16.

Your company plans to produce a product for two more years and then to shut down production. You are considering replacing an old machine used in production with a new machine. The Old machine originally cost $ 736 and was bought Three (3) years ago (i.e. it has depreciated for three years). It could be sold today for $ 341 or sold in two years for $ 160 . The New machine would cost $ 984 and could be sold in two years for $ 405 . The new machine is more efficient than the old machine and would reduce waste, and therefore the cost of materials, by $ 326 per year. Due to the lower waste, we could also have a one-time reduction in inventory of 111 . The firm's tax rate is 25 %. Both machines are in the 4 year MACRS class, use these rounded depreciation amounts of 15%, 45%, 33% and 7% in your calculation. What are the total Operating Cash Flows in the first year (Year 1) with the new machine? Enter your answer to the nearest $.01. Do not use $ or , in your answer. Use a - sign if the cash flows are negative. Your Answer:_________

17.

The current price of a stock is $54.5 and the annual risk-free rate is 2.2 percent. A put option with an exercise price of $55 and one year until expiration has a current value of $ 2.32 . What is the value of a call option written on the stock with the same exercise price and expiration date as the put option? Show your answer to the nearest .01. Do not use $ or , in your answer. Because of the limitations of WEBCT random numbers, some of the options may be trading below their intrinsic value. Note, the given interest rate is an effective rate, so for calculation purposes, you need only discount the using the risk free rate, no e x adjustment is needed.

Your Answer:______

18.

You are offered an investment with returns of $ 1,576 in year 1, $ 4,379 in year 2, and $ 3,868 in year 3. The investment will cost you $ 5,591 today. If the appropriate Cost of Capital (quoted interest rate) is 6.4 %, what is the Net present Value of the investment? Enter your answer to the nearest $.01. Do not use the $ sign or commas in your answer. If the NPV is negative, use the - sign.

Your answer:_________

19.

As the director of capital budgeting for Denver Corporation, you are evaluating two mutually exclusive projects with the following net cash flows: Project X Project Z Year Cash Flow Cash Flow 0 -$100,000 -$100,000 1 50,000 10,000 2 40,000 30,000 3 30,000 40,000 4 10,000 60,000If Denver's cost of capital is 15 percent, which project would you choose?

Question 19 options:

	A. Neither project.
	B. Project X, since it has the higher IRR.
	C. Project Z, since it has the higher NPV.
	D. Project X, since it has the higher NPV.
	E. Project Z, since it has the higher IRR.