1. Alberta Pasta is considering producing a new type of pasta. The required equipment has a constant capital cost allowance over its 3-year life with a zero salvage value. No new working capital would be required. Revenues and cash operating costs are expected to be constant over the projects 3-year life. However, this project would compete with other Alberta Pasta products and would reduce the companys pre-tax annual cash flows. What is the projects NPV?

   WACC	10.0%
   Pre-tax cash flow reduction in other products (cannibalization)	$5,000
   Investment cost	$65,000
   Annual capital cost of allowance (assume constant capital cost allowance for ease of computation)	$21,665
   Annual sales revenues	$75,000
   Annual cash operating costs	$25,000
   Tax rate	35.0%

   		$26,598
   		$27,929
   		$29,325
   		$25,269

2 points

QUESTION 9

1. Garvin Enterprises is considering a project that has the following cash flow and WACC data. What is the projects discounted payback?

   	CF
   Initial investment	(1,050.00)
   Cash flow-yr-1	510.00
   Cash flow-yr-2	510.00
   Cash flow-yr-3	510.00
   WACC	9.0%

   		1.80 yrs
   		2.06 yrs
   		2.35 yrs
   		2.50 yrs

2 points

QUESTION 10

1. Which of the following statements best describes listing on a stock exchange?

   	a.	Listing is a decision of more significance to a firm than going public.
   	b.	Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the security commission.
   	c.	Listing provides a company with some free advertising, and it may enhance the firms prestige and help it do more business.
   	d.	The OTC is the second largest market for listed stock, and it is exceeded only by the TSX.