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August 17th, 2012, 09:02 AM  #1 
Newbie Joined: Aug 2012 Posts: 3 Thanks: 0  finnancial mathmematics in foreign language (for me)
Hallo all, i try to studyed finnacial mathematics in english, but it is foreign language for me, so i have big problem to understand english terminology. Is there anybody who is able to help mi with solve this 10 questions ? if there is someone but he cant solve it in this forum, please write me and we can use Facebook or Skype or Email. thanks all Question 1 ( The project with the highest IRR is always the project with the highest NPV. True False  i think this is right because it is not necessery to by highest Question 2 The city of Middleville is considering offering public bus service. Setting up the service will cost the city $1.2M (where M stands for million). The useful life of the buses is 25 years. Annual maintenance of the buses would cost $100,000 per year and they would need a major overhaul in year 15 that will cost a total of $700,000. This overhaul is in addition to the annual maintenance. Annual labor and administrative costs will begin at $180,000 in year 1 and grow at 2% per year thereafter. The buses will generate a revenue of $150,000 in year 1 and it will grow at 4% per year thereafter. Reduced parking requirements and other benefits generated by the project will save the city $200,000/year. The salvage value (price the city can get in the future after maintenance) of the used buses in year 25 is expected to be $300,000. What is the NPV of the bus proposal? The city does not pay taxes and the discount rate is 5%.(Again, all cash flows except initial investments happen at the end of the year.) (You are strongly encouraged to use a spreadsheet.) 82207 59693 1381432 257413 Question 3 Alpha Inc. has the following two projects that it is considering, and it wants to choose one. Project A has an investment outlay/expense today of $1,000, and its cash flows over the next three years are $500, $600, $700. Project B has an outlay of $2,000, and cash flows of $1,000, $1,200, and $1,400. Which project should Alpha choose? (You can assume no taxes.) Project A Project B Does not matter; both are essentially the same Cannot make a choice based on information Question 4 GE has the following two projects that it is considering; it can choose only one. Project A has an investment outlay/expense today of $10M, and its cash flows over the next three years are $4M, $4M, $5M. Project B has an outlay of $10M, and cash flows of 0, 0, and $14M. Which project should GE choose if the cost of capital for similar projects is 5%? Project A Project B Do not have enough information Should not choose either. Question 5 All else equal, firms that provide more financing to their customers will in turn have higher net working capital. True. False Question 6 Last year your firm had revenue of $36 million, cost of goods sold (COGS) of $32 million, Selling, General, & Administration costs (SG&A) of $3 million, Account Receivables (AR) of $6 million, Account Payables (AP) of $4 million and Inventory of $4 million. What will be the free cash flow next/this year if you boost revenue 8%, while holding COGS growth to 3%, and increasing AP 30%, while everything else remains same as last year? (Assume no taxes and no additional capital expenditures.) (You are encouraged to use a spreadsheet even for this specific type of question.) 4120000 5170000 6220000 7310000 Question 7 Rain in Spain (RiS) is a manufacturer of high quality raincoats. Currently, the retail price of each raincoat is $70 and is produced at a cost of $45. This past year, they sold 50,000 raincoats and they expect this number to grow each year by 6% each year for the next 10 years. The operations team at RiS recently brought to your attention a new technology that could lower the cost of production. This technology requires an upfront fixed investment of $2,000,000 and has the capacity to produce up to 90,000 raincoats per year at a 12% lower cost per unit. There is no increased working capital need due to this new technology, and no value of the machine/technology after 10 years. What is the NPV of investing in the new technology? Ignore taxes and assume a discount rate of 14%. (Hint: Think incrementally; the difference between the world without and with this new technology! Also, ignoring taxes will be a big help if you think right.) (Enter just the number without the $ sign or a comma; round off decimals.)(You are strongly encouraged to use a spreadsheet.) Answer for Question 7 Question 8 Fresh off the excitement of the 2012 London Olympic Games, you decide that you want your firm to take advantage of the profits to be made for the 2016 games in Rio de Jeneiro. To do so you plan to open a factory in Brazil. After examining the idea, your CFO projects revenues next year (2013) to be $15 million and costs to be $9 million. Both of these are expected to grow at a rate of 25% per year as the excitement for the games builds. Your firms faces a 35% tax rate, a 14% discount rate and you can depreciate your new investment using the straight line method over the four years leading up to the games, at which point the value of the venture moving forward will be $5 million. (This $5 million is the terminal value that is in year 4 (that is, 2016) dollars and is the PV of all cash flows year 5 and beyond.) The capital expenditure of this project is $12M. What is the NPV of the project? Assume that you have no significant working capital costs.(Enter just the number without the $ sign or a comma; round off decimals.) (You are strongly encouraged to use a spreadsheet.) Answer for Question 8 Question 9 Starbuck's is considering opening another store in Chicago. A store is expected to have a long economic life, but the valuation horizon is 7 years. The store in Chicago is expected to create revenues of $3M in the first year and they are likely to grow at 2% per year thereafter. The cost of goods sold are $1.2M in year 1 and they are also expected to grow at 2% per year thereafter. Selling and administration costs are likely to be $0.5M in the first year and then grow at 5%. The tax rate is 35%. Starbucks is so good at managing its stores that working capital increases can be assumed to be negligible. But Starbucks will have to invest $3.5M in purchasing a store (with land). The good news is that this outlay can be depreciated straight line over 7 years. Also, Starbucks has estimated that the terminal value in year 7 dollars will be $10M. This value is the value of all cash flows in year 8 and beyond. What is the NPV of opening this new store if the appropriate discount rate is 7.75%?(Again, all cash flows except initial investments happen at the end of the year. Enter just the number without the $ sign or a comma; round off decimals.)(You are strongly encouraged to use a spreadsheet.) Answer for Question 9 Question 10 Big Blue Granite (BBG) needs to purchase a new saw for creating their top quality countertops. Saw A costs $250,000 with $4,000 of annual maintenance costs for the first year that will increase by 5% each year for the 7year life of the saw. Saw B costs $150,000 with $10,000 of annual maintenance costs for the first year that will increase by 15% each year for the 4year life of the saw. Which saw should BBG choose? What is the annualized cost of this choice? Assume a discount rate of 12%, and ignore all taxes. (A, 40367) (B, 49983) (B, 46794) (B, 61624) (A, 38682) (A, 59331) 
August 17th, 2012, 09:26 PM  #2 
Newbie Joined: Aug 2012 Posts: 1 Thanks: 0  Re: finnancial mathmematics in foreign language (for me)
Maybe this site may help you out. http://pegaesus.blogspot.in/2012/08/cou ... uiz4.html 
August 18th, 2012, 11:46 AM  #3 
Math Team Joined: Oct 2011 From: Ottawa Ontario, Canada Posts: 14,597 Thanks: 1038  Re: finnancial mathmematics in foreign language (for me)
I think you're pretending to have difficulty with English... you threw in a couple "English errors" in what seems good English to me... You're probably thinking this'll influence us doing your homework. Good try! 
August 19th, 2012, 06:43 AM  #4 
Newbie Joined: Aug 2012 Posts: 3 Thanks: 0  Re: finnancial mathmematics in foreign language (for me)
guys, i dont need results of this test, i think that i am quite good in finnacial mathematic, but i need someone who is able to tell me (where i make a mistake in this text maybe . I need domeone who tell me, for example, what does the words payment and annuity means ? because google translater transleted this 2 words as same . thx 
March 9th, 2013, 03:46 PM  #5  
Newbie Joined: Mar 2013 Posts: 1 Thanks: 0  Re: finnancial mathmematics in foreign language (for me) Quote:
 

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