Indicadores Financieros

D. Evaluate other similar projects the company has undertaken in the past.

Type: Medium

30. The manufacture of herbal health tonic is a competitive industry. The manufacturing facilities have an annual output of 100,000 gallons. Operating costs are $2 per gallon. A 100,000 gallon capacity plant costs $500,000 to build and have an indefinite life, with no salvage value. The cost of capital is 20% (assume no taxes). Your company has discovered a new process that lowers the operating cost per gallon to $1.50. Assuming that the competition will never catch up and the market demand is sufficiently high, what is the net present value of building a new plant with new technology?

A. Zero B. +$500,000 C. +$250,000 D. +$50,000

Old plant: -500,000 + (100,000 (P-2))/ (0.2) = 0; P-2 = 1; P = $3;

New plant: -500,000 + (100,000(3 - 1.50))/0.2 = $250,000

Type: Difficult

31. The manufacture of herbal health tonic is a competitive industry. The manufacturing facilities have an annual output of 100,000 gallons. Operating costs are $2 per gallon. A 100,000 gallon capacity plant costs $500,000 to build and have an indefinite life, with no salvage value. The cost of capital is 20% (assume no taxes). Your company has discovered a new process that lowers the operating cost per gallon to $1.00. Assuming that the competition will catch up in three years and the market demand is sufficiently high, what is the net present value of building a new plant with new technology?

A. $500,000 [(100,000(3.0 - 1.0)) /1.2^3] + [500,000/(1.2^3)] = $210,648

Type: Difficult

32. The manufacture of herbal health tonic is a competitive industry. The manufacturing facilities have an annual output of 100,000 gallons. Operating costs are $2 per gallon. A 100,000 gallon capacity plant costs $500,000 to build and have an indefinite life, with no salvage value. The cost of capital is 20% (assume no taxes). Your company has discovered a new process that lowers the operating cost per gallon to $1.00. Assuming that the competition will catch up in five years and the market demand is sufficiently high, what is the net present value of building a new plant with new technology?

A. $500,000 B. $210,648 C. $299,061

D. None of the above

Old plant: - 500,000 + (100,000 (P-2))/(0.2) = 0; P-2 = 1; P = $3/ per gallon;

New plant: -500,000 + [(100,000(3 - 1)/1.2)] + [(100,000(3 - 1)/(1.2^2))] + [(100,000(3 1)/1.2^3)] + [(100,000(3 - 1)/(1.2)^4)] + [(100,000(3 - 1)/(1.2^5)] + (500,000/1.2^5) =

$299,061

Type: Difficult

33. The annual demand (in millions) for baseballs is given by the equation: Demand = 10 * (4-price). If the price of baseballs is $1.50, what is the demand for baseballs?

A. 10 million B. 15 million C. 25 million

D. None of the above

Demand = 10 * (4 - 1.50) = 25 million

Type: Medium

34. The annual demand (in millions) for golf balls is given by the equation: Demand = 6 * (5-price). If the price of a golf ball is $3, what is the demand for golf balls?

A. 8 million B. 12 million C. 18 million

D. None of the above

Demand = 6 * (5 - 3) = 12 million

Type: Medium

35. Allen Technology Company is currently valued at $400 million. It is proposing a new plant with a net present value of $200 million. But the new plant will reduce the value of the existing plant by $50 million. What is the value of the company if it takes up the new plant?

A. $600 million.

B. $200 million.

C. $550 million.

D. None of the above.

New value: 400 + 200 - 50 = 550

Type: Medium

36. The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year-1: +43,300, Year-2:

$43,300 and Year-3 = 58,300. (Assume there is no tax.) If the discount rate is 20%, what is the value of the plant at the end of year-1?

A. $76,569 B. -23,400 C. 48,600

D. None of the above

New value: 43,300/1.2 + 58,300/1.2^2 = $76,569

Type: Medium

37. The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year-1: +43,300, Year-2:

$43,300 and Year-3 = 58,300. (Assume there is no tax.) If the salvage value of the plant at the end of year-1 is $80,000, would you scrap the plant at the end of year-1?

A. Yes B. No

C. Need more information D. Don't know

Type: Medium

38. The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year-1: +43,300, Year-2:

$43,300 and Year-3 = 58,300. (Assume there is no tax.) If the salvage value of the plant at the end of year is $66,700, would you scrap the plant at the end of year one?

A. Yes B. No

C. Depends on the net present value D. Need more information

value of the plant > salvage value; No

39. The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year-1: +43,300, Year-2:

$43,300 and Year-3 = 58,300. (Assume there is no tax.) If the discount rate is 20%, what is the value of the plant at the end of year-2?

A. $48,600 B. $-51,600 C. Zero

D. None of the above

Value of the plant at the end of year-2 = 58,300/1.2 = 48,600

Type: Difficult

40. The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year-1: +43,300, Year-2:

$43,300 and Year-3 = 58,300. (Assume there is no tax.) If the salvage value at the end of year-2 is $60,000, would you scrap the plant at the end of year-2?

A. Yes B. No

C. Don't know

D. Need more information

Type: Difficult

41. The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year-1: +43,300, Year-2:

$43,300 and Year-3 = 58,300. (Assume there is no tax.) If the salvage value at the end of year-2 is $40,000, would you scrap the plant at the end of year-2?

A. Yes B. No

C. Don't know

D. Need more information

Type: Difficult

42. The strategy of deliberately slowing down the rate at which new products are introduced by well established and technologically advanced firms is:

A. a good strategy that maximizes economic rents

B. a dangerous strategy as it provides opportunities for other firms to introduce new products