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MBA570_Homework_2 qUES




Question;Instructions: Either type or;write your answers directly on this document and submit the completed;assignment to your ESO. If you use additional documents to perform;calculations, label them with your name and course number (MBA 570) and submit;them as well. Each question is worth 10 points.;1.;Honda;Motor Company is considering offering a $4,000 rebate on its minivan, lowering;the vehicle?s price from $25,000 to $21,000. The marketing group estimates that;this rebate will increase sales over the next year from 48,000 to 68,000;vehicles. Suppose Honda?s profit margin with the rebate is $2,000 per vehicle.;If the change in sales is the only consequence of this decision, what are its;benefits and costs?;The benefits are;$__________ million. (Round to one decimal place.);The costs are;$__________ million. (Round to one decimal place.);Is this a good;idea? (Answer Yes or No.);2.;Suppose;the current market price of corn is $4.14 per bushel. Your firm has a;technology that can convert 1 bushel of corn to 3 gallons of ethanol. If the;cost of conversion is $1.33 per bushel, at what market price of ethanol does;conversion become attractive?;The price at;which the conversion becomes attractive is $__________ per gallon. (Round;to nearest cent.);3.;Suppose;the risk-free interest rate is 6%.;a.;Having;$200 today is equivalent to having $__________ in one year. (Round to the nearest cent.);b.;Having;$200 in one year is equivalent to having $__________ today. (Round to the nearest cent.);c.;Which;would you prefer, $200 today or $200 in one year? (Enter response here);d.;Does;your answer depend on when you need the money? Why or Why not?;A.;Yes;because if you didn?t need it, it?s not worth $200.;B.;Yes;because if you did need it today, it is more valuable than $200.;C.;No;because if you did need it, you could borrow the $200.;D.;No;because if you didn?t need it, then the $200 can be invested and would be worth;more than $200 in one year.;4.;Your;firm has a risk-free investment opportunity where it can invest $165,000 today;and receive $174,000 in one year. The project will be attractive when the;interest rate is any positive value less than or equal to __________%. (Round to two decimal places.);5.;Your;firm has identified three potential investment projects. The projects and their;cash flows are shown below;Project;Cash Flow Today (millions);Cash Flow in One Year (millions);A;- $7;$24;B;$4;$2;C;$17;-$11;Suppose;all cash flows are certain and the risk-free interest rate is 11%.;a.;What;is the NPV of each project?;The;NPV of project A is $__________ million. (Round;to two decimal places.);The NPV of;project B is $__________ million. (Round;to two decimal places.);The;NPV of project C is $__________ million. (Round;to two decimal places.);b.;If;the firm can choose only one of these projects, which should it choose based on;the NPV decision rule? (Select the best;choice.);A.;Project;B;B.;Project;C;C.;Project;A;D.;Cannot;tell;c.;If;the firm can choose any two of these projects, which should it choose based on;the NPV decision rule? (Select the best;choice.);A.;Projects;A and B;B.;Projects;B and C;C.;Projects;A and C;D.;Cannot;tell;6.;Compute;the following;a.;The;present value of $2,000 received 14 years from today when the interest rate is;10% per year is $__________. (Round to;the nearest dollar.);b.;The;present value of $2,000 received 23 years from today when the interest rate is;12% per year is $__________. (Round to;the nearest dollar.);c.;The;present value of $2,000 received 7 years from today when the interest rate is 5%;per year is $__________. (Round to the nearest;dollar.);7.;Your;daughter is currently 5 years old. You anticipate that she will be going to;college in 13 years. You would like to have $156,000 in a savings account to;fund her education at that time. If the account promises to pay a fixed interest;rate of 5% per year, you should deposit $__________ today to ensure that you;will have $156,000 in 13 years. (Round to;the nearest dollar.);8.;Suppose;you receive $180 at the end of each year for the next three years;a.;If;the interest rate is 10%, the present value of these cash flows is $__________. (Round to the nearest cent.);b.;The;future value in three years of the present value you computed in (a) is;$__________. (Round to the nearest cent.);c.;Suppose;you deposit the cash flows in a bank account that pays 10% interest per year;The balance in;the account at the end of year one;is $__________ (Round to the nearest cent.);The balance in;the account at the end of year two;is $__________ (Round to the nearest cent.);The balance in;the account at the end of year three;is $__________ (Round to the nearest cent.);The final bank;balance in (c) is __________ the bank balance from part (b). (Select the best answer.);A.;equal;to;B.;lower;than;C.;higher;than;9.;You;have just received a windfall from an investment you made in a friend?s;business. He will be paying you $49,024 at the end of this year, $98,048 at the;end of the following year, and $147, 072 at the end of the year after that;(three years from today). The interest rate is 6.4% per year.;a.;The;present value of your windfall is $__________ (Round to the nearest dollar.);b.;The;future value of your windfall in three years (on the date of the last payment);is $__________ (Round to the nearest;dollar.);10.;You have an investment opportunity that;requires an initial investment of $7,500 today and will pay $11,500 in one;year. The internal rate of return (IRR) of this opportunity is $__________%. (Round to the nearest integer.)


Paper#48067 | Written in 18-Jul-2015

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