Question 56 (0.5 points) Hawkeye Innovations is considering developing a new type of mouse trap. They have made the following estimates regarding the development of the new product: The life of the project is 7 years The project will require additional equipment that will cost $21,000. None of the equipment will have any salvage value. Sales are expected to be 10,000 units per year at $4.50 per unit Variable costs are expected to be $2.60 per unit Fixed costs are expected to be $12,000 per year The annual Depreciation expense would be $3,000 Additional Net Working Capital will be needed in Year O in the amount of $8,000. 60% of this will be recovered in Year 7 The company's tax rate is 34% The Required Rate of Return on the project is 10% If the company felt the risk of the project was such that the Required Rate of Return should be increased to 11% instead of 10%, what would be the correct decision regarding pursuing the project? Accept Reject Question 57 (0.5 points) Spartan Coffee has computed its fixed costs to be $0.34 for every cup of coffee it sells given annual sales of 212,000 cups. The sales price is $1.49 per cup while the variable cost per cup is $0.63. Depreciation is $56,920, and Operating Cash Flow where NPV equals zero is 94,244. The company's tax rate is 30%. How many cups of coffee must it sell to break-even on an accounting basis? 170000 150000 160000 Question 58 (0.5 points) Which of the following statements is/are true? 1. Strong form of market efficiency indicates that investors can earn abnormal return by analyzing the information they possessed. II. Strong form and semistrong form of market efficiency are supported by empirical research evidence. III. Semistrong form of market efficiency indicates that investors could earn abnormal return by trading on private information such as information from within the company. IV. Weak form of market efficiency indicates that investors can not earn abnormal return by trading on technical analysis Only I and II are correct O 111 and III are all correct O II III and IV are all correct Only III and IV are correct Question 59 (0.5 points) When NPV and IRR produce conflicting decisions about whether to pursue a project, which one should take precedence? ONPV and IRR always provide the same accept/reject decision ONPV IRR Question 60 (0.5 points) The Fowlerville Fowls minor league baseball team are considering building a new stadium. They will only do so if their Senior Financial Analyst determines building the stadium would have a positive Net Present Value. Using the data below, determine what the Year 0 cash flow would be: They bought this land the land the stadium would be built on in 2015 for $1,500,000. An international firm has just made an offer to buy the land for $2,000,000. Construction cost of building the stadium is $2,300,000 $25,000 for a marketing study conducted last year to determine whether more fans would come to the games if they built a new stadium $100,000 for additional street lights, access road improvements and parking lot for the new stadium $100,000 for an electronic video sign in front of the building and additional signage around the city $1000 for a trip taken by team management last year to see a similar stadium in Wooster, Ohio $2,300,000 $4,500,000 $2,325,000 $3,800,000 $2,500,000
