1.

Geary Machine Shop is considering a four-year project to improve its production efficiency. Buying a new machine press for $883,200 is estimated to result in $294,400 in annual pretax cost savings. The press falls in the MACRS five-year class (MACRS Table), and it will have a salvage value at the end of the project of $128,800. The press also requires an initial investment in spare parts inventory of $36,800, along with an additional $5,520 in inventory for each succeeding year of the project.

Required :

If the shop's tax rate is 34 percent and its discount rate is 8 percent, what is the NPV for this project? (Do not round your intermediate calculations.)

2.

Vandalay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $2,100,000 and will last for 4 years. Variable costs are 38 percent of sales, and fixed costs are $150,000 per year. Machine B costs $4,310,000 and will last for 7 years. Variable costs for this machine are 27 percent of sales and fixed costs are $115,000 per year. The sales for each machine will be $8.62 million per year. The required return is 10 percent and the tax rate is 35 percent. Both machines will be depreciated on a straight-line basis.

a)

If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine A? (Do not round your intermediate calculations.)

b)

If the company plans to replace the machine when it wears out on a perpetual basis, what is the EAC for machine B? (Do not round your intermediate calculations.)

3.

Suppose a stock had an initial price of $67 per share, paid a dividend of $1.55 per share during the year, and had an ending share price of $82. Compute the percentage total return.

4.

A stock had returns of 13 percent, 13 percent, 14 percent, -10 percent, 19 percent, and 8 percent over the last six years.

a)

What is the arithmetic return for the stock?

b)

What is the geometric return for the stock?

5.

	Returns
Year	X			Y
1		16	%		22	%
2		30			31
3		11			12
4		23			28
5		10			22

Using the returns shown above, calculate the arithmetic average returns, the variances, and the standard deviations for X and Y. (Do not round intermediate calculations. Enter your average return and standard deviation as a percent rounded to 2 decimal places, e.g., 32.16, and round the variance to 5 decimal places, e.g., 32.16161.)

x Y

Average Return % %

Variance

Standard Deviation % %