1) DYI Construction Co. is considering a new inventory system that will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI's required rate of return is 8%. What is the net present value of this project?

A) $104,089

B) $100,328

C) $96,320

D) $87,417

2) Project LMK requires an initial outlay of $400,000 and has a profitability index of 1.5. The project is expected to generate equal annual cash flows over the next twelve years. The required return for this project is 20%. What is project LMK's net present value?

A) $600,000

B) $200,000

C) $120,000

D) $80,000

3) Raindrip Corp. can purchase a new machine for $1,875,000 that will provide an annual net cash flow of $650,000 per year for five years. The machine will be sold for $120,000 after taxes at the end of year five. What is the net present value of the machine if the required rate of return is 13.5%.

A) $558,378

B) $513,859

C) $473,498

D) $447,292

4) You are in charge of one division of Yeti Surplus Inc. Your division is subject to capital rationing. Your division has 4 indivisible projects available, detailed as follows:

Project     Initial Outlay          IRR           NPV

     1             2 million             18%       2,500,000

     2             1 million             15%          950,000

     3             1 million             10%          600,000

     4             3 million              9%        2,000,000

If you must select projects subject to a budget constraint of 5 million dollars, which set of projects should be accepted so as to maximize firm value?

A) Projects 1, 2 and 3

B) Project 1 only

C) Projects 1 and 4

D) Projects 2, 3 and 4

5) Kohler Manufacturing typically achieves one of three production levels in any given year: 8 million pounds of steel, 10 million pounds of steel, or 16 million pounds of steel. In tracking some of its costs, Kohler's controller discovered one cost that was $10 per pound no matter what the production level for the year. This is an example of a

A) variable cost.

B) fixed cost.

C) semivariable cost.

D) semifixed cost.

6) QuadCity Manufacturing, Inc. reported the following items: Sales = $6,000,000; Variable Costs of Production = $1,500,000; Variable Selling and Administrative Expenses = $550,000; Fixed Costs = $1,350,000; EBIT = $2,600,000; and the Marginal Tax Rate =35%. QuadCity's break-even point in sales dollars is

A) $2,050,633.

B) $2,197,500.

C) $2,438,750.

D) $2,785,000.

7) Based on the data contained in Table A, what is the break-even point in units produced and sold?

TABLE A

Average selling price per unit    $18.00

Variable cost per unit                 $13.00

Units sold                                 400,000

Fixed costs                              $650,000

Interest expense                      $ 50,000

A) 130,000

B) 140,000

C) 150,000

D) 180,000