QUESTION 1 An auto-parts company is deciding whether to sponsor a racing team for a cost of $3,276,321. The sponsorship would last for 11 years and is expected to have cash flows by $404,941 per year. If the discount rate is 7.56%, what will be the change in the value of the company if it chooses to go ahead with the sponsorship?

QUESTION 2 If a company has an interest rate of 11.22%. Compute the NPV for the following Cash Flows: CashFlows Amount Cash Flows at 0 271 Cash Flows at 1 111 Cash Flows at 2 126 Cash Flows at 3 0 Cash Flows at 4 61

QUESTION 3 For the following project, compute an EAA: Project A requires you an upfront payment of $257,165 and yearly payments of $50,889 for 14 years. Your cost of capital is 4.82%,

QUESTION 4 Consider the following cash flows on two projects. If the company uses the IRR rule to choose projects, which of the projects (Project A or Project B) will rank highest? Project A Project B Time 0 -10,000 -5,000 Time 1 5,000 3,000 Time 2 5,000 3,000 Time 3 5,000 3,000 Project A Project B Both are the same Neither (Can't compute)

QUESTION 5 Mary is in contract negotiations with a publishing house for her new novel. She has two options. She may be paid $50,000 up front, and receive royalties that are expected to total $14,000 at the end of each of the next 5 years. Alternatively, she can receive $100000 up front and no royalties. Which of the following investment rules would indicate that she should take the former deal, given a discount rate of 9%? Rule I: The Net Present Value rule; Rule II: The Payback Rule with a payback period of 2 years. HINT: What are the inflows and outflows. READ THE QUESTION Rule I and II None Rule I Rule II

QUESTION 6 A company is thinking about marketing a new product. Up-front costs to market and develop the product are $12.97 Million. The product is expected to generate profits of $1.4 million per year for 26 years. The company will have to provide product support expected to cost $340,494 per year in perpetuity. Furthermore, the company expects to invest $36,882 per year for 14 years for renovations on the product. This investing would start at the end of year 7. Assume all profits and expenses occur at the end of the year. Calculate the NPV of this project if the interest rate is 6.45%.