Q1

McMaster Fast Foods are evaluating the possibility of purchasing new milk shake equipment in their 10 cafes. The total cost of the new equipment would be $30,000 plus $2,000 in installation costs. There will be no increase in revenue if the new equipment is purchased, but costs will decrease by $10,000 for each of the four years of the life of the new equipment. The new equipment will be depreciated at 30 percent diminishing value. The system will have no salvage value at the end of the four year life. The company tax rate is 30 percent. The net operating cash flow in Year 1 is:

Select one:

a. $280.

b. $400.

c. $7,000.

d. $10,120.

e. $9,880.

Q2

A firm is evaluating a low-risk project that will cost $75,000 to undertake and is expected to generate net operating cash flows of $25,000 per year for five years. The firms weighted average cost of capital is 20%. For low-risk projects, a risk-adjusted required return of 16% applies. The risk-adjusted net present value of the project is:

Select one:

a. $96,928.

b. -$63,098.

c. $19,955.

d. -$235.

e. $6,858.

Q3

Beth Hardi will retire at 65, in 19 years. Beth has just calculated her retirement income gap and will require an additional $24198 per annum for 20 years to achieve her post-65 lifestyle objectives. How much will Beth have to save each year in order to achieve her desired level of retirement income? Assume a 2.5 percent real rate of return.