Econ 3540 Foundations of Corporate Finance Take-home Final Exam (December 19-20, 2019) l. (6%) Projects A and B have the following cash ows: C0 C1 C2 C3 C4 A (100) 60 50 (40) 30 B (80) 40 0 0 100 1) If a company uses the payback rule with a cutoff period of 2 years, which projects would it accept? 2) Which project(s) will the company choose given an opportunity cost of capital of 10%? 2. (10%) Station WJXT is considering the replacement of its old fully depreciated sound mixer. Two new models are available. Mixer X has a cost of $345,000, a 15-year life, and after-tax cash flows (including the tax shield from depreciation) of $70,000 per year. Mixer Y has a cost of $130,000, a 5-year expected life, and after-tax cash ows (including the tax shield from depreciation) of $60,000 per year. No new technological developments are expected. The discount rate is 12 percent. Should WJXT replace the old mixer, and, if so, with X or Y? (Hint: If WIXT chooses mixer Y, it can always buy a one when the old one is out of use after its economic life. Since there are no technological developments, the new mixer Y will generate the same cashow) 3. (10%) Lara Beal has $8,000 in cash now. She can lend and borrow at the bank at 10 percent per period. Her only investment possibility other than the bank is a project that costs $4,500 now in her Youth and has a payoff of $5,000 in cash one period from now in her Old Age. 1) What is the most she can consume in her Old Age? 2) What is the most she can consume now