Need help with finance assignment. The questions are attached. need help for pages 8 to 18.

1. A(n) _______________ has a _______________ distribution and is best characterized by its_______________ and its average. A. abnormal distribution, bell pepper frequency, standard deviation B. normal distribution, bell shaped frequency, irregular deviation C. normal distribution, bell pepper frequency, standard deviation D. abnormal distribution, bell shaped frequency, standard deviation E. normal distribution, bell shaped frequency, standard deviation 2. Which of the following best describes a return earned in an average year over a multiyear period? A. positive square root of the average compound return B. total return divided by N - 1, where N equals the number of individual returns C. arithmetic average D. total compound return divided by the number of individual returns E. average compound return earned per year over a multiyear period 3. _______________ is the excess return an investor requires in addition to the risk-free rate. A. Risk premium B. Average return C. Real return D. Inflation premium E. Required return 4. One year ago, you purchased 100 shares of a stock. This morning you sold those shares and realized a total return of 8.2 percent. Given this information, you know for sure the: A. stock price increased by 8.2 percent over the last year B. stock increased in value over the past year C. stock paid a dividend D. dividend yield is greater than zero E. sum of the dividend yield and the capital gains yield is 8.2 percent 5. On February 26, 2015, on its Form10-K, filed with the Security and Exchange Commission, Tesla Motors Inc. reported to the public (Link to Filing at SEC.gov), which of the following: A. accounts payable increased $1,532,246,000 as a result of 51,248 Tesla electric cars catching fire in 2013 B. total liabilities in the amount of $4,879,345 at December 31, 2014 C. gross profit of $61,283 thousand and $394,283 thousand for the years ended December 31, 2013 and December 31, 2012, respectivelya decrease of 84% D. a net loss in the amount of $294,040,000 for the year ended December 31, 2013 E. a change in net working capital of $500,712,000 from the year ended December 31, 2013 to the year ended December 31, 2014 Financial Management - Final Exam 6. In accordance with your textbook and reports by Ibbotson and Sinquefield, large company stocks' historical returns are based on the: A. largest 20 percent of the stocks traded on the NYSE B. stocks of the 500 companies included in the S&P 500 index C. returns of all of the stocks listed on the NYSE D. stock returns for the largest 10 percent of the publicly traded firms in the U.S. E. returns of the 100 largest firms in the U.S. 7. Which of the following is true when comparing the dollar return and the percentage return on a stock investment? A. the percentage return is not indicative of the size of the investment while the dollar return is B. the percentage return does not consider the time value of money while the dollar return does C. the percentage return is less accurate than the dollar return because the percentage return does not include dividend income while the dollar return does D. percentage returns can be negative, zero, or positive while dollar returns must either be zero or a positive value E. percentage returns are based on the total rate of return while dollar returns are based on capital gains 8. According to the text book, which of the following is used as the risk-free rate? A. long-term corporate bonds B. large company stocks C. long-term government bonds D. inflation, as measured by the Consumer Price Index E. U.S. Treasury bill 9. Over the period of 1926-2014, which one of the following investment classes had the highest volatility of returns? A. small-company stocks B. U.S. Treasury bills C. large-company stocks D. long-term government bonds E. long-term corporate bonds Use the following article excerpt to answer the next two questions S.& P. Downgrades Debt Rating of U.S. for the First Time By BINYAMIN APPELBAUM and ERIC DASH 2 Financial Management - Final Exam NYTimes.com Published: August 5, 2011 WASHINGTON Standard & Poor's removed the United States government from its list of risk-free borrowers for the first time on Friday night, a downgrade that is freighted with symbolic significance but carries few clear financial implications. The company, one of three major agencies that offer advice to investors in debt securities, said it was cutting its rating of long-term federal debt to AA+, one notch below the top grade of AAA. It described the decision as a judgment about the nation's leaders, writing that \"the gulf between the political parties\" had reduced its confidence in the government's ability to manage its finance. ... \"The downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenge,\" the company said in a statement. ... The downgrade could lead investors to demand higher interest rates from the federal government and other borrowers, raising costs for governments, businesses and home buyers. But many analysts say the impact could be modest, in part because the other ratings agencies, Moody's and Fitch, have decided not to downgrade the government at this time. ... The credit rating agencies have been trying to restore their credibility after missteps leading to the financial crisis. A Congressional panel called them \"essential cogs in the wheel of financial destruction\" after their wildly optimistic models led them to give top-flight reviews to complex mortgage securities that later collapsed. A downgrade of federal debt is the kind of controversial decision that critics have sometimes said the agencies are unwilling to make. On the other hand, S. & P. is acting in the face of evidence that investors consider Treasuries among the safest investments in the world. Yields rose before the Congressional deal on fears of default and a possible downgrade. But after a deal was struck, yields sank as money poured into Treasuries as a safe haven from sharply falling stocks and the turmoil of the European debt markets. On Friday, the price of Treasuries fell sharply in heavy selling, and yields rose, reversing the moves of recent sessions. The 10-year Treasury note ended the day with a yield of 2.56 percent. The United States has maintained the highest credit rating for decades. S. & P. first designated it AAA in 1941, reflecting a steadfast belief that the richest nation in the world would not default on its debt payments. The rating was also bolstered by the role of the dollar as the world's leading currency, ensuring that demand for American debt securities would remain strong in spite of burgeoning deficits. ... The federal government makes about $250 billion in interest payments a year, so even a small increase in the rates demanded by investors in United States debt could add tens of billions of dollars to those payments. ... (http://www.nytimes.com/2011/08/06/business/us-debt-downgraded...) 10. Using the excerpts of the article above, which of the following statements is true? A. the 2.56 percent cited in the article is the coupon rate B. S. & P. giving a different rating than Moody's and Fitch is an example of a stock split C. if investors demand higher interest rates, the present value of the debt securities increases, making them more expensive for investors to purchase D. $250 billion in interest payments is the risk premium E. none of the above 3 Financial Management - Final Exam 11. The reference to \"raising costs for government\" in the excerpts of the article above is a result of: A. the US government being delisted and its stock no longer trading on the NYSE B. the US government being delisted and its stock no longer trading on the NASDAQ C. investors demanding a higher yield to maturity due to the higher default risk D. investors demanding a lower yield to maturity due to the lower default risk E. triggering the debt covenants that lead to all debt becoming due 12. Mike recently celebrated his 65th birthday. In meeting with his stock broker, Mike is likely to hear which of the following terms related to the performance of his investments? I. ERR - external rate of rate II. ROI - return on investment III. AARP - annualized accumulated return percentage IV. GCI - gross commission income A. B. C. D. E. I only I and II only II only II and III only III only 13. What was the average annual risk premium on small-company stocks during the period of 19262014? A. 9.1 percent B. 5.4 percent C. 6.4 percent D. 16.2 percent E. 13.2 percent 14. Based on the period 1926-2014, what rate of return should you expect to earn over the long-term if you are unwilling to bear risk? A. between 0 and 1 percent B. between 1 and 2 percent C. between 2 and 3 percent D. between 3 and 4 percent E. between 4 and 5 percent 15. A negative return on an investment would be caused by which of the following? 4 Financial Management - Final Exam A. constant annual dividend amount B. stock price that remains constant over the investment period C. stock price that declines over the investment period D. increase in the annual dividend amount D. stock price that increases over the investment period 16. Vanessa purchased a 2.5 percent coupon bond with a face value of $5,000 when it was selling for 96.5 percent of par one year ago. She sold this bond today for 100.5 percent of par. What is her total dollar return on this investment? A. $25 B. $(25) C. $185 D. $325 E. $395 17. Which of the following is incorrect regarding the years 1926-2014: A. small-company stocks outperformed large company stocks B. large-company stocks underperformed small-company stocks C. long-term corporate bonds underperformed long-term government bonds D. inflation was less than the rate of return on U.S. Treasury bills E. long-term government bonds outperformed U.S. Treasury bills 18. Ron purchased 10,000 shares of Chipotle stock 5 years ago and has earned annual returns of 6.8 percent, 15.6 percent, -5.6 percent, 2.4 percent and 16.2 percent. What is his arithmetic average return? A. 9.32 percent B. 7.08 percent C. 8.7 percent D. 6.62 percent E. 4.26 percent 19. The ____________ principle best describes a project that will be evaluated based on its incremental cash flows. A. sit-beside B. lean-in-between C. stand-alone D. lay-sideways E. erode-up 20. The standard deviation measures the ____________ of a security's returns over time. A. average value 5 Financial Management - Final Exam B. frequency C. change in dividend rate D. arithmetic average E. none of the above 21. A project that is expected to create value for its owners is represented by which of the following? A. payback period greater than the requirement Profitability index B. positive net present value C. profitability index less than 1.0 D. internal rate of return that is less than the requirement E. positive average accounting rate of return 22. Leigh invested $32,000 in General Motors stock, $18,000 in long-term government bonds, and $13,000 in U.S. Treasury bills. Over the course of a year, she earned returns of 13.5 percent, 8.2 percent, and 3.1 percent, respectively. What was the nominal risk premium on General Motors' stock for the year? A. 2.2 percent B. 10.4 percent C. 2.7 percent D. 5.3 percent E. 5.7 percent 23. Eli purchased 300 shares of stock for $12.50 a share on year ago. The stock pays $0.50 a share in dividends four times each year. Today, Eli sold his shares for $22.25 a share. What is Eli's total dollar return on this investment? A. 66.56 percent B. $3,525.00 C. 15.56 percent D. $2,925.00 E. 35.56 percent 24. One year ago, you bought a stock for $76.23 a share. You received a dividend of $2.58 per share last month and sold the stock today for $95.87 a share. What is the capital gains yield on this investment? A. 14.94 percent B. 14.27 percent C. 17.56 percent D. 20.84 percent E. 25.76 percent 6 Financial Management - Final Exam 25. Jeff bought 3,600 shares of Franklin stock for $101,124 on year ago. Today, he sold those shares for $26.60 a share. What is the total return on this investment if the dividend yield is 1.7 percent? A. -4.21 percent B. -3.60 percent C. -2.29 percent D. 1.10 percent E. 2.42 percent 26. Over the past 4 years, large-company stocks and U.S. Treasury bills have produced the returns stated below. During this period, inflation averaged 1.9 percent. Given this information, the average real rate of return on Treasury bills was ___ percent as compared to _____ percent for large company stocks. A. 3.75; 11.0 B. 1.97; 5.78 C. 5.65; 12.9 D. 1.85; 9.1 E. 9.1; 1.85 27. Accelerated cost recovery system is best described as: A. method used to increase the rate at which an asset is depreciated B. expenses charged against revenues that do not directly affect the cash flow C. depreciating an asset by a fixed amount each year D. tax savings resulted from a deduction in depreciation E. depreciation of an asset based upon current market conditions 28. Which of the following most closely resembles forecasting risk: A. estimation risk B. value risk C. reality risk D. potential risk E. management risk 29. Pawel Pierogis Inc. is spending $250,000 to update its packaging facility. The company estimates that this investment will improve its cash inflows by $52,000 a year for 6 years. What is the payback period? A. The project never pays back B. 4.81 years C. 3.16 years 7 Financial Management - Final Exam D. 2.50 years E. 3.28 years 30. The higher the standard deviation of returns on a security, the _____ the possibility of a lower return in one year than the average rate of return over many years. Further, the higher the standard deviation of returns on a security, the _____ the potential of a greater return in one year than the average rate of return over many years. A. higher; higher C. higher; lower D. lower; higher E. lower; lower B. the standard deviation tells nothing about the expected rate of return. 31. The difference between the _____ and the _____is represented in the net present value of an investment. A. cost and market value B. assets and liabilities C. cost and net profit D. equity and net working capital E. cash inflows and cash outflows 32. _____________ costs should be ignored when evaluating a project because that cost has already been incurred and cannot be recouped. A. Fixed B. Opportunity C. Madoff D. Sunk E. Variable 33. Discounting an investment's _____ is the process used in a discounted cash flow valuation. A. costs B. future profits C. future cash flows D. assets E. liabilities 34. An investment's net present value will be _____ if the investment is producing a return that is equal to the required return. A. greater than the project's initial investment B. positive C. zero 8 Financial Management - Final Exam D. less than or equal to zero E. equal to the project's net profit 35. Which one of the following statements best describes the disadvantages of the payback method? A. The payback method overstates risk of inflation. B. The payback method does not consider the time value of money C. The payback method is always skewed to the left-right portion of the bell curve. D. The payback method only considers the NPV of positive cash flows E. The payback method is biased in favor of long-term projects 36. Louisa earned 9.8 percent on her investments last year while U.S. Treasury bills yielded 3.1 percent and the inflation rate was 4.2 percent. What real rate of return did she earn on her investments last year? A. 2.50 percent B. 5.60 percent C. 6.70 percent D. 8.70 percent E. 10.90 percent 37. The payback period is the length of time it takes an investment to generate sufficient cash flows to enable the project to: A. produce a positive annual cash flow B. produce a positive cash flow from assets C. offset its fixed expenses D. offset its total expenses E. recoup its initial cost 38. The internal rate of return for a project is defined by which of the following? A. discount rate which results in a net present value equal to the project's initial cost B. rate of return required by project's investors C. the project's current market rate of return D. discount rate which results in a zero net present value for the project E. discount rate that creates a zero cash flow from assets 39. Which one of the following does not affect the calculation of the net present value of an investment? A. opportunity costs B. sunk costs C. timing of the project cash inflows D. discount rate E. the project's initial cost 9 Financial Management - Final Exam 40. A bond has an average return of 5.9 percent and a standard deviation of 2.1 percent. What range of returns would you expect to see 68 percent of the time on this security? A. 1.7 percent to 10.1 percent B. 5.9 percent to 10.1 percent C. 3.8 percent to 8.0 percent D. -1.7 percent to 10.1 percent E. -3.8 percent to 8.0 percent 41. A stock has a standard deviation of 12.3 percent and an average return of 20.4 percent. In any one given year, you have a 95 percent chance that you will not earn more than _____ percent nor lose more than ____ percent if you invest in this security. A. 25.75 percent to 15.05 percent B. 32.7 percent to 8.1 percent C. 45 percent to -4.2 percent D. 8.1 percent to 32.7 percent E. -4.2 percent to 45 percent 42. Questions asked by scenario analysis include which of the following? A. How will the operating cash flow change if only the fixed costs increase by 3 percent? C. How much will a $1 decrease in the variable cost per unit only change the net present value? D. What is the most optimistic outcome that should reasonably be expected? E. How will changing the number of units sold only affect the outcome of this project? B. Will the mayor get reelected next year? 43. Which one of the following statements is correct? A. if the IRR exceeds the required return, the profitability index will be less than 1.0 B. the profitability index will be greater than 1.0 when the net present value is negative C. projects with conventional cash flows have multiple internal rates of return D. if two projects are mutually exclusive, you should select the project with the shortest payback period E. when the internal rate of return is greater than the required return, the net present value is positive 44. For its domestic investment projects, Tyler's Lumber imposes a payback cutoff of 3.7 years. If the company has the following two projects available, what should be their decision? 10 Financial Management - Final Exam A. reject both Projects A and B B. accept Project B but not Project A C. accept Project A but not Project B D. accept both Projects A and B E. both Project A and B are acceptable but you can only select one project 45. __________ refers to the best option that was foregone when a particular investment is selected. A. Opportunity cost B. Sunk cost C. Erosion D. Career opportunity E. Marginal cost 46. If you must select a single method to analyze a variety of investment opportunities, which of the following is generally considered to be the best form of analysis? A. accounting rate of return B. profitability index C. internal rate of return D. back pay E. net present value 47. The amount by which a firm's tax bill is reduced as a result of the depreciation expense is referred to as the depreciation: A. adjustment B. erosion C. credit D. opportunity cost E. tax shield 48. Weston Steel purchased a new coal furnace six years ago at a cost of $2.2 million. Last year, the government changed the emission requirements and this furnace cannot meet those standards. Thus, Weston's can no longer use the furnace nor have they been able to locate anyone willing to purchase the furnace. Given the current situation, the furnace is best described as which type of cost? A. erosion 11 Financial Management - Final Exam B. sunk C. book D. opportunity E. market 49. Bruce Moneybags owns several restaurants and hotels near a local interstate. One restaurant, Beef & More, needs to be modernized. Bruce is trying to decide whether to accept an offer to sell Beef & More as is for the offer price of $1.1 million or renovate the restaurant himself. The projected renovation cost is $1.3 million. The restaurant would need to be shut down completely during the renovation which would cause a net operating cash flow loss of $210,000 in today's dollars. The estimated present value of the cash inflows from the renovated restaurant are $3.2 million. When analyzing the renovation project, what opportunity cost, if any should be included for the current restaurant? Assume the restaurant is totally paid for and any future costs will be paid in cash. A. there is no opportunity cost since the current restaurant is owned free and clear B. the opportunity cost is the value of the current offer to buy the restaurant C. the opportunity cost is the cost of the needed improvements D. the opportunity cost is the present value of the loss of operating cash flows while the restaurant is closed for renovation E. the opportunity cost is the cost of the renovations plus the loss of the operating cash flows during the renovation 50. Amy owns a store that caters primarily to men and their hobbies. She is contemplating greatly expanding the hunting and fishing section of the store. If she does this, she expects her fishing and hunting sales will increase, her camping gear sales will increase, and her model train sales will decrease. Which of the following should Amy include in her revenue projection for the expansion project? I. increase in fishing and hunting sales II. increase in camping gear sales III. decrease in model train sales A. I only B. II only C. I and III only D. II and III only E. I, II, and III 51. Gravy Train Exporters paid cash for a new packaging machine that cost $999,000 fifteen years ago. Three years ago, the firm spent $6,900 on repairs and modifications to the machine. The machine is now fully depreciated and has just sat idly in a back corner of the shop for the past 2 months. The estimated value that machine could be sold for today is $30,000. The company's marginal tax rate is 30%. The firm is considering using this machine in a new project. If it does so, what value should be assigned to this machine and included in the initial costs of the new project? D. $0 E. $30,000 12 Financial Management - Final Exam C. $992,100 A. $999,999 B. $1,005,900 52. A debt-free firm has net income of $128,400, taxes of $46,200, and depreciation of $21,300. What is the operating cash flow? A. $82,200 B. $103,500 C. $107,100 D. $149,700 E. $195,900 53. Rock Haven has a proposed project that will generate sales of 1,680 units annually at a selling price of $22 each. The fixed costs are $12,700 and the variable costs per unit are $5.95. The project requires $28,000 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the 4-year life of the project. The salvage value of the fixed assets is $6,900 and the tax rate is 34 percent. What is the operating cash flow for year four? A. $16,971 B. $14,258 C. $11,794 D. $16,348 E. $12,417 54. The Blue Lagoon is considering a project with a five-year life. The project requires $110,000 of fixed assets that are classified as five-year property for MACRS. Variable costs equal 71 percent of sales, fixed costs are $9,600, and the tax rate is 35 percent. What is the operating cash flow for year 4 given the following sales estimates and MACRS depreciation allowance percentages? A. -$1,806 B. $640 C. $1,809 D. $2,342 E. $2,811 55. A project has an annual operating cash flow of $43,700. Initially, this 4-year project required $3,800 in net working capital, which is recoverable when the project ends. The firm also spent $21,500 on equipment to start the project. This equipment will have a book value of $4,300 at the end of year 4. What is the cash flow for year 4 of the project if the equipment can be sold for $5,400 and the tax rate is 34 percent? 13 Financial Management - Final Exam A. $51,724 B. $52,038 C. $52,526 D. $52,900 E. none of the above 56. The Outpost currently sells short leather jackets for $349 each. The firm is considering selling long coats also. The coats would sell for $689 each and the company expects to sell 900 a year. If the firm decides to carry the long coat, management feels that the sales of the short jacket will decline from 1,420 to 1,265 units. Variable costs on the jacket are $210 and $445 on the long coat. The fixed costs for this project are $42,000, depreciation is $11,000 a year, and the tax rate is 33 percent. What is the projected operating cash flow for this project? A. $108,187 B. $111,264 C. $112,212 D. $119,672 E. $120,418 57. Better Berries has a new project that requires $869,000 of equipment. What is the depreciation in year 6 of this project if the equipment is classified as 7-year property for MACRS purposes? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent. A. $17,294 B. $17,301 C. $32,988 D. $77,515 E. $77,602 58. Hunter's Paradise purchased $568,000 of equipment 4 years ago. The equipment is 7-year MACRS property. The firm is selling this equipment today for $199,500. What is the aftertax cash flow from this sale if the tax rate is 35 percent? The MACRS allowance percentages are as follows, commencing with year one: 14.29, 24.49, 17.49, 12.49, 8.93, 8.92, 8.93, and 4.46 percent. A. $198,410 B. $186,630 C. $191,780 D. $216,610 E. $209,740 59. You are analyzing a project and have developed the following estimates. The depreciation is $52,000 a year and the tax rate is 34 percent. What is the worst case operating cash flow? 14 Financial Management - Final Exam A. -$32,509 B. -$19,288 C. -$4,225 D. $27,556 E. $48,106 60. Consider an asset that costs $459,000 and is depreciated straight-line to zero over its 6-year tax life. The asset is to be used in a 4-year project; at the end of the project, the asset can be sold for $120,000. If the relevant tax rate is 34 percent, what is the aftertax cash flow from the sale of this asset? A. $131,220 B. $127,840 C. $116,500 D. $97,600 E. $79,200 61. (FIVE POINTS) ukasz is at it again. He never finished his retirement plan and wants to run new numbers so that he can begin his first contributions in the New Year. First he realizes that he will need more money in retirement and now plans to withdraw $5,000 at the end of each month of his retirement. He assumes all contributions and withdrawals to his 401(k) Plan are made at the end of each month. ukasz is still 30 years old and decides his previous estimate of retiring early at 55 years old was a little aggressive. He did some research and now assumes he will use the average early age of retirement in the United States which is 62 years old. He further researches the average life expectancy and he reluctantly revises his forecast down to 81 years and 7 months old for males in the United States. ukasz' existing balance in his 401(k) Plan is now $6,261.91. He figures that he should be able to increase his contribution over the years as his earnings power increases. He intends to double his contribution in the second savings period and double it again in a new third savings period. He also called his company's Human Resources department and was pleased to hear that his employer will match 75% of his contributions. ukasz revisits his Chapter 10 historical average returns and now hopes to receive a 13% annual return compounded monthly during his first savings period (180 months from 5/1/2017 through 4/30/2032), 10% during his second savings period (144 months from 5/1/2032 through 4/30/2044), 15 Financial Management - Final Exam 8% during her third savings period (60 months from 5/1/2044 through 4/30/2049), and 6% during his retirement period (235 months from 5/1/2049 through 11/30/2068). ukasz now understands that he can make these contributions to his 401(k) Plan before taxes are taken out. He assumes the tax rate will be 34% during these periods. At 34%, if ukasz contributes $1 of his after-tax take-home pay, the gross amount he will be able to contribute to his 401(k) Plan is $1.52 (calculated as $1.52 - $1.52(0.34) = $1). In other words, by contributing $1.52 to his 401(k) account, ukasz' take-home pay is only reduced by $1. ukasz would also like to leave behind two gifts upon his death. He would like $50,000.36 each to go to his first two grandchildren who attain Master's degrees from NYU. Alternatively, if there are not two grandchildren who meet the condition, ukasz would like the remaining amount to be given to NYU to fund facilities upgrades (namely more comfortable chairs and clearer presentation screens). Summary Begin date End date Beginning age Saving Period 1 5/1/2017 4/30/2032 30 Saving Period 2 5/1/2032 4/30/2044 45 Saving Period 3 5/1/2044 Retirement 5/1/2049 4/30/2049 57 11/30/2068 62 Ending age 45 57 62 81.6 Years 15.0 12.0 5.0 Months 180 144 60 19.6 235 Contribution Employer match Annual % return Tax rate 401(k) Plan starting balance Withdrawal amount Ending gift amount 200% 75% 10% 34% 400% 75% 8% 34% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a $5,000.00 $100,000.72 100% 75% 13% 34% $6,261.91 n/a 6% n/a How much should ukasz begin contributing in the first month from his after-tax take-home pay? A. $50.00 B. $101.23 C. $113.14 D. $199.40 E. $415.47 F. $1,098.49 G. $5,000.00 H. none of the above 16 Financial Management - Final Exam 62. (FIVE POINTS) Jennifer is considering a new five-year cost cutting proposal that would eliminate the Benefits Call Center (a portion of the company's Human Resources department). The proposal is to outsource the work to another company called Open House. Open House is offering to sell the company specialized software that Jennifer's company would put on their website. The software would answer many of the employees' questions about benefits (leading to lower call volume). The cost of this software would be $300,000 and it is expected that the software will have a useful life of five years. Open House would also handle all calls from employees regarding benefits at an annual charge of $200,000 for each of the five years. The Benefits Call Center is currently staffed by six employees. All six employees of the Benefits Call Center would be given severance packages equal to four weeks per year of the employees' service with the company, except for the Assistant Manager who will remain with the company to manage the account with Open House. The employees' salary & wages and years of service are as follows: Jennifer's company depreciates all assets on a straight-line basis over their useful lives. The company pays 17% benefits & taxes on salaries, wages and severance. The company once purchased a $40,000 car for the previous Human Resources manager to use to travel to different company locations. The car was sold four years ago for $5,000 and is probably worth $500 today if it could be found and is still running. The company's required return on projects is 10% and the company has an income tax rate of 35%. The company's DuPont identity is as follows: ROE = 8.4% = Profit Margin x 21% x Total asset turnover x 0.337 What is the payback for this project? A. 2.06 B. 2.39 C. 2.43 D. 2.92 17 x Equity multiplier 1.18 Financial Management - Final Exam E. 3.68 F. 3.99 G. 4.25 H. does not payback 18