1) You are trying to pick the least-expensive computer server for your company. You have two choices: server A, which will cost $100,000 to purchase and which will have OCF of ($7,000) annually throughout the server's expected life of three years; and server B, which will cost $125,000 to purchase and which will have OCF of ($2,600) annually throughout that server's four-year life. Both servers will be worthless at the end of their life. If you intend to replace whichever type of server you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 15 percent, which one should you choose?

Server A

Server B

Both Server A and B

Neither Server A nor B

2) You are putting together a capital project for cat food, something new for your company. This is a major undertaking and you are focusing on the initial period cash flow. Machinery will cost $5 million and there will be sales tax of 5% on the machine. Delivery cost and installation fees will be $30,000. You have also been told that there will be incremental inventory required of $150,000 to start. Additionally, a significant market research project that cost $725,000 has recently been completed indicating a market share potential for the cat food market of 3%, which is very encouraging. What should be your estimate for initial period cash flow?

$5,150,000

-$5,180,000

-$5,430,000

-$6,155,000

3) Youve been given the following information for the first year of the rollout of a proposed new service for your company.

Projected sales	$18 million
Operating costs (excluding depreciation)	$ 9 million
Depreciation	$ 4 million
Interest expense	$ 3 million

If your company has a 40% tax rate, what will be the projects cash flow for year 1?

$ 2.0 million

$ 5.2 million

$ 7.0 million

$ 9.0 million

5) Youre a financial analyst any your boss has asked you to do a comparison of monthly budget versus actual performance for the division, which sells collars and leashes. The data given you is as follows:

	Budget			Actual
	Units	Price/unit	Sales $	Units	Price/unit	Sales $
Collars	100	$10	$1000	200	$8	$1600
Leashes	200	$22	$4400	200	$25	$5000
Total	300		$5400	400		$6600

Using the above information, calculate the average unit prices and do a traditional volume/rate analysis. What is the variance due to rate (price)?

$1800

$1200

-$400

-$600

6)

Using the same above information as in problem 17, do a volume/rate/mix (Morin Method) variance analysis. What is the variance due to rate (price)?

$1200

$1067

$ 533

-$600

7)

You are preparing a capital project evaluation for a new plant, and one option for the location under consideration is a piece of property currently owned, purchased 20 years ago with a current book value of $75,000. Should this be a consideration?

Yes, it is an opportunity cost and should be valued at the $75,000 book value

No, it is a sunk cost

No, it is irrelevant to the current analysis because it is not an incremental cost

Yes, it is an opportunity cost and should be valued at the current best market value.