite clot-test answer. house according to lite loan agreement, 2. 32m,tlflfl n3 7 x 53‘15‘3‘5‘ ( 2 StatJ oh (E) sweetie = 0. 5'. #________ d. 32949:"10 3 R56 m S” e. 53:15th a 1 ..———J-——' 15}. You: firm tit-ante to make a capital int-eetotent ol'S‘lfJIU,L'H']l'} four }E11‘5 Fmttt new. The plan is to 5:1 aside 1-111 equal mount of enemy. on the first :lag: of each ‘_i.'(‘:|.T sarong tomormw. The firm rim earn :trt effect-ire annual rate of return of SFE‘T-“it. How.- much does the firm have to 5211 e each tear to achieve its goal? 3‘1"} _ a see,131:5 A Z ’ o b. SELW-‘Lfifi , _l e. 523363.133 [Dolmz a 0%,? ‘g/ momma _ if 523,327.73 1 .3373 Cycle. 2 HI I'l' 150919.12: ans” W: '"t‘ West-oh EU. Ireeeutlt- purchase a house for Sfimflllfl. I pni "tn—r SHAME! in cash Ht Closing, and am 1!.le EU make monthly.- payment-s of 531W] ace oi- '§|':'-1:.. 't'fi'hsttm'er er mot-1th~ et'ert- motth to ‘JElT clown a 311 wear “ lain vanilla" mort e with a seated annual interest 1: , . . 1" .. atldifionxl monet' need to pity for the house will be borrowed uncle: H zero coupon balloon loan. which means'l will make no iI‘HEICEt or pflnt:i1m_lpat_,-me11:5ttntlet'theltalloonlot'u't until menu-it}: If the italjoon lotto matures in 1U years, and charges 3 12% efFeeL'n-e interest mte, what will 1 owe on my: balloon at maturity? :1. $523,463.44 n: 350 #15ij b 3123mm!) e th 7 4311‘; r5qu . LL) 2 _ anagram ‘2 1 l 53?; lg L We! ® $161.5}33m3 e. 317155228 n—- to J; 3 tl'f. W : 52kg” F“; : ll.le flI'BM Page r-' r_1F lT h;'-._bu-si-1HH fall 2fi11hrmclt-rnn actual elliclonc BESHEIS: Curpnrat: Finance liflcltenn E.me EU! 1 Last name _ essEul career. ‘r’nu detzlcle tu establiah a trust fund rltat provides. SEE—1.0% in TI. After graduation1 tea gu on tn :1 Tcr'f succ sehelatships each year For mirth}.- students. The trust fund earns a SEW-'1: rate of return. l-iuw much inune]: elu gnu need to 11m1trjleILC tn ll‘ac‘ fund assuming that uni} Ilte interest income is distributed? a. Silfllfllfllfll a. mammalian K v M c. saintnumn _______.———- sanmimm ._. E) . 0.5 e. $7,0m1mlfl‘flfi 22. Yrru have $12,500 that you want tu use tn cup-tn a savings aeta'runt. You have found five different. acctiums that. are acceptahle to sum Which aeca'runt should tnu use liased upen Lhc annual pereenmge rates quoted ht caeh hauls? ® 335%. cumpeunded annuallt '___ a l:- 33mm, entrtpuundecl seirLi-tittuually H 1 3 a! ._ , I C. 3.433%, cumiinuncled quarterly Ll. iifrllii’u. enmpnundecl monthly ate 3.55%, compounded daily 3 C l 1 CI 3 g C. 'H -.-.-_—__fi_ 23. Chapel Hill Lu]. currently produces stained glass'.u-i:tdnn:s and is considering expanding its LJPEflIjth to include windea' - . I I - f- 1 . rt. The company nun-s land beside 1ts current manufacturing Eactltsy that could he used her the t‘tp‘flflfilllfi. The Today, the land is valued at. SUEH'JHJU. The grading and eme unused equipment resturatlu this land ten years age at a cost of SSEH‘LHUU. ssars' tn build en the land will eust Slfiflfllfl. The eumpantr currently ewes s euulcl be used 'Fut window restumfinn iE EEEHIIUIU is spent for equipment. mtxlifieaticrns. Flew fer m-aluati rig company buught esearatluu wurk neee valued at: Slfififlll'll. This equipment lE_Z|t'rtei' equipment costing SHOMJUD will alsu be required. fi'imt ametmt should lie used as the initial cash this expansinn pruieet? 9 (WW m c. Q til-W am Page R fr]:- 1'? hurt-.5140? [all Jill! l‘trnicltL-fin actual filidltfl 13135114113: ILinnrpnritte Finance Miriremi Hum 2[}11 last name . _. __ Ede It project wfll pmtiuee taper-snug cash fluxes nF 5545flfifl a rear for ten: years. i'Jui-ing 1he life of the prujeet, ifit‘EfltDr'f will he el lowered h}. SEMKJU and accounts reeeit-ihle wiil increase by El SJL'H'JL'II. .‘teenunts parable will decrease h]: ill—LBW. The pmjeCl F—____ requires the purchase Hf equipment at an initial ensr nF Sifllih’ii}. The equipment win he depreciated Straight-“mi 10 a zero _-_—-_—- 'I—_—-—---_- bnn'k euqu twer the life tn" the pmieet. The equipment will he saivflged at the end of lire prnqeer ere-sung- :t SliUUlil utter—lei; —-—_-_d cash flow. :‘tt the em] nl' Lhe prnieet, net u'n-rlting eupiufi will return to its uni-ms] let e]. What is me net present utiue of this prnieer git-en st required return nt— 14%? 1—-—_.|' 3. $3,433.43 s. s1s,1u.us “T5 ‘1"; “T; ‘13 fl 6) SET-'flfifififi w“ "— -—-H' "" w? a. surmise. #1 4.1"” “i? fit“: A mic. g “L use. ELF wt I“- 459/ 2. . You have been as ed tn evaluate :4. 3-year prniet't wid‘t an initial em: (if Sfiifififlii The pruieer u'iii rint direedjt pru-duee 111.1.- fl sales hut will reduce npemting was he SEEIEJJLHJ :4 year. The equipment is depreciated ensign—line to 3 zero hunk esiue OTCI the life uf the prnjeet. At the end tit the project the equipment uni] he st'rirl For an eslimrtteei Snfl,EHJfl. The tax rate is 34".-’u. The pmjeet wilt require EEEIJGU in extra EITHER}: Fur spare parts and aetessur'res. Shnuhi this prnieet be implemented if the required rate nt' return is 9%? ‘t‘i’hy ni- why um? - a. fin; The NPR? is - Slfi-i-fiifli @ Yes; The N'F‘V is $1354.01] e. 1ties; The NF'V is $32,593.73 d. 1Yes; The KFT is S45,'lfll‘i.54 e. Yes; The _\P"I.-' is SifififiMfiU ‘T‘D "l"l TL “F3 ‘ 24.? M Zing (my cw:- 2w.» NW '3? 3s 3‘! 1,31. 141E mitt ._ mg}: <fi'37 hum (3'37 g r 3 fig 5521mm 8 Eu" 2111]"ituidrerm N (but? 225“ we 23% MEI-103: Earp-Dram J."':n:1:1u:u: llidmrm Exam 2m 1 LHEL nan-1+: Plume use d1:- finllowing financial armaments for LEUE’SIJOEIE 2E1 - T50 Hnbflfi, Inc. 21H“! Incume .‘a‘tatemrnt {S in Iflill‘in us} Net sales $9,614} It“: Cost {lng 501:] If- I 1 [1:55; Depreciuliun @ Earnings brl'nrt- Interest and taxes . 1 0 Less; Interact paid 15.50 Taxable 1m: arm.- H.500 Less: Tam: 455 Net. il'l-EIH'E'E' LE5 Nahum, Inc. 2111]? and EMS Balance ShL-cu H In millinm: m: w a"; m Cash S fill] Ii 4115 .ucuunts payath $ 1.?29 5 2,511] .trruunts rec. 21154-1] 3.1155 Nous [u]. uhlt lflll fl lnl‘unmry 3121'1 3,350 Tntnl 5 1,310 § 1.570 Tutu! 5 15.215 S T H] Long-[Hm debt 7.375 8,100 Net fiIIfl] use“ 111,23! lfllafiTD Common I.th 5mm 535$ Retained earnings 15191] ENE 'I'nlul unset.“ ELLE £11,931] Tulal Ilah.& equity ELI—1&5 w 215:. “Tim: is th: change in the 11m marking capital From ZIJEEIT m 2008? M7 Lana a M; :1. 51,235 b. 51,035 61% b 115* 73m 51:3: . e? 53;? am. mm“? mm . . J g.»- ‘ "3'53 :3. 34:40: 3%; H'} ng (A _l 2.7. \E'hm is. Lhc I'HTIULLEIE of 1+": nun-1:351". crepenscs fur 2008? a. 5571'] h. 3630 1:. 53-1-5 L9 SLETCI c. Slflfifl “Ia-r P‘agc H'l HE 1.7 h:'~,':m.~1'-1I.H [all 30‘.1'-.mi|ltcrm m'rual filidofi HL'SIWS: Corfurmtfi Financr lfidttrm Fun-1 EUH Last mm": __ — Zf-j. \Umt is the: anuuunt of tin: net capital tap-ramljflg for HIDE? a. $29!} l,_ 3795 2.05:] 8 311130 . -‘—"—" ? 51,560! NFR wlqao Lb; b1 D r 52,165 AMFA 4... "94.4? mirth... LBIQbD +— I310 E 2‘). Whm. is Lhc upcmu'ng cash Flrnt' for ZEHJS? a. 5845 1:. 31,931] 4:. ‘32 2.15 101 190 @52,345 er {Duff’fl- 1311:. 6. $3,060 - Zia-E \I' -_._,_.—-F ____._.——-"' d’LF '1 8 us: dlfi ...——-—'—'—'_F 30. What is the asset mrnm-cr ratio uFLhE firm Eur EDGE? V- LL53 h. 0.9:} c. 1.11 w I CHQLD :- l E?) a: 1.3.? "Tr-1+ I11 q 30 P35; 11 (I‘F 1? '|-._-".I'|l-.;5i4[}3 [all 2131 1‘\-_m_id_tfi:rn actual wLE'AfiOCX EL'SHUS: Currmmn: Finance Hitlrttnn F.me E'Ull Last nan-It: ’: 3']. Hpafufl Assume that it 1':- 2M] and 2U13 is nnrr year away. Solve cach'p:1n.tn Lhe penny [in 2 dfliiinfll points) ‘—-*' :1. Tun think Lhal: you cutlld tin: :1 mmfnrtabh: Lifi: u'ith muting": prices if you I'm! an annual budget m" Sflfiimflfl' 1'th 2:711 dollar-i. Hut inflau'on will main: prices gr: up significantly l'l-tfh'n'tt'fl Lntlaf.‘ and whcn gmu rain: at ti'ltf final at" 205i. Tfinflatinn will In»: it'll—W: a tent, how many rmtuisml 2052 duilars will you need for a cumfimahle lift: in jmur first [ran]: uf tttrirtment? q 40"” M Lee (mi) K REG / M r- await a 250-” b. .‘nttumc flint tun gut an amwu nf_53'l'lfi.'l'lm.a.t~ in part [a]. ‘l'hifi it. equjvzlcnt tn saying Ihat would Jikr tn spend SSWIMU in yuan“ 2052. for your “mmfnttablc lift”. r‘tfisumr: IhfiE you would Jilin tr; make 2UI annual withdrawals Emm taut tenrcmcnt account and that you will want the annual trithclruwsils it: grow each Fm: hf: 1mm. to kccp 1:11 with 111:: mt: uF inflation To obtain this. annual budgct, I'IUW much money do you mum] in from rctimrnmtt account in .- ry- 205‘]? Assume 1:11;: r ' 02 . EMK "ii I _ if]? ] “.lfi‘é‘ltfl-l- HF— 02 '“fi’oz t-J . (Sq c w 4:: _. <4 v1 m £5" N F3g‘t‘.1’1tlrl7 hf-Jmsi-HIH {all 2Ll11".lmit:|r::-.11‘I actual TUidUCI fibril-ME: Corporate: Finance Xfidtcnn Exam 2011 | .:i S L flame 4:. Assume that )l'fl'l gut $4,0L1U,f|fi[}3,1_=-_ 1n purl: [hj."-."Ch1tis Lhu: value today of S4,UEH'],EH.'|U? :I'LSF-Lunt: r'—1‘I.5”«"r:-, and igllni'c .r--'-_——-__ tl‘n': effects of inflatinu. fl: Ll-O 4,600,660 '____—-—- JL: llaS‘i/ '23 (LN; 9'0 2' Linufinu :1. 55511111: ll‘JElE 3.1m gm $75,0Lllzun in part {c}. T51R11 15 a lJit much to fund jmmedjaml}. Assume that you will work for 44'] team (it. 51.“: will hme 44.] cash flaws into :a savings accc-unn matting :xacdy on: year frurn nncrwjuJ that. your Rfllflfl' will grow at 6.5% aft-car, r— 11.5%, and lulu can ignore the effccni ui'ini'lmiu'in. You wifl atli'rpt d1: strategy- nE saving a fixed mrctnmgc of your salary each 51:3: 5:: that the PICEEJ‘II value of thi; fi1fitt' wream nf savings Equals-t S?5,[Iflfl. 1-ullnwing this smtcgy. hm); 1'nuch will you haw: tun sat-1: in year 2012 EU obtain your comfurl ablu: TttlitEchn? 1 H l-D'oS 48’ - CF a?‘ f— IHS" : 73—3000 Jig-1019.3“ * in Hip; 15 "1' L" h:"-.l:r.:.~i4"l|5 Fall 2m 1‘._rr.i:ilr_*tm actual filidw'w UnitS 25.000 52.500 40.000 30.000 Price .f Unit 5 15.00 5 15.50 5 1?.25 5 13.00 Coat! Unit 5 8.50 S 0.94 5 9.19 5 9.50 Net Working Capital 5 20.000 5 52.500 5 53.525 5 59.000 5 - Changes New: 5 20.000 5 1?.500 5 15.125 5 15.3?5 5 {05.0001 0 l 2 3 4 w E w 3111.51 Saies 5 325.000 5 535.250 5 590.000 5 540.000 Var Cost 5 {212.500} 5 {205.300} 5 {3511443 5 [200.000] Mk1: Expenses 5 {14.000} 5 (15000} 5 {14.000 5 {14.0001 Depreciation 5 000.000} 5 {100.000} 5 {100.0003 5 [100.000] E5|T 5 — 5 45.500 5 134.950 5 205.255 5 139.150 Taxes {0 40% 5 — 5 {10.400} 5 {53.000} 5 {03.3023 5 {55.0541 NDPAT 5 v 5 29.100 5 50.920 5 124.954 5 33.495 Ad 'Lustrne nts: [+j New Cash Flow {impact} 5 0.000 5 3.000 5 0.000 5 3.000 Il+j Depreciation 5 100.000 5 100.000 5 100.000 5 100.000 H Chg NW0 5 {20.000} 5 {11500} 5 {15.125} 5 {15.3151 5 50.000 Uppity Cost - Land 5 [195.000] 5 195.000 Oppty Cost - Equipment 5 {120.000} H Cap Ex 5 0100.000} {+1 Residual 1value 5 50.000 Free Cash Flow 5 {255.000} 5 119.500 5 122.345 5 211.529 5 515.495 P'h" @ 5% 5 [235.000] 5- 109.225 5 145.450 5 155.011 5 355.190 NP'U' [formuial 5 53.405 NW halo} 5 53.405 ...
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Fall 2011 Midterm Solutions - BEE-14.13: Cmp-orate Finsnee...

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