wView Attempt 1 of 1

Title: Midterm v3 (5:00 PM)

$19.31 100%
1.
Started: October 13, 2010 5:07 PM million

Submitted: October 13, 2010 6:37 PM 2. $24.31

million
Time spent: 01:30:06

Total 3. $19.99
score: million

1. 4. $15.18
million
Use this information for questions 1 through 6:
Petrolera Argentina, an oil refiner, is investing $100 million to increase its refining Score: 5/5
capacity at its facility in the Neuquen province by 50% to a total of 1,400 cubic
meters per day. The refinery produces liquefied petroleum gas. The expansion
occurs at time zero and has an expected life of 15 years with a salvage value of
3.
$8 million. If a cubic meter generates $100 in profit, production occurs for 325
days per year and the MARR is 12% per year, answer the following: Use this information for questions 1 through 6:
Petrolera Argentina, an oil refiner, is investing $100 million to increase its
refining capacity at its facility the Neuquen province by 50% to a total of 1,400
What is the present value of the profits (ignore other cash flows) generated from
cubic meters per day. The refinery produces liquefied petroleum gas. The
the refined oil over the life of the expansion?
expansion occurs at time zero and has an expected life of 15 years with a
salvage value of $8 million. If a cubic meter generates $100 in profit,
production occurs for 325 days per year and the MARR 12% per year, answer
the following:
Student Response Valu Correct Feedbac
e Answe k
r Assume the $100 profit in year one increases 5% per year after the first year.
What is the present value of the profits (ignore other cash flows) generated
3 3
1. $100/m (350m )(325days/yr)(P/A,12%,15) from the refined oil over the life of the expansion?

2. $100/m3(700m3)(325days/yr)(P/A,12%,15)

$100/m3(1400m3)(325days/yr)(P/A,12%,15 0% Student Value Correct Feedback

3. ) Response Answer

4. $100/m3(467m3)(325days/yr)(P/A,12%,15) 1. $103.4
million

Score: 0/5 2. $134.4

million

2. $309.9 0%
3.
million
Use this information for questions 1 through 6:
Petrolera Argentina, an oil refiner, is investing $100 million to increase its 4. $403.1
refining capacity at its facility the Neuquen province by 50% to a total of 1,400 million
cubic meters per day. The refinery produces liquefied petroleum gas. The
expansion occurs at time zero and has an expected life of 15 years with a Score: 0/5
salvage value of $8 million. If a cubic meter generates $100 in profit,
production occurs for 325 days per year and the MARR 12% per year, answer
the following:
4.

Use this information for questions 1 through 6:

If the profit given rises with the inflation in oil prices which are expected to rise
Petrolera Argentina, an oil refiner, is investing $100 million to increase its
3.5% per year after the first year, what is the before-tax cash flow estimate
refining capacity at its facility the Neuquen province by 50% to a total of 1,400
resulting from the expansion for year 8?
cubic meters per day. The refinery produces liquefied petroleum gas. The
expansion occurs at time zero and has an expected life of 15 years with a
salvage value of $8 million. If a cubic meter generates $100 in profit,
production occurs for 325 days per year and the MARR 12% per year, answer
Student Value Correct Feedback
Response Answer
 the following: million in
principal
If the facility is to be depreciated over 20 years according to straight-line
depreciation with no salvage value, what is the after-tax cash flow associated $6.4 0%
3.
with selling the facility at the end of 15 years for $8 million? Assume a tax rate million in
of 45% and all losses result in a credit (as a cash flow). interest
and $16
million in
principal
Student Value Correct Feedback
Response Answer 4. $5.31
million in
1. $15.65 interest
million and
$14.73
2. $13.75 million in
million principal

Score: 0/5
$19.25 0%
3. million

4. $4.40
million
Score: 0/5
5.
Use this information for questions 1 through 6:
Petrolera Argentina, an oil refiner, is investing $100 million to increase its
refining capacity at its facility the Neuquen province by 50% to a total of 1,400
cubic meters per day. The refinery produces liquefied petroleum gas. The
expansion occurs at time zero and has an expected life of 15 years with a
salvage value of $8 million. If a cubic meter generates $100 in profit,
production occurs for 325 days per year and the MARR 12% per year, answer
the following:
6.
Use this information for questions 1 through 6:
Petrolera Argentina, an oil refiner, is investing $100 million to increase its
refining capacity at its facility the Neuquen province by 50% to a total of 1,400
cubic meters per day. The refinery produces liquefied petroleum gas. The
expansion occurs at time zero and has an expected life of 15 years with a
salvage value of $8 million. If a cubic meter generates $100 in profit,
production occurs for 325 days per year and the MARR 12% per year, answer
the following:
Capital costs are generally defined as investment costs less salvage value
accounted for at time zero (with the time value of money). What are the capital
costs of this investment?

Student Value Correct Feedback

Assume a loan for $80 million was secured to pay for part of the expansion (the
Response Answer
remaining funds come from the companys cash). If the loan is to be repaid in
five equal total annual payments, how much is paid in year two with an annual
1. $100
interest rate of 8%?
million

$92 0%
2.
Student Value Correct Feedback million
Response Answer
3. $98.54
1. $6.4 million
million in
interest 4. $101.46
and million
$13.64
million in Score: 0/5
principal

2. $5.12 7.
million in
Use this information for questions 7 through 12:
interest
EDF Energies Nouvelles and First Solar are building a new solar panel
and $16
manufacturing plant in Blanquefort, France at the cost of EUR100 million. It will
 produce 100 MW of panels annually. The plant has an expected life of 8 years Score: 5/5
with a salvage value of EUR10 million. If one Watt of panels generates EUR1.5
in revenues against EUR1 in costs (a MW is one million Watts), fixed annual
costs are EUR15 million and the MARR is 9% per year, answer the following:e 9.
following:
Use this information for questions 7 through 12:
EDF Energies Nouvelles and First Solar are building a new solar panel
What is the equivalent annual cost of the EUR100 million investment over the manufacturing plant in Blanquefort, France at the cost of EUR100 million. It will
plants expected life? produce 100 MW of panels annually. The plant has an expected life of 8 years
with a salvage value of EUR10 million. If one Watt of panels generates EUR1.5
in revenues against EUR1 in costs (a MW is one million Watts), fixed annual
costs are EUR15 million and the MARR is 9% per year, answer the following:e
Student Value Correct Feedback following:
Response Answer

1. EUR22.3 If the facility is to be depreciated with a five-year recovery period according to

million/yr MACRS (DDB switching to SL with the half-year convention), what is the
depreciation in year six?
2. EUR12.5
million/yr

EUR18.1 100% Student Value Correct Feedback

3. Response Answer
million/yr

4. EUR15.2 1. EUR0
million/yr
EUR5.76 100%
2. million
Score: 5/5

3. EUR8.98
8. million

Use this information for questions 7 through 12: 4. EUR11.52

EDF Energies Nouvelles and First Solar are building a new solar panel million
manufacturing plant in Blanquefort, France at the cost of EUR100 million. It will
produce 100 MW of panels annually. The plant has an expected life of 8 years Score: 5/5
with a salvage value of EUR10 million. If one Watt of panels generates EUR1.5
in revenues against EUR1 in costs (a MW is one million Watts), fixed annual
costs are EUR15 million and the MARR is 9% per year, answer the following:e 10.
following:
Use this information for questions 7 through 12:
EDF Energies Nouvelles and First Solar are building a new solar panel
If the plant takes two years to build (EUR50 million spent each year) and then manufacturing plant in Blanquefort, France at the cost of EUR100 million. It will
operates for 8 years, what is the equivalent annual cost of the investment cost produce 100 MW of panels annually. The plant has an expected life of 8 years
over the plants expected operating period? with a salvage value of EUR10 million. If one Watt of panels generates EUR1.5
in revenues against EUR1 in costs (a MW is one million Watts), fixed annual
costs are EUR15 million and the MARR is 9% per year, answer the following:e
following:
Student Value Correct Feedback
Response Answer
Assume the plant is completed in a year (time zero). What is the after-tax cash
1. EUR13.1 flow in year 1 (in millions)? Assume a 42% tax rate, a tax credit (cash flow) for
million all losses and the investment is depreciated with a five-year recovery period
using MACRS (DDB switching to SL with the half year convention).
EUR18.9 100%
2.
million

3. EUR12.5 Student Response Value Correct Feedback

million Answer

4. EUR16.7 1. 0.58(EUR1.5)(100MW)
million 0.58(EUR15) +
0.42(0.2)(EUR100)
 Use this information for questions 7 through 12:
0.58(EUR1.5- 0% EDF Energies Nouvelles and First Solar are building a new solar panel
2.
EUR1)(100MW) manufacturing plant in Blanquefort, France at the cost of EUR100 million. It will
0.58(EUR15) + produce 100 MW of panels annually. The plant has an expected life of 8 years
0.42(0.4)(EUR100) with a salvage value of EUR10 million. If one Watt of panels generates EUR1.5
in revenues against EUR1 in costs (a MW is one million Watts), fixed annual
3. 0.58(EUR1.5- costs are EUR15 million and the MARR is 9% per year, answer the following:e
EUR1)(100MW) following:
0.58(EUR15) +
0.58(0.2)(EUR100)
The EUR100 million investment cost was actually a rough estimate. Previously,
4. 0.58(EUR1.5- the company had built a 75 MW facility for EUR80 million. If the exponent is
EUR1)(100MW) 0.75, what estimate would be provided by the power law and sizing model for
0.58(EUR15) + the 100 MW facility?
0.42(0.2)(EUR100)

Score: 0/5
Student Value Correct Feedback
Response Answer
11.
1. EUR112.2
Use this information for questions 7 through 12: million
EDF Energies Nouvelles and First Solar are building a new solar panel
manufacturing plant in Blanquefort, France at the cost of EUR100 million. It will 2. EUR106.7
produce 100 MW of panels annually. The plant has an expected life of 8 years million
with a salvage value of EUR10 million. If one Watt of panels generates EUR1.5
in revenues against EUR1 in costs (a MW is one million Watts), fixed annual EUR99.3 100%
costs are EUR15 million and the MARR is 9% per year, answer the following:e 3.
million
following:
4. EUR80
million
Given the assumptions of the previous part, further assume a loan for EUR45
million was secured to pay for part of the expansion (the remaining funds come Score: 5/5
from the companys cash). The loan is to be repaid in five annual equal principal
payments with an annual interest rate of 8%? Show the change (addition or
subtraction) to the first year after-tax cash flow shown previously (in millions).
13.
EXTRA CREDIT

Student Value Correct Feedback Virgin Blue recently agreed to purchase up to 105 new Boeing 737s. The
Response Answer catalog price of one 737 is about $70 million. Assume that they will borrow
funds. A government backed agency is offering Virgin Blue a rate of 9.1% per
1. - year, compounded continuously, while Boeing itself has offered a rate of 2.3%
(0.58)EUR3.6 per quarter. Which should they take?
EUR9

2.
(0.58)EUR3.6 Student Value Correct Feedback
EUR8.55 Response Answer

3. - Boeing due 100%

(0.58)EUR3.6 1. to effective
(0.58)EUR9 annual rate
of 9.52%
- 0% per year.
4.
(0.42)EUR3.6
EUR9 2. Boeing due
to effective
Score: 0/5 annual rate
of 9.20%
per year.
12.
 Time spent: 01:22:59
3. Government
agency due Total score:
to effective
1.
rate of
9.1% per Use this information for questions 1 through 6:
year. Rio Tinto is expanding iron ore production in Canada by investing $497 million
to increase annual capacity by 4 million metric tons annually to a total of 22
4. Government million tons. The expansion has an expected life of 15 years with a salvage cost
agency due of $10 million. If a metric ton generates $21 in profit and the MARR is 14% per
to effective year, answer the following:
rate of
9.53% per
year. What is the present value of the profits (ignore other cash flows) generated
from the iron ore over the life of the expansion?
Score: 5/5

14. Student Response Value Correct Feedback

Answer
EXTRA CREDIT
1. $21/ton(26
You purchase a $10,000 face-value bond from a friend for $11,250 as you think tons/yr)(P/A,14%,15)
its coupon rate of 8.0% is fantastic. It has five years until maturity and you, as
the new owner, will be paid the final 10 coupon payments (paid every six 2. $21/ton(22
months). Assume you keep it until maturity. Compute your yield to maturity, i: tons/yr)(P/A,14%,15)

$21/ton(4 100%
3. tons/yr)(P/A,14%,15)
Student Value Correct Feedback
Response Answer
4. $21/ton(18
tons/yr)(P/A,14%,15)
1. $11,250 -
$10,000(P/F,i,5) Score: 5/5
- $800(P/A,i,5) =
0; i is per year
2.
2. $11,250 -
$10,000(P/F,i,10) Use this information for questions 1 through 6:
- $400(P/A,i,10) Rio Tinto is expanding iron ore production in Canada by investing $497 million
= 0; i is per six- to increase annual capacity by 4 million metric tons annually to a total of 22
months million tons. The expansion has an expected life of 15 years with a salvage cost
of $10 million. If a metric ton generates $21 in profit and the MARR is 14% per
$11,250 - 0% year, answer the following:
3. $10,000(P/F,i,10)
- $800(P/A,i,10)
= 0; i is per six- If the profit given rises with the inflation in iron ore prices, which are expected
months to rise 3.5% per year after the first year, what is the before-tax cash flow
estimate resulting from the expansion for year 8?
4. $11,250 -
$10,000(P/F,i,5)
- $400(P/A,i,5) =
0; i is per year Student Value Correct Feedback
Response Answer
Score: 0/5
$125.97 0%
1.
million
View Attempt 1 of 1
Title: Midterm v12 (7:30 PM) 2. $110.61
million
Started: October 13, 2010 7:32 PM
3. $106.87
Submitted: October 13, 2010 8:55 PM
 million
$50.4 100%
1.
million
4. $103.26
million
2. -$5.5
Score: 0/5 million

3. -$14.5
million
3.

Use this information for questions 1 through 6: 4. $124.3

Rio Tinto is expanding iron ore production in Canada by investing $497 million million
to increase annual capacity by 4 million metric tons annually to a total of 22
million tons. The expansion has an expected life of 15 years with a salvage cost Score: 5/5
of $10 million. If a metric ton generates $21 in profit and the MARR is 14% per
year, answer the following:
5.

Assume the $21 profit in year one increases 5% per year after the first year. Use this information for questions 1 through 6:
What is the present value of the profits (ignore other cash flows) generated Rio Tinto is expanding iron ore production in Canada by investing $497 million
from the iron ore over the life of the expansion? to increase annual capacity by 4 million metric tons annually to a total of 22
million tons. The expansion has an expected life of 15 years with a salvage cost
of $10 million. If a metric ton generates $21 in profit and the MARR is 14% per
year, answer the following:
Student Value Correct Feedback
Response Answer
Assume a loan for $300 million was secured to pay for part of the expansion
1. $625 (the remaining funds come from the companys cash). If the loan is to be
million repaid in five equal total annual payments, how much is paid in year two with
an annual interest rate of 8%?
$516 0%
2. million

Student Value Correct Feedback

3. $612
Response Answer
million
1. $19.2
4. $661
million in
million
interest
Score: 0/5 and $60
million in
principal

4.
2. $24
Use this information for questions 1 through 6: million in
Rio Tinto is expanding iron ore production in Canada by investing $497 million interest
to increase annual capacity by 4 million metric tons annually to a total of 22 and $60
million tons. The expansion has an expected life of 15 years with a salvage cost million in
of $10 million. If a metric ton generates $21 in profit and the MARR is 14% per principal
year, answer the following:
$19.9 100%
3. million in
If the facility is to be depreciated over 20 years according to straight-line interest
depreciation with no salvage value, what is the after-tax cash flow associated and $55.2
with selling the facility at the end of 15 years for -$10 million? Assume a tax million in
rate of 45% and all losses result in a credit (as a cash flow). principal

4. $24
million in
Student Value Correct Feedback interest
Response Answer and $51.2
million in
 principal
EUR6.98 100%
2.
Score: 5/5 million/yr

3. EUR7.80
million/yr
6.

Use this information for questions 1 through 6: 4. EUR5.21

Rio Tinto is expanding iron ore production in Canada by investing $497 million million/yr
to increase annual capacity by 4 million metric tons annually to a total of 22
million tons. The expansion has an expected life of 15 years with a salvage cost Score: 5/5
of $10 million. If a metric ton generates $21 in profit and the MARR is 14% per
year, answer the following:
8.

Capital costs are generally defined as investment costs less salvage value Use this information for questions 7 through 12:
accounted for at time zero (with the time value of money). What are the capital Tata Steel of India announced that it would spend EUR35 million in its
costs of this investment? Hayange, France steel mill to increase capacity to 340,000 metric tons from
300,000 metric tons per year in order to meet demand for a new railway
contract. The expansion has an expected life of 10 years with a salvage value
of EUR2 million. If a metric ton generates EUR280 in revenues against EUR120
Student Value Correct Feedback in costs, fixed annual costs are EUR3 million, and the MARR is 15%, answer the
Response Answer following:

1. $497
million If the plant takes two years to build (EUR17.5 million spent each year) and
then operates for 10 years, what is the equivalent annual cost of the
investment cost over the plants expected operating period?
$496 0%
2. million

3. $487
Student Value Correct Feedback
million
Response Answer
4. $498
EUR8.39 0%
million 1. million/yr

Score: 0/5
2. EUR7.50
million/yr
7.
3. EUR5.21
Use this information for questions 7 through 12: million/yr
Tata Steel of India announced that it would spend EUR35 million in its
Hayange, France steel mill to increase capacity to 340,000 metric tons from 4. EUR3.76
300,000 metric tons per year in order to meet demand for a new railway million/yr
contract. The expansion has an expected life of 10 years with a salvage value
of EUR2 million. If a metric ton generates EUR280 in revenues against EUR120 Score: 0/5
in costs, fixed annual costs are EUR3 million, and the MARR is 15%, answer the
following:
9.

What is the equivalent annual cost of the EUR35 million investment over the Use this information for questions 7 through 12:
plants expected life? Tata Steel of India announced that it would spend EUR35 million in its
Hayange, France steel mill to increase capacity to 340,000 metric tons from
300,000 metric tons per year in order to meet demand for a new railway
contract. The expansion has an expected life of 10 years with a salvage value
Student Value Correct Feedback of EUR2 million. If a metric ton generates EUR280 in revenues against EUR120
Response Answer in costs, fixed annual costs are EUR3 million, and the MARR is 15%, answer the
following:
1. EUR3.50
million/yr
If the facility is to be depreciated with a five-year recovery period according to
MACRS (DDB switching to SL with the half-year convention), what is the
 depreciation in year six?
0.58(EUR280- 0%
4.
EUR120)(40,000tons)
0.58(EUR3) +
Student Value Correct Feedback 0.58(0.2)(EUR35)
Response Answer
Score: 0/5
1. EUR2.02
million
11.
2. EUR8.08
million Use this information for questions 7 through 12:
Tata Steel of India announced that it would spend EUR35 million in its
Hayange, France steel mill to increase capacity to 340,000 metric tons from
EUR0 0%
3. 300,000 metric tons per year in order to meet demand for a new railway
contract. The expansion has an expected life of 10 years with a salvage value
4. EUR4.04 of EUR2 million. If a metric ton generates EUR280 in revenues against EUR120
million in costs, fixed annual costs are EUR3 million, and the MARR is 15%, answer the
following:
Score: 0/5

Given the assumptions of the previous part, further assume a loan for EUR30
million was secured to pay for part of the expansion (the remaining funds come
10.
from the companys cash). The loan is to be repaid in five annual equal
Use this information for questions 7 through 12: principal payments with an annual interest rate of 8%? Show the change
Tata Steel of India announced that it would spend EUR35 million in its (addition or subtraction) to the first year after-tax cash flow shown previously
Hayange, France steel mill to increase capacity to 340,000 metric tons from (in millions).
300,000 metric tons per year in order to meet demand for a new railway
contract. The expansion has an expected life of 10 years with a salvage value
of EUR2 million. If a metric ton generates EUR280 in revenues against EUR120
in costs, fixed annual costs are EUR3 million, and the MARR is 15%, answer the Student Value Correct Feedback
following: Response Answer

1. -
Assume the plant is completed in a year (time zero). What is the after-tax cash (0.58)EUR2.4
flow in year 1 (in millions)? Assume a 42% tax rate, a tax credit (cash flow) for (0.58)EUR6
all losses and the investment is depreciated with a five-year recovery period
using MACRS (DDB switching to SL with the half year convention). 2. -
(0.42)EUR2.4
EUR6

Student Response Value Correct Feedback - 100%

Answer 3.
(0.58)EUR2.4
EUR6
1. 0.58(EUR280-
EUR120)(40,000tons) 4.
0.58(EUR3) + (0.58)EUR2.4
0.42(0.4)(EUR35) EUR5.55

2. 0.58(EUR280- Score: 5/5

EUR120)(340,000tons)
0.58(EUR3) +
0.42(0.2)(EUR35) 12.

3. 0.58(EUR280- Use this information for questions 7 through 12:

EUR120)(40,000tons) Tata Steel of India announced that it would spend EUR35 million in its
0.58(EUR3) + Hayange, France steel mill to increase capacity to 340,000 metric tons from
0.42(0.2)(EUR35) 300,000 metric tons per year in order to meet demand for a new railway
contract. The expansion has an expected life of 10 years with a salvage value
of EUR2 million. If a metric ton generates EUR280 in revenues against EUR120
in costs, fixed annual costs are EUR3 million, and the MARR is 15%, answer the
 following:
4. Boeing due
to effective
The EUR35 million investment cost was actually a rough estimate. Previously, annual rate
the company expanded by 20,000 tons for EUR25 million. If the exponent is of 9.95%
0.75, what estimate would be provided by the power law and sizing model for per year.
the 40,000 ton expansion?
Score: 5/5

Student Value Correct Feedback 14.

Response Answer
EXTRA CREDIT
1. EUR50
million You purchase a $10,000 face-value bond from a friend for $11,250 as you
think its coupon rate of 8.0% is fantastic. It has five years until maturity and
EUR42 100% you, as the new owner, will be paid the final 10 coupon payments (paid every
2. six months). Assume you keep it until maturity. Compute your yield to
million
maturity, i:
3. EUR35
million

4. EUR25 Student Value Correct Feedback

million Response Answer

Score: 5/5 1. $11,250 -

$10,000(P/F,i,5)
- $400(P/A,i,5) =
13. 0; i is per year

EXTRA CREDIT 2. $11,250 -

$10,000(P/F,i,10)
Virgin Blue recently agreed to purchase up to 105 new Boeing 737s. The - $800(P/A,i,10)
catalog price of one 737 is about $70 million. Assume that they will borrow = 0; i is per six-
funds. A government backed agency is offering Virgin Blue a rate of 9.1% per months
year, compounded continuously, while Boeing itself has offered a rate of 2.4%
per quarter. Which should they take? $11,250 - 0%
3.
$10,000(P/F,i,5)
- $800(P/A,i,5) =
0; i is per year
Student Value Correct Feedback
Response Answer 4. $11,250 -
$10,000(P/F,i,10)
Government 100% - $400(P/A,i,10)
1. agency due
= 0; i is per six-
to effective months
rate of
9.53% per Score: 0/5
year.

2. Boeing due View Attempt 1 of 1

to effective
annual rate Title: Midterm v1 (5:00 PM)
of 9.60%
per year. Started: October 13, 2010 5:05 PM

Submitted: October 13, 2010 6:35 PM

3. Government
agency due Time spent: 01:29:52
to effective
rate of Total
9.1% per score:
year.
1.
 Use this information for questions 1 through 6:
Petrolera Argentina, an oil refiner, is investing $100 million to increase its refining
capacity at its facility in the Neuquen province by 50% to a total of 1,400 cubic
meters per day. The refinery produces liquefied petroleum gas. The expansion
occurs at time zero and has an expected life of 15 years with a salvage value of
$8 million. If a cubic meter generates $100 in profit, production occurs for 325
days per year and the MARR is 12% per year, answer the following:
What is the present value of the profits (ignore other cash flows) generated from
the refined oil over the life of the expansion?
3.
Use this information for questions 1 through 6:
Petrolera Argentina, an oil refiner, is investing $100 million to increase its
refining capacity at its facility the Neuquen province by 50% to a total of 1,400
cubic meters per day. The refinery produces liquefied petroleum gas. The
expansion occurs at time zero and has an expected life of 15 years with a
salvage value of $8 million. If a cubic meter generates $100 in profit,
production occurs for 325 days per year and the MARR 12% per year, answer
the following:

Student Response Valu Correct Feedbac Assume the $100 profit in year one increases 5% per year after the first year.
e Answe k What is the present value of the profits (ignore other cash flows) generated
r from the refined oil over the life of the expansion?

$100/m3(1400m3)(325days/yr)(P/A,12%,15 0%
1. ) Student Value Correct Feedback
Response Answer
2. $100/m3(350m3)(325days/yr)(P/A,12%,15)
1. $134.4
3. $100/m3(467m3)(325days/yr)(P/A,12%,15) million

$403.1 0%
4. $100/m3(700m3)(325days/yr)(P/A,12%,15) 2.
million

Score: 0/5 3. $103.4

million

2. 4. $309.9
million
Use this information for questions 1 through 6:
Petrolera Argentina, an oil refiner, is investing $100 million to increase its Score: 0/5
refining capacity at its facility the Neuquen province by 50% to a total of 1,400
cubic meters per day. The refinery produces liquefied petroleum gas. The
expansion occurs at time zero and has an expected life of 15 years with a
salvage value of $8 million. If a cubic meter generates $100 in profit, 4.
production occurs for 325 days per year and the MARR 12% per year, answer Use this information for questions 1 through 6:
the following: Petrolera Argentina, an oil refiner, is investing $100 million to increase its
refining capacity at its facility the Neuquen province by 50% to a total of 1,400
cubic meters per day. The refinery produces liquefied petroleum gas. The
If the profit given rises with the inflation in oil prices which are expected to rise
3.5% per year after the first year, what is the before-tax cash flow estimate expansion occurs at time zero and has an expected life of 15 years with a
salvage value of $8 million. If a cubic meter generates $100 in profit,
resulting from the expansion for year 8?
production occurs for 325 days per year and the MARR 12% per year, answer
the following:
Student Value Correct Feedback
Response Answer If the facility is to be depreciated over 20 years according to straight-line
depreciation with no salvage value, what is the after-tax cash flow associated
1. $15.18 with selling the facility at the end of 15 years for $8 million? Assume a tax rate
million of 45% and all losses result in a credit (as a cash flow).

$19.31 100%
2.
million Student Value Correct Feedback
Response Answer
3. $24.31
million 1. $19.25
million
4. $19.99
million 2. $13.75
million
Score: 5/5
 $4.40 0%
3. 6.
million
Use this information for questions 1 through 6:
4. $15.65
Petrolera Argentina, an oil refiner, is investing $100 million to increase its
million
refining capacity at its facility the Neuquen province by 50% to a total of 1,400
cubic meters per day. The refinery produces liquefied petroleum gas. The
Score: 0/5
expansion occurs at time zero and has an expected life of 15 years with a
salvage value of $8 million. If a cubic meter generates $100 in profit,
production occurs for 325 days per year and the MARR 12% per year, answer
5. the following:
Use this information for questions 1 through 6:
Petrolera Argentina, an oil refiner, is investing $100 million to increase its Capital costs are generally defined as investment costs less salvage value
refining capacity at its facility the Neuquen province by 50% to a total of 1,400 accounted for at time zero (with the time value of money). What are the capital
cubic meters per day. The refinery produces liquefied petroleum gas. The costs of this investment?
expansion occurs at time zero and has an expected life of 15 years with a
salvage value of $8 million. If a cubic meter generates $100 in profit,
production occurs for 325 days per year and the MARR 12% per year, answer Student Value Correct Feedback
the following: Response Answer

Assume a loan for $80 million was secured to pay for part of the expansion (the $98.54 100%
1.
remaining funds come from the companys cash). If the loan is to be repaid in million
five equal total annual payments, how much is paid in year two with an annual
interest rate of 8%? 2. $100
million

Student Value Correct Feedback 3. $101.46

Response Answer million

1. $6.4 4. $92
million in million
interest
and Score: 5/5
$13.64
million in
principal 7.

Use this information for questions 7 through 12:

2. $6.4
LG Display will build a LCD production plant at the cost of $4 billion. The plant
million in
will produce panels larger than 40 inches using glass substrates between 2200
interest
mm by 2500 mm with a total capacity of 120,000 units per month. The plant
and $16
has an expected life of 8 years with a salvage value of $200 million. If a unit
million in
generates $781 in revenues against $210 in costs, fixed annual costs are $30
principal
million per year, and the MARR is 10% per year, answer the following:
$5.31 100%
3. million in
What is the equivalent annual cost of the $4 billion investment over the plants
interest expected life?
and
$14.73
million in Student Value Correct Feedback
principal Response Answer

4. $5.12 1. $750
million in million/yr
interest
and $16 2. $1
million in billion/yr
principal
$500 0%
Score: 5/5 3. million/yr
 4. $250 2. $460.8
million/yr million

Score: 0/5 $0 0%
3.

8.
Use this information for questions 7 through 12:
LG Display will build a LCD production plant at the cost of $4 billion. The plant
will produce panels larger than 40 inches using glass substrates between 2200
mm by 2500 mm with a total capacity of 120,000 units per month. The plant
has an expected life of 8 years with a salvage value of $200 million. If a unit
generates $781 in revenues against $210 in costs, fixed annual costs are $30
million per year, and the MARR is 10% per year, answer the following:
If the plant takes two years to build ($2 billion spent each year) and then
operates for 8 years, what is the equivalent annual cost of the investment cost
over the plants expected operating period?
4. $115.2
million
Score: 0/5
10.
Use this information for questions 7 through 12:
LG Display will build a LCD production plant at the cost of $4 billion. The plant
will produce panels larger than 40 inches using glass substrates between 2200
mm by 2500 mm with a total capacity of 120,000 units per month. The plant
has an expected life of 8 years with a salvage value of $200 million. If a unit
generates $781 in revenues against $210 in costs, fixed annual costs are $30
million per year, and the MARR is 10% per year, answer the following:

Student Value Correct Feedback

Response Answer Assume the plant is completed in a year (time zero). What is the after-tax cash
flow in year 1 (in millions)? Assume a 42% tax rate, a tax credit (cash flow) for
1. $500 all losses and the investment is depreciated with a five-year recovery period
million using MACRS (DDB switching to SL with the half year convention).

2. $750
Student Response Value Correct Feedback
million
Answer
$694 0%
3. 1. 0.58($781-
million
$210)(0.12units/mo)(12mo)
0.58($30) - 0.58(0.2)($4000)
4. $787
million
2. 0.58($781-
Score: 0/5 $210)(0.12units/mo)(12mo)
0.58($30) + 0.42(0.2)($4000)

3. 0.58($781-
9.
$210)(0.12units/mo)(12mo)
Use this information for questions 7 through 12: 0.58($30) + 0.42(0.4)($4000)
LG Display will build a LCD production plant at the cost of $4 billion. The plant
will produce panels larger than 40 inches using glass substrates between 2200 0.58($781)(0.12units/mo)(12mo) 0%
4. 0.58($30) + 0.42(0.2)($4000)
mm by 2500 mm with a total capacity of 120,000 units per month. The plant
has an expected life of 8 years with a salvage value of $200 million. If a unit
generates $781 in revenues against $210 in costs, fixed annual costs are $30 Score: 0/5
million per year, and the MARR is 10% per year, answer the following:

11.
If the facility is to be depreciated with a five-year recovery period according to
MACRS (DDB switching to SL with the half-year convention), what is the Use this information for questions 7 through 12:
depreciation in year six? LG Display will build a LCD production plant at the cost of $4 billion. The plant
will produce panels larger than 40 inches using glass substrates between 2200
mm by 2500 mm with a total capacity of 120,000 units per month. The plant
Student Value Correct Feedback has an expected life of 8 years with a salvage value of $200 million. If a unit
Response Answer generates $781 in revenues against $210 in costs, fixed annual costs are $30
million per year, and the MARR is 10% per year, answer the following:
1. $230.4
million
Given the assumptions of the previous part, further assume a loan for $1.5
 billion was secured to pay for part of the expansion (the remaining funds come 13.
from the companys cash). The loan is to be repaid in five annual equal principal
payments with an annual interest rate of 8%? Show the change (addition or EXTRA CREDIT
subtraction) to the first year after-tax cash flow shown previously (in millions).
Virgin Blue recently agreed to purchase up to 105 new Boeing 737s. The
catalog price of one 737 is about $70 million. Assume that they will borrow
Student Value Correct Feedback funds. A government backed agency is offering Virgin Blue a rate of 9.1% per
Response Answer year, compounded continuously, while Boeing itself has offered a rate of 2.4%
per quarter. Which should they take?
1. -
(0.58)$120
Student Value Correct Feedback
- $300
Response Answer
2. -
1. Boeing due
(0.58)$120
to effective

annual rate
(0.58)$300
of 9.60%
per year.
0%
3.
(0.58)$120
2. Boeing due
- $255
to effective
annual rate
4. -
of 9.95%
(0.42)$120
per year.
- $300

Score: 0/5 3. Government

agency due
to effective
rate of
12.
9.1% per
Use this information for questions 7 through 12: year.
LG Display will build a LCD production plant at the cost of $4 billion. The plant
will produce panels larger than 40 inches using glass substrates between 2200 Government 100%
4. agency due
mm by 2500 mm with a total capacity of 120,000 units per month. The plant
has an expected life of 8 years with a salvage value of $200 million. If a unit to effective
generates $781 in revenues against $210 in costs, fixed annual costs are $30 rate of
million per year, and the MARR is 10% per year, answer the following: 9.53% per
year.

The $4 billion investment cost was actually a rough estimate. Previously, the Score: 5/5
company had produced a similarly sized facility to produce 30-inch panels for
$3.3 billion. If the exponent is 0.80, what estimate would be provided by the
power law and sizing model for the 40-inch panel facility? 14.
EXTRA CREDIT
Student Value Correct Feedback
Response Answer You purchase a $10,000 face-value bond from a friend for $11,500 as you think
its coupon rate of 8.5% is fantastic. It has five years until maturity and you, as
$4.15 100% the new owner, will be paid the final 10 coupon payments (paid every six
1. billion months). Assume you keep it until maturity. Compute your yield to maturity, i:

2. $3 billion
Student Value Correct Feedback
3. $4.4 Response Answer
billion
1. $11,500 -
4. $4.0 $10,000(P/F,i,5)
billion - $425(P/A,i,5) =
0; i is per year
Score: 5/5
2. $11,500 -
 $10,000(P/F,i,10) Student
Value Correct Answer Feedback
- $850(P/A,i,10) Response
= 0; i is per six- 1. Y8.13
months billion
Y10.34 100%
$11,500 - 100% 2. billion
3. $10,000(P/F,i,10)
3. Y10.7
- $425(P/A,i,10)
billion
= 0; i is per six-
months 4. Y9.43
billion
4. $11,500 - Score: 5/5
$10,000(P/F,i,5)
- $850(P/A,i,5) =
0; i is per year 3.
Score: 5/5 Use this information for questions 1 through 6:
Bridgestone will invest Y29.5 billion to increase off-road radial tire production at its Kitakyushu plant to
80 metric tons, up from 30 tons, per day. The expansion has an expected life of 15 years with a salvage
value of Y100 million. If a metric ton generates Y500,000 in profit, production occurs for 325 days per
year and the MARR is 18% per year, answer the following:
View Attempt 1 of 1

Assume the Y500,000 profit in year one increases 5% per year after the first year. What is the present
Title: Midterm v6 (5:00 PM) value of the profits (ignore other cash flows) generated from the tires over the life of the expansion?
Started: October 13, 2010 5:05 PM
Submitted: October 13, 2010 6:35 PM Student
Value Correct Answer Feedback
Time spent: 01:30:06 Response
Total score: Y66.2 0%
1. 1. billion

Use this information for questions 1 through 6: 2. Y82.6

Bridgestone will invest Y29.5 billion to increase off-road radial tire production at its Kitakyushu plant to billion
80 metric tons, up from 30 tons, per day. The expansion has an expected life of 15 years with a salvage 3. Y51.6
value of Y100 million. If a metric ton generates Y500,000 in profit, production occurs for 325 days per billion
year and the MARR is 18% per year, answer the following:
4. Y41.4
billion
What is the present value of the profits (ignore other cash flows) generated from the tires over the life of
Score: 0/5
the expansion?

Student Response
1. Y500,000/ton(80tons/day)(365days/yr)(P/A,18%,15)
2. Y500,000/ton(50tons/day)(325days/yr)(P/A,18%,15)
3. Y500,000/ton(30tons/day)(325days/yr)(P/A,18%,15)
Y500,000/ton(80tons/day)(325days/yr)(P/A,18%,15) 0%
4.
Score: 0/5
Correct 4.
Value Feedback
Answer
Use this information for questions 1 through 6:
Bridgestone will invest Y29.5 billion to increase off-road radial tire production at its Kitakyushu plant to
80 metric tons, up from 30 tons, per day. The expansion has an expected life of 15 years with a salvage
value of Y100 million. If a metric ton generates Y500,000 in profit, production occurs for 325 days per
year and the MARR is 18% per year, answer the following:
If the facility is to be depreciated over 20 years according to straight-line depreciation with no salvage
value, what is the after-tax cash flow associated with selling the facility at the end of 15 years for Y100
million? Assume a tax rate of 45% and all losses result in a credit (as a cash flow).

2. Student
Value Correct Answer Feedback
Use this information for questions 1 through 6: Response
Bridgestone will invest Y29.5 billion to increase off-road radial tire production at its Kitakyushu plant to 1. Y5.55
80 metric tons, up from 30 tons, per day. The expansion has an expected life of 15 years with a salvage billion
value of Y100 million. If a metric ton generates Y500,000 in profit, production occurs for 325 days per
2. Y3.37
year and the MARR is 18% per year, answer the following:
billion
3. Y55
If the profit given rises with the inflation in tire prices, which are expected to rise 3.5% per year after the million
first year, what is the before-tax cash flow estimate resulting from the expansion for year 8?
 Y7.38 0% billion
4. billion
Y30.11 0%
2. billion
Score: 0/5
3. Y29.49
billion
5. 4. Y29.40
Use this information for questions 1 through 6: billion
Bridgestone will invest Y29.5 billion to increase off-road radial tire production at its Kitakyushu plant to
Score: 0/5
80 metric tons, up from 30 tons, per day. The expansion has an expected life of 15 years with a salvage
value of Y100 million. If a metric ton generates Y500,000 in profit, production occurs for 325 days per
year and the MARR is 18% per year, answer the following:
7.
Use this information for questions 7 through 12:
Assume a loan for Y20 billion was secured to pay for part of the expansion (the remaining funds come Dongfeng Motor Group plans to spend CNY21 billion to boost output to 1.7 million automobiles per
from the companys cash). If the loan is to be repaid in five equal total annual payments, how much is year, up from 1.4 million, in China. The expansion has an expected life of 8 years with a salvage value
paid in year two with an annual interest rate of 8%? of CNY2 billion. If an automobile generates CNY25,000 in revenues against CNY10,000 in costs, fixed
annual costs are CNY100 million and the MARR is 14% per year, answer the following:
Student
Value Correct Answer Feedback
Response
What is the equivalent annual cost of the CNY21 billion investment over the plants expected life?
1. Y1.33
billion in
interest Student
Value Correct Answer Feedback
and Y3.68 Response
billion in CNY4.68 0%
principal 1. billion/yr
Y1.28 0% 2. CNY3.25
2. billion in
billion/yr
interest
3. CNY2.63
and Y4
million/yr
billion in
principal 4. CNY4.53
billion/yr
3. Y1.6
billion in Score: 0/5
interest
and Y3.41
billion in 8.
principal
Use this information for questions 7 through 12:
4. Y1.6
Dongfeng Motor Group plans to spend CNY21 billion to boost output to 1.7 million automobiles per
billion in
year, up from 1.4 million, in China. The expansion has an expected life of 8 years with a salvage value
interest
of CNY2 billion. If an automobile generates CNY25,000 in revenues against CNY10,000 in costs, fixed
and Y4
annual costs are CNY100 million and the MARR is 14% per year, answer the following:
billion in
principal
If the plant takes two years to build (CNY10.5 billion spent each year) and then operates for 8 years,
Score: 0/5
what is the equivalent annual cost of the investment cost over the plants expected operating period?

6. Student
Value Correct Answer Feedback
Response
Use this information for questions 1 through 6:
Bridgestone will invest Y29.5 billion to increase off-road radial tire production at its Kitakyushu plant to 1. CNY4.68
80 metric tons, up from 30 tons, per day. The expansion has an expected life of 15 years with a salvage million
value of Y100 million. If a metric ton generates Y500,000 in profit, production occurs for 325 days per CNY4.25 0%
year and the MARR is 18% per year, answer the following: 2. million
3. CNY4.84
Capital costs are generally defined as investment costs less salvage value accounted for at time zero billion
(with the time value of money). What are the capital costs of this investment? 4. CNY5.57
million
Student
Value Correct Answer Feedback Score: 0/5
Response
1. Y29.60
9.
 Use this information for questions 7 through 12: of CNY2 billion. If an automobile generates CNY25,000 in revenues against CNY10,000 in costs, fixed
Dongfeng Motor Group plans to spend CNY21 billion to boost output to 1.7 million automobiles per annual costs are CNY100 million and the MARR is 14% per year, answer the following:
year, up from 1.4 million, in China. The expansion has an expected life of 8 years with a salvage value
of CNY2 billion. If an automobile generates CNY25,000 in revenues against CNY10,000 in costs, fixed
annual costs are CNY100 million and the MARR is 14% per year, answer the following: Given the assumptions of the previous part, further assume a loan for CNY15 billion was secured to pay
for part of the expansion (the remaining funds come from the companys cash). The loan is to be repaid
in five annual equal principal payments with an annual interest rate of 8%? Show the change (addition or
If the facility is to be depreciated with a five-year recovery period according to MACRS (DDB subtraction) to the first year after-tax cash flow shown previously (in millions).
switching to SL with the half-year convention), what is the depreciation in year six?
Student
Value Correct Answer Feedback
Student Response
Value Correct Answer Feedback
Response 1. -
1. CNY0 (0.58)CNY1200
- CNY3000
2. CNY2.42
billion 2. -
(0.42)CNY1200
CNY1.21 100%
3. billion - CNY3000
0%
4. CNY4.84 3. (0.58)CNY1200
billion
- CNY2550
Score: 5/5 4. -
(0.58)CNY1200

10. (0.58)CNY3000
Use this information for questions 7 through 12: Score: 0/5
Dongfeng Motor Group plans to spend CNY21 billion to boost output to 1.7 million automobiles per
year, up from 1.4 million, in China. The expansion has an expected life of 8 years with a salvage value
of CNY2 billion. If an automobile generates CNY25,000 in revenues against CNY10,000 in costs, fixed
12.
annual costs are CNY100 million and the MARR is 14% per year, answer the following:
Use this information for questions 7 through 12:
Dongfeng Motor Group plans to spend CNY21 billion to boost output to 1.7 million
Assume the plant is completed in a year (time zero). What is the after-tax cash flow in year 1 (in
millions)? Assume a 42% tax rate, a tax credit (cash flow) for all losses and the investment is automobiles per year, up from 1.4 million, in China. The expansion has an expected life of
depreciated with a five-year recovery period using MACRS (DDB switching to SL with the half year 8 years with a salvage value of CNY2 billion. If an automobile generates CNY25,000 in
convention). revenues against CNY10,000 in costs, fixed annual costs are CNY100 million and the
MARR is 14% per year, answer the following:
Correct
Student Response Value Feedback
Answer
If the expansion leads to producing 300,000 (more) cars in the next year, how long will it
1. 0.58(CNY25,000- take to produce the next two batches of 300,000 cars if a learning curve with phi=0.95 is
CNY10,000)(0.3units)
0.58(CNY100) +
assumed?
0.42(0.2)(CNY21,000)
0.58(CNY25,000- 0% Student Correct
2. CNY10,000)(0.3units) Value Feedback
Response Answer
0.58(CNY100) + 1. 2 years
0.42(0.4)(CNY21,000)
1.9 years 0%
3. 0.58(CNY25,000)(0.3units) 2.
0.58(CNY100) +
0.42(0.2)(CNY21,000)
3. 1.5 years
4. 0.58(CNY25,000- 4. 1.87
CNY10,000)(0.3units) years
0.58(CNY100) +
0.58(0.2)(CNY21,000) Score: 0/5

Score: 0/5
13.
11. EXTRA CREDIT

Use this information for questions 7 through 12: Virgin Blue recently agreed to purchase up to 105 new Boeing 737s. The catalog price of one 737 is
Dongfeng Motor Group plans to spend CNY21 billion to boost output to 1.7 million automobiles per about $70 million. Assume that they will borrow funds. A government backed agency is offering Virgin
year, up from 1.4 million, in China. The expansion has an expected life of 8 years with a salvage value Blue a rate of 9.1% per year, compounded continuously, while Boeing itself has offered a rate of 2.3%
 per quarter. Which should they take?

Student
Value Correct Answer Feedback
Response
1. Government
agency due
to effective
rate of
9.53% per
year.
2. Boeing due
to effective
annual rate
of 9.20%
per year.
Boeing due 100%
3. to effective
annual rate
of 9.52%
per year.
4. Government
agency due
to effective
rate of 9.1%
per year.

Score: 5/5

14.
EXTRA CREDIT

You purchase a $10,000 face-value bond from a friend for $12,500 as you think its coupon rate of 8.5%
is fantastic. It has five years until maturity and you, as the new owner, will be paid the final 10 coupon
payments (paid every six months). Assume you keep it until maturity. Compute your yield to maturity, i:

Student Correct
Value Feedback
Response Answer
1. $12,500 -
$10,000(P/F,i,5)
- $850(P/A,i,5) =
0; i is per year
2. $12,500 -
$10,000(P/F,i,5)
- $425(P/A,i,5) =
0; i is per year
$12,500 - 100%
3. $10,000(P/F,i,10)
- $425(P/A,i,10)
= 0; i is per six-
months
4. $12,500 -
$10,000(P/F,i,10)
- $850(P/A,i,10)
= 0; i is per six-
months

Score: 5/5