Question 20. GM has just designed a new Saturn. It forecasts sales of 200,000 cars per year at an average price of $18,000. Costs are expected to be $17,000/ car. The model will sell for 4 years and GM expects an inventory of 40,000 cars. GM has a cash budget of $20 million. Suppose GM pays no dividends, gives no credit to customers, and retains all their earnings in cash, what is the net working capital by the end of Year 2? A.)$700 million

B.) $900 million

C.) $1000 million

D.) $1200 million

Boeing is evaluating a new regional jet. If it proceeds with development, the firm will have to invest $200 million next year in R&D. The cash is currently invested in short-term securities yielding 2%. An accounting executive argues that the project should be charged for lost interest, amounting to $4 million per year ($200 million 0.02). Is he right? *

B.)Yes.

A.) No.

14.) You have the opportunity to increase the growth rate of sales volume of Project Keyboard to 6% instead of 4%. If you still have $20 million in your budget, would you be willing to make extra investment (today) to get this higher growth?

A.)Yes

B.)No

Question 12. Continue from Question 11, suppose you have another alternative project to invest in a new kind of keyboard. This alternative project also requires an initial investment of $32 million to be made in each of the next three years. Sales and profits will also begin in the 4th year, and this is where the two projects differ. This project is expected to generate a sale volume of 500 thousand keyboards in year 4 at the price of $20/keyboard, and it costs $2.2 to produce a keyboard. Then, sales volume is expected to increase 4% annually while price and cost stay the same. Assume no inventory, and for simplicity that all cashflows occur at the end of the year. The cost of capital both projects is 12%. Would you choose to invest in making mouse or keyboard?

A.)Mouse.

B.)Keyboard.