PACKAGE B -CLASS 005 Question 2 (30 marks) IN 1. What is the present value of $10,000 received in year 5 when: a. Interest rate is 5% b. Interest rate is 15% (6 marks) 2. The higher the IRR, the better the project. (6 marks) a. True b. False 3. A project costing $1,240,288 will provide a benefit of $224,000 each year for 9 years. What is the Internal Rate of Return on this project? (6 marks) 4. How much is $100,000 invested today equivalent to in Year 8 when interest rate if 13%? (6 marks) 5. Complete the following sentence with one of the items a to d below. A project with a negative NPV means... (6 marks) a. the project creates a loss b. the project's rate of return is too low c. the internal rate of return on the project is zero (0) d. none of the above applyQuestion 1 (20 marks) Imperial Jewelers manufactures and sells a gold bracelet for $406.00. The company's accounting System says that the unit product cost for this bracelet is $268.00 as shown below: Direct materials $ 150 Direct labor 86 Manufacturing overhead 32 Unit product cost $ 268 The members of a wedding party have approached Imperial Jewelers about buying 16 of these gold bracelets for the discounted price of $366.00 each. The members of the wedding party would like special ligree applied to the bracelets that would require Imperial Jewelers to buy a special tool for $464 and that would increase the direct materials cost per bracelet by $13. The special toot would have no other use once the special order is completed. To analyze this special-order opportunity, Imperial Jewelers has determined that most of its manufacturing overhead is fixed and unaffected by variations in how much jewelry is produced in any given period. However. $14.00 of the overhead is variable with respect to the number of bracelets produced. The company also believes that accepting this order would have no effect on its ability to produce and sell iewelry to other customers. Furthermore, the company could fulll the wedding party's order using its existing manufacturing capacity. Required: 1. What is the nancial advantage (disadvantage) of accepting the special order from the wedding party? {15 marks) 2. Should the company accept the special order? (5 marks) \fQuestion 3 (25 marks) Windhoek Mines. Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made. and it is expected that the following cash flows Would be associated with opening and operating a mine in the area: Cos-tot new. equipment and timbers I 5 370,000 Working capital required $ 115,000 Annual net cash receipts $ 130,000" Cost to construct new roads in year three $ 43.000 Salvage value of equipment in four years $ 68.000 *Fteceipts from sales of ore, less out-of-pocket costs for salaries. utilities. insurance. and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The oompany's required rate of return is 11%. Required: a. What is the net present value of the proposed mining project? (20 marks} b. Should the project be accepted