1. A pharma company is considering five divisible projects with the following details.

Choices	1	2	3	4	5
Initial Investment	$300,000.00	$400,000.00	$450,000.00	$500,000.00	$600,000.00
Annual Receipts	$205,000.00	$230,000.00	$245,000.00	$260,000.00	$290,000.00
Annual Disbursements	$125,000.00	$130,000.00	$140,000.00	$135,000.00	$150,000.00
Salvage Value	$50,000.00	$50,000.00	$60,000.00	$75,000.00	$75,000.00

The company uses a 10 year planning horizon and a MARR of 10% and has a capital limit of 1 million dollars.

Determine the optimum portfolio of fully and partially selected investments.

Perform a sensitivity analysis on plus or minus 10% on the capital investment.

If project 3 has to be fully funded, will it change the funding selection and or the percentages?

2. Elite Construction Company plans to raise 2 million dollars to finance their new operation. The accountants plan to take $400K from the earnings. They also plan to borrow $700K from a lending institution that charges 8% annual rate compounded monthly; Issue bonds for $500K with a cost of 6% yearly compounded quarterly; Issue common stock for $400K, which issue $0.75 dividend per year. The current stock price is $15 a share and the growth rate is 5% per year. Their effective tax rate is 34 percent and they pay taxes annually. Their MARR is the weighted average cost of capital plus 4 percent. Determine the MARR.

3. The same company mentioned in the previous problem, purchased a crane 6 years ago for $130,000. They need a crane of this capacity for the next 5 years, Normal operating costs are $35,000 per year. The current crane will have no salvage value at the end of 5 more years. The company can trade the current crane for its market value of $40,000 toward the purchase of a new one, which costs $150,000. The new crane will only cost $8,000 per year to maintain and will have a salvage value of $55,000 after 5 years. If MARR is 20%, determine which option is preferred. A. use the cash flow approach (insiders viewpoint) and B. Use the opportunity cost approach (outsiders viewpoint).

4. You are in the process of deciding to buy a car. You found a brand new Hyundai Elantra for $22,000. You read the reviews and they all sound good. You plan to keep it for 5 years. You do some rough

calculations on the amount of expenses, which includes oil changes three, or four times a year, one set of new tires during the 5 year period, one set of breaks, one major change of all the fluids and few other things. It comes to about $150 per month on average or $1800 per year for the 5 years. At the end of 5 years, you plan to sell or trade it in for $5000. A friend of yours calls you with great news about a used car that is available for purchase. An elderly woman who used the car only to go back and forth to church and short distances wants to get rid of her car and it has very low mileage. She will sell it to you for a very low price of $12,000. You are now thinking about the $10,000 immediate savings. You also know the maintenance and the repair costs are going to be higher than the $150 per month you projected for the new car. This may need some engine work or transmission work and you estimate $250 per month or $3000 per year. You also estimate that at the end of the 5-year period the car may only be worth $500. Based on yearly cost, can you calculate the difference between these two cars and make the best decision. Also, calculate the present worth. Your TVOM is 10%.