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ADMS3530 - W2021 - Midterm 2 Tutorial - QUESTIONS

ADMS3530 Suncor can buy a new, very efficient, wind turbine machine for \$20 million. It will cost\$350,000 per year to operate but will

a.\$10

b.\$50

c.\$100

d.\$105

e.\$110

a.\$76,000

b.\$87,980

c.\$90,100

d.\$92,378

e.\$98,547

a.\$1.25

b.\$60.75

c.\$70

d.\$75

c.\$175

a.\$3.05

b.\$31.04

c.\$33.07

d.\$33.72

e.\$35.70

a.13.50%

b.14.00%

c.14.50%d.

d.15.00%

e.15.50%

a. .0466

b. .0489

c. .0611

d .5

e. .1958

7.You can continue to use your less efficient machine at a cost of \$8,000 annuallyfor the next five years. Alternatively, you can purchase a more efficient machinefor \$12,000 plus \$5,000 annual maintenance for the next five years. At a cost ofcapital of 15 percent, you should:  ADMS3530

a.Buy the new machine and save \$388 in equivalent annual costs.

b.Buy the new machine and save \$600 in equivalent annual costs.

c.Keep the old machine and save \$388 in equivalent annual costs.

d.Keep the old machine and save \$580 in equivalent annual costs.

Suncor can buy a new, very efficient, wind turbine machine for \$20 million. It will cost\$350,000 per year to operate but will save Suncor \$3,000,000 annually in operatingexpense and will be useful for 10 years. The turbine will have a salvage value of\$3,000,000 at the end of 10 years. Suncor’s discount rate is 10% and their tax rate is20%. The machine falls into a 25% CCA asset class, declining balance method, and thehalf-year rule applies (the asset was purchased before 2018).

a.11,125,984

b.13,026,482

c.14,329,130

d.16,283,103

e.20,000,000

a.2,105,451

b.2,310,040

c.2,562,040

d.2,727,272

e2,821,780

a.-4,411,478

b.-3,254,848

c.0

d.3,254,848

e.4,411,478

a.\$2,514,229

b.\$4,144,504

c.\$4,182,623

d.\$4,264,229

e.\$5,235,128

project data:  ADMS3530

• Sales price is \$5.5 per unit

• Variable cost is \$3 per unit

• Fixed cost is \$450 per year

• Required rate of return is 5%

• Initial Investment of \$2,000 is depreciated over the project life of 8 years

(straight line, assume the half-year rule does not apply).

a.\$990

b.\$1,540

c.\$1,940

d.\$2,090

e.\$5,390

13.A firm has a DOL = 3.0. If sales decrease by 25%, then profit will ____________.

a.decrease by 75%

b.increase by 50%

c.increase by 75%

d.decrease by 12.5%

e.decrease by 50%

stock falls because of the:  ADMS3530

a.Capital appreciation.

b.Interest paid.

c.Dividend yield.

dNon-constant growth.

e.Real rate of return.

15.The purpose of sensitivity analysis is to show:

a.The optimal level of the capital budget.

b.How price changes affect break-even volume.

c.Seasonal variation in product demand.

d.How variables in a project affect profitability.