7. David Puddy is car shopping and plans to buy a 2019 Toyota Corolla. After making a down payment, David plans to borrow $21,000 from his bank. The bank offers 4-year (48-month) car loans. Davids budget allows him to pay $500 monthly (at the end of each month) for the car. What is the maximum monthly interest rate that David can accept to keep his monthly payments to no more than $500 per month?

A. 6.70%

B. 5.56%

C. 0.56%

D. 0.42%

8. Joe Davola planned to begin saving for his retirement starting next month. Joes plan was to invest $450 per month, starting at the end of next month, for the next 25 years. Because of some unexpected circumstances, Joe will not be able to begin funding his retirement for 12 months. If Joe wants to end up with the same amount of total savings in 25 years, how much would Joe have to save per month over the 24-year period? Assume that Joe will be able to earn 6% annually on his investment.

15. Rick Barr Inc. is considering a new product line that has expected sales of $500,000 per year for each of the next 5 years. New equipment that is required to produce the new product will cost $800,000. The equipment has a useful life of 5 years and an $80,000 salvage value and will be sold at the end of year 5 for its salvage value. Total variable costs of the product line are $230,000 per year, total fixed costs (not including depreciation) will be an additional $100,000 per year and the initial working capital investment, to buy inventory, will be $10,000. The discount rate (interest rate) for the project is 10% and the companys tax rate is 35%. What is the total cash flow of year 5 for the company?

16.

Which of the following statements about capital budgeting is correct?

A. The timing of cash flows is irrelevant in capital budgeting

B. A company should use the same discount rate for all of its projects regardless of their risk

C. Interest expense on an outstanding loan is a relevant cost for capital budgeting

D. Proceeds forgone because a company used a building in a new project, rather than selling the building, is a relevant cost for capital budgeting