1. A married couple each has an IRA and deposits at a bank. The couple also has one child. If they had the money, what is the total amount of their accounts that could be insured at one bank?
A) 1,500,000
B) 750,000
C) 2,000,000
D) 1,250,000
E) 250,000
2. First American is considering buying a new machine to increase production. It will cost $3,000. Shipping will be $300. It has a three-year class life. At the end of one year they plan to sell the machine for $2,000. The new machine will allow FA to increase revenues by $1,800 each year but expenses will increase by $400 each year. If the new machine is purchased, inventory will decrease by $1,000 and accounts payable will increase by 350. Straight-line depreciation will be used. FA’s marginal tax rate is 34% and its cost of capital is 7%.
What is the OCF for year 1?
a) $1,111
b) $561
c) $1,298
d) $1,950